“CHANGES IN U.S. PROPANE SUPPLY”

“CHANGES IN U.S.
PROPANE SUPPLY”
Presented by:
Ajey Chandra
Muse, Stancil & Co.
January 21, 2015
MUSE, STANCIL & CO.
 Independent energy consulting firm founded in 1984, providing industry
expertise from wellhead to end-user; www.musestancil.com
 Energy Sectors Served
– Refining
– Crude Oil
 Energy Sectors Served
– Natural Gas
– Refined Products
– Crude Oil
– Petrochemicals
– Natural Gas Liquids
– Refining – Biofuels
– Power/Cogeneration
– Refined Products
 Representative
– Natural Gas Assignments
– Market Studies
– Litigation Support
– Natural Gas Liquids
– Project Development
– Asset Valuation
– Petrochemicals
– Transactional Due
– New Technology
– Diligence
Biofuels
Assessment
Power/Cogeneration
–– Insurance
Claims
– Royalty
(Property & Business
Interruption)
–
Negotiation/
Auditing
Contract Negotiation/
Dispute Resolution
2
AGENDA
 How the Shale Revolution is changing the NGL landscape in North America
 Current and Projected Propane Production
 Minnesota Propane Supply
–
Where does it come from
–
How does it get to here
 Export markets and their effect on propane markets
 Impact of the Panama Canal Expansion
3
THE SHALE REVOLUTION HAS CHANGED
EVERYTHING FOR U.S. ENERGY MARKETS
4
U.S. GAS PRODUCTION FORECASTS HAVE CHANGED
40.00
35.00
Trillion Cubic Feet
30.00
25.00
20.00
15.00
10.00
5.00
0.00
2009 Dry Gas Production Forecast
2014 Dry Gas Production Forecast
Source: EIA
5
MORE NATURAL GAS = MORE NATURAL GAS LIQUIDS
1,000
900
800
Million Barrels
700
600
500
400
300
200
100
‐
Source: EIA
6
U.S. PROPANE PRODUCTION HAS SURGED
Gas Plant and Refinery Production (Propane) 1200
1000
Barrels per day
800
600
400
200
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Gas Plant Production ‐ Propane
Refinery Production ‐ Propane
7
0
Refineries
Gas Plants
Sep‐2014
Jul‐2014
May‐2014
Mar‐2014
Jan‐2014
Nov‐2013
Sep‐2013
Jul‐2013
May‐2013
Mar‐2013
Jan‐2013
Nov‐2012
Sep‐2012
Jul‐2012
May‐2012
Mar‐2012
Jan‐2012
Nov‐2011
Sep‐2011
Jul‐2011
May‐2011
Mar‐2011
Jan‐2011
Nov‐2010
Sep‐2010
Jul‐2010
May‐2010
Mar‐2010
Jan‐2010
Thousand Barrels per Day
U.S. GAS PLANT PROPANE PRODUCTION
CONTINUES TO GROW
Refinery and Gas Plant Propane Production
1400
1200
1000
800
600
400
200
8
U.S. BUTANE PRODUCTION
Gas Plant and Refinery Production (Butane) 300
250
Barrels per day
200
150
100
50
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Gas Plant Production
Refinery Production
9
0
Imports
Exports
Production
Sep‐2014
Jul‐2014
May‐2014
Mar‐2014
Jan‐2014
Nov‐2013
Sep‐2013
Jul‐2013
May‐2013
Mar‐2013
Jan‐2013
Nov‐2012
Sep‐2012
Jul‐2012
May‐2012
Mar‐2012
Jan‐2012
Nov‐2011
Sep‐2011
Jul‐2011
May‐2011
Mar‐2011
Jan‐2011
Nov‐2010
Sep‐2010
Jul‐2010
May‐2010
Mar‐2010
Jan‐2010
Thousand Barrel per Day
U.S. EXPORTS ARE GROWING SUBSTANTIALLY
Propane and Propylene Production and Trade Trends
1600
1400
1200
1000
800
600
400
200
10
U.S. DISTRIBUTION INFRASTRUCTURE
CONTINUES TO EXPAND
ME
MT
ND
VT
MN
NH
NY
SD
WY
MA
WI
CT RI
MI
PA
NE
OH
IN
CO
IL
KS
Conway
MD
KY
MO
NC
TN
SC
Hobbs
MS
AL
DE
KANEB
ONEOK
MAPL
DCP Sand Hills
Arbuckle
AR
NM
NGL Pipelines
Overland Pass
WV
VA
OK
NJ
Sterling III
Sterling I & II
ONEOK Bakken
GA
Mariner East
Mariner West
MAPL (Rockies)
LA
Seminole
TX
Mont Belvieu
FL
Centennial
TEPPCO
11
PROPANE DISTRIBUTION FLOWS
12
HISTORICAL PROPANE SUPPLY PATTERNS
ARE CHANGING
13
2014 SUPPLY INFRASTRUCTURE HAS CHANGED
14
PROPANE DISTRIBUTION INFRASTRUCTURE
ME
Tioga/Bakken
Gas Processors
MT
Carrington
ND
Hannaford
Fairmont
Superior
Benson MN
VT
Rapid River
Rockville
NH
Glenwood
SD
WY
NY
Hixton
Mankato
WI
MI
New Hampton
Iowa City
Clinton
PA
Milford
IL
KS
Conway
MD
DE
WV
VA
OK
KY
MO
TN
AR
NM
NJ
OH
IN
CO
CT
Channahon
NE
MA
Sarnia
Hobbs
MS
AL
NGL Pipelines
RI KANEB
Overland Pass
ONEOK
MAPL
DCP Sand Hills
Arbuckle
Sterling III
Sterling I & II
Former Cochin Terminal
NC
Depropanizer
Rail Loading (fractionator or processor
Rail Unloading (new or expanding)
Market hub SC
Y‐grade Pipeline Flow
ONEOK Bakken
Mariner East
Mariner West
MAPL (Rockies)
Seminole
GA
Centennial
TEPPCO
LA
TX
Mont Belvieu
FL
15
HOW WILL PATTERNS CHANGE IN THE FUTURE?
16
MARCELLUS/UTICA REGIONS –
EVOLVING SUPPLY AND EXPORTS
17
SALT DOME STORAGE OF NGLS
PLAYS AN IMPORTANT PART IN DISTRIBUTION
Owners of storage provide a service
― Do not own the product in storage
― Service fees are based on

