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Globalization of North American NGLs
Andrew Reed, Principal
ESAI Energy, LLC
Calgary
June 15, 2016
Propane Exports & Interaction with East of Suez Market
ESAI Energy, LLC
• Energy Research and Forecasting Firm located just outside of Boston
• 30 years of Global Energy Market Analysis and Forecasting: Crude, Petroleum Products, Petrochemicals,
E + P, Refining, Natural Gas, NGLs Alternative Fuels, Vehicle Technology, Geopolitics of Energy
• Clients include Majors, NOCs, Midstream/Logistics, Refiners, Traders, End Use Consumers, Automakers,
Financial Institutions, National Governments
• ESAI Energy provides independent, holistic market analysis and does not advocate for particular groups
• Empirical Source Global Supply/Demand/Refining database by country, dating back to January 1978
• Global Expertise in Policy/Regulation, Asset Valuation, Refining/Petchem Investment feasibility, Expert
Witness in Arbitration
Global NGL Outlook
• Monthly updates with 12-month outlook, semi-annual 2-year
outlook and once annual 5-year outlook
• Analysis and forecasts of ethane, propane, butane and
pentanes markets
• Chapters on individual products, pricing and other topical
issues such as fractionation, petrochemicals, infrastructure
and key developments
• LPG coverage features global supply, demand and inventories
of LPG broken out by region
• Analysis draws on country-level analysis of global market,
databases of ethylene and propylene capacity by feedstock,
fractionation
• Price forecasts include Alberta butane, propane and
condensate
Copyright @2016, ESAI Energy, LLC 2
North America
• US LPG meets Asia
East of Suez Trends & Outlook
• Mideast export growth
• Asia deficit widens
Short-term outlook
• Bullish fundamentals
• Pricing in Asia
• Edmonton propane price forecast
North America & East of Suez LPG Markets
North America
Copyright @2016, ESAI Energy, LLC 3
Finally, infrastructure does not impede seaborne exports
• Explorer added 230,000 b/d LPG export capacity end 2015
• Phillips66 to add more capacity in H2 2016
0
200
400
600
800
1,000
1,200
1,400
Q1 '13 Q3 Q1 '14 Q3 Q1 '15 Q3 Q1 '16 Q3
'000 b/d U.S. LPG Exports & Export Capacity
LPG Exports
Export Capacity
Spare
capacity!
North America
Copyright @2016, ESAI Energy, LLC 4
Compared to year ago, stocks are down and build rate is slower
Worst is over for propane stock glut
40
60
80
100
120
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Million barrels U.S. & Canada Propane Stocks
2015 2016
North America
Copyright @2016, ESAI Energy, LLC 5
Marginal barrel supplied flows to Asia
• Exports primarily target Japan & China
57
93107 109
154219
309 322
511
373
0
200
400
600
800
1,000
1,200
Q1 '14 Q2 Q3 Q4 Q1 '15 Q2 Q3 Q4 Q1 '16 Apr '16
'000 b/d US LPG Exports by Destination
Western
Hemisphere
Europe/Afr/ME
Asia
North America
Copyright @2016, ESAI Energy, LLC 6
($5)
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16
$/bbl Propane Pricing Relative to Asia
Saudi CP
Mt Belvieu
Edmonton
Area 1 Area 2
$15 $5
$18 $14
Unimpeded flow of propane linked prices
• Year ago, bottlenecks cost Alberta sellers $14 per barrel
• Now price differences are consistent with transport costs
Source: Argus except Saudi CP
East of Suez: Middle East
Copyright @2016, ESAI Energy, LLC 7
0
100
200
300
400S. Arabia
0
100
200
300
400Qatar
0
100
200
300
400Iran
0
100
200
300
400UAE
Big 4 Exporters
• 1.1 million b/d surplus
• Iran and Saudi projects add
significant supply in 2016-2017
• Not much new petchem use
• 75,000 b/d annual growth of
exports in 2015-2017
East of Suez: Asia LPG Deficits
Copyright @2016, ESAI Energy, LLC 8
(400)
(300)
(200)
(100)
0India
(400)
(300)
(200)
(100)
0Indonesia
(400)
(300)
(200)
(100)
0
Japan
(400)
(300)
(200)
(100)
0S. Korea
India & Southeast Asia
• Mideast exports dominate in
India and Indonesia
• Demand growth diverts
some supply from North Asia
Japan & South Korea
• Diversification policy
favors North America
exports
Copyright @2016, ESAI Energy, LLC 9
Market Share
• Imports from Mideast & US both higher
• Asia’s absorption of world’s surplus LPG
hinges on Chinese demand
Demand Outlook
• 1.25 million b/d demand, 150,000 b/d annual
growth in 2014-2015
• 50% residential use, historically 20,000 b/d of
annual growth
• PDH – 5.3 mln tpa in 5 years, 190,000 b/d
propane
• “Growth spurt” continues in near term
East of Suez: China
(500)
(400)
(300)
(200)
(100)
0
20
13
20
14
20
15
20
16
20
17
China
0
100
200
300
400
500
600
700
Q1 '14 Q2 Q3 Q4 Q1 '15 Q2 Q3 Q4 Q1 '16
'000 b/d China LPG Imports by Source
Mideast
USA
Other
Conclusions
Copyright @2016, ESAI Energy, LLC 10
Bullish fundamentals in 2016-2017
• Chinese demand growth exceptionally strong
• Increase in Mideast exports will not satisfy Asia’s incremental
import requirement
• Without “unbridled growth” of North America exports,
outlook is bullish
Conclusions
Copyright @2016, ESAI Energy, LLC 11
status quo for propane-on-naphtha pricing
Saudi CP follows naphtha prices to mid-$30s
Asia “price war” averted for now
$25$26
$33 $33$35 $36 $36
$34
$0
$10
$20
$30
$40
$50
$60
Q1 '16 Q2 Q3 Q4 Q1 '17 Q2 Q3 Q4
$/bbl Asia Propane & Naphtha Price Outlook
Saudi CP
Singapore Naphtha
Source: Argus and ESAI Energy fcst
Conclusions
Copyright @2016, ESAI Energy, LLC 12
$5
$9
$15$17
$20$18
$19 $20
$0
$5
$10
$15
$20
$25
$30
$35
$40
Q1 '16 Q2 Q3 Q4 Q1 '17 Q2 Q3 Q4
$/bbl North America & Asia Propane Price Forecast
Edmonton Mt Belvieu Saudi CP
Short-term Support for Edmonton prices
• Edmonton propane doubles to $20 in 2017
Beyond 2017, watch out for…
• Decelerating Chinese demand growth
• Rebound in North American exports
Source: Argus and ESAI Energy fcst
Andrew Reed
Principal, ESAI Energy
www.esaienergy.com
areed@esai.com
781-245-2036
Questions?
Thank you!
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