Capacity reservation Charge

Cost of moving product into/out of
storage
18
ALLOCATION OF PRODUCT
 Why do pipelines go on “allocation”
–
Need to balance supply and demand
 What does this mean for the propane distributor
–
Why can’t you get all the propane that you need when you need it?
 Who determines how much propane you get?
–
Key elements of pipeline allocation

What is the total capacity of the system?

When capacity is limited, what is a “fair” way to distribute this capacity?

Who has paid for the capacity?

Who has historically used the capacity?

What about “new” shippers
 Will rail shipments play a larger role in the future?
19
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
Million Barrels
EIA – U.S. NATURAL GAS LIQUIDS FORECAST
1,200
1,000
800
600
400
200
‐
Actual Production
2014 Forecast
Source: EIA
20
INCREASE IN PDH PLANTS WILL ABSORB
PROPANE PRODUCTION
 As more petrochemical producers have switched to ethane for ethylene
production, the amount of propylene produced has been reduced
 Propylene consumption continues to grow faster than GDP growth
 Another method for propylene production is propane dehydrogenation (PDH)
 Multiple PDH plants are being constructed in the U.S.
 This will provide a growing use for “excess” propane in North America
 China is planning another 14 PDH plants over the next three-four years
– Propane demand in China expected to continue to grow
21
NEW PROJECTS FOR LPG EXPORTS
LPG Export Projects
1600
1400
1200
Mb/d
1000
800
600
400
200
0
2012
2013
2014
2015
Exisiting
Approved
2016
2017
2018
22
U.S. LPG TERMINAL PROJECTS
Ferndale
WASHINGTON
Longview
NORTH DAKOTA
MONTANA
Portland
MAINE
MINNESOTA
VT
OREGON
NH
WISCONSIN
IDAHO
WYOMING
SOUTH DAKOTA
NEW YORK
CONN
MICHIGAN
PENNSYLVANIA
IOWA
M ar cus H ook
NEBRASKA
NEVADA
MARYLAND
OHIO
ILLINOIS
MASS
INDIANA
RI
NEW
JERSEY
DELAWARE
UTAH
COLORADO
WV
KANSAS
MISSOURI
VIRGINIA
KENTUCKY
CALIFORNIA
NORTH CAROLINA
TENNESSEE
ARIZONA
OKLAHOMA
SOUTH
CAROLINA
ARKANSAS
NEW MEXICO
GEORGIA
MISS
TEXAS
ALABAMA
LOUISIANA
Galena P ar k
Fr eeport
Neder land
FLORIDA
H ouston
Ship C hannel
C or pus C hristi
Existing
Expansion Projects
23
EAST COAST PROPANE EXPORTS
WILL CHANGE THE COMPETITIVE LANDSCAPE
ME
Superior
MN
VT
Rapid River
Rockville
NH
Glenwood
NY
Hixton
Mankato
WI
MI
New Hampton
Iowa City
Clinton
IN
IL
Sarnia
CT
Mariner East
Mariner West
Centennial
TEPPCO
PA
Channahon
Milford
MA
NGL Pipelines
ONEOK
MAPL
NJ
OH
MD
WV
VA
DE
Former Cochin Terminal
Depropanizer
Market hub
Rail Unloading
(new or expanding)
Rail Loading
(fractionator or processor
Y-grade Pipeline Flow
24
U.S. LPG EXPORTS HAVE GROWN DRAMATICALLY
LPG Exports by Destination
350
300
250
Mb/d
200
150
100
50
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Other
South America
Central America
Asia
Caribbean
25
WHERE ARE U.S. LPG EXPORTS HEADED?
26
IMPORTERS OF U.S. LPG - 2004
Canada 24%
China 12%
Mexico 50%
Guatemala 7%
Honduras 5%
27
IMPORTERS OF U.S. LPG - 2013
Canada 7%
The Netherlands 14%
United Kingdom 2%
Belgium <1%
Switzerland <1%
Spain <1%
Portugal 1%
Gibraltar 1%
Morocco 1%
Dominican Republic 6%
Mexico 15%
Jamaica <1%
Guatemala 2%
Aruba 2%
Honduras 4%
Venezuela 4%
Costa Rica 1%
Panama 5%
Ecuador 4%
Korea <1%
Japan 10%
China 2%
Ghana <1%
Brazil 13%
Chile 5%
28
PANAMA CANAL EXPANSION
 Third Set of Locks
 Pacific Access Channel
 Dredging
 Improved Water Supply
Source: www.micanaldepanama.com
 Percent Complete:
–
Design & Construction of 3rd Locks, 77%
–
Pacific Access Channel, 80%
–
Pacific Entrance Dredging, 100%
–
Atlantic Entrance Dredging, 100%
–
Dredging, Gatun Lake & Culebra Cut, 88%
–
Raising Operating Level Gatun Lake, 93%
–
Expected In-Service : 1Q 2016
Source: www.micanaldepanama.com
29
IMPACT OF PANAMA CANAL EXPANSION
Voyage Time,
Days
Load Port
Discharge Port
Route
Houston
Chiba, Japan
Cape of Good
Hope
40.2
Houston
Chiba, Japan
Panama Canal
23.3
LPG TANKERS:
 Panamax – current, 375 Mbbls
–
Canal Limit 965’ L, 106’ W
 Post Panamax, 525 Mbbls
–
Canal Limit Increases to
1,200’ L, 160’ W
 23 VLGCs on order with
total capacity of just under
12 MMBbl of capacity to be
delivered in 2015
30
IMPACT OF THE PANAMA CANAL EXPANSION
 Significant reduction in transportation costs
–
Larger ships will be able to transit the locks
–
Significantly shortens transit time to the Asia Pacific region
–
Thus, overall transport costs will see a large reduction
 Will allow large refrigerated cargos to move to Japan, China, and India
–
All of these economics continue to grow and are importing more LPG for domestic use
 Asia Pacific region continues to require new supply sources
 Security of supply is an issue
–
U.S. is politically more stable that other LPG producing areas of the world
31
CONCLUSIONS
 U.S. Propane continues to grow dramatically due to increase in shale oil and gas
production
 Infrastructure to move additional NGLs is rapidly catching up in the new shale
areas
 U.S. propane consumption is not increasing as quickly as production, and
exports will be needed to balance supply and demand
 Timing of these exports are lining up well with the new export terminal projects
and expansion of Panama Canal
 Economies in Asia are looking for supply security through diversification of
sources
32