2016 MLP Conference

November 15, 2016

“Hydrocarbon Markets Update”

Presented by Tom Seng - Assistant Professor of Energy Business

Key Issues in Energy Markets• US Election Results = “pro-energy”?

• Secretary of Energy & EPA Head?• Less future regulation?• Lifting of current restrictions?• Keystone XL• Dakota Access• Northeast US natural gas transmission projects• Clean Power Plan• Increased coal usage?• Infrastructure projects?

Key Issues in Energy Markets• Crude Oil - OPEC Cuts

• September meeting proposal = (750,000 Bbl/d)• October output = record high 33.64 mil Bbl/d• Cut meeting set for 11/30/16• Saudi Oil Minister “cuts are imperative”; Pre-

meeting of experts moved-up to 11/21/16• What will the level of cuts be? • How will cuts be allocated? (Nigeria/Libya exempt)• Iran cooperation?• Russia and other non-Opec cooperation?• US – higher prices will mean more production

Key Issues in Energy Markets• Natural Gas

• Record-high injection season-ending inventory• Production continues to exceed demand• Crude oil prices – impact on associated natural gas• Winter weather• Coal-fired generation• Clean Power Plan• Pipeline infrastructure challenges

• Growth in G&P• Stalled/delayed transmission projects

• LNG Exports (Panama Canal Expansion)

Key Issues in Energy Markets• Natural Gas Liquids (NGLs)

• Infrastructure expansion• Increasing production – Marcellus/Utica/Permian/OK• Capture “flared” gas (Bakken)• Vapor recovery • Increased need for fractionation• Increased need for ethane cracking

• Exports to drive demand• Propane & Propylene• Ethane & Ethylene

• Expansion of US Petchem infrastructure• Brownfield & greenfield projects along Gulf Coast

Crude Oil Prices – NYMEXWTI @ Cushing, OK

Crude Oil Prices – NYMEX

Natural Gas Prices – NYMEXHenry Hub – So. Louisiana

Natural Gas Prices – NYMEX

Crude Oil Production by State1985 - 2015

US Crude Oil Production

US Crude Oil Imports

US Crude Refinery Inputs

US Crude Oil Inventory (non-SPR)

US Crude Oil Inventory – Days of Supply

Cushing, OK Stocks

12/31/15: Bahamian Vessel, Theo T, leaves The Port of Corpus Christi with a load of Conoco-Phillips crude oil bound for Italy. Corpus Christi has 1.0 million Bbld of offloading capability.

Global Crude Oil

2016 Supply = 96.16 mil. Bbl/d est.2016 Consumption = 95.40 mil. Bbl/d est.Supply growth: +4.1 mb/d 2016 – 2021 (vs. +11.0 2009 – 2015)Lower capex: -24% 2016; -17% 2017Demand growth: 1.2 mb/d per annum through 2021

Est total = 100 million Bbld by 2020India/China/Asia

Natural Gas

Natural Gas

From June through August, power burn averaged 35.2 Bcf per day, 9% higher than the same months last year, and 23% higher than the five-year (2011-15) average. The total number of cooling degree-days (CDD) from June through August were 12% above the same period last year, and 24% above normal for the period.While higher demand for electricity is a primary contributor to increased use of natural gas for generation, relatively low natural gas prices this summer were also a contributing factor to the high power burn.

“EIA expects the share of U.S. total utility-scale electricity generation from natural gas will average 35% this year, and the share from coal will average 30%. Last year, both fuels supplied about 33% of total U.S. electricity generation. In 2017, natural gas and coal are forecast to generate about 34% and 31% of electricity, respectively, as natural gas prices are forecast to increase. Non-hydropower renewables are forecast to generate 8% of electricity generation in 2016 and 9% in 2017. Generation shares of nuclear and hydropower are forecast to be relatively unchanged from 2016 to 2017.”

Clean Power Plan Impact

Winter 2016/2017 Consumption

“EIA projects average U.S. household expenditures for natural gas, heating oil, electricity, and propane will increase this winter (October 1 through March 31) compared with last winter. Based on projections from the National Oceanic and Atmospheric Administration (NOAA), forecast temperatures this winter, measured using heating degree days, are 3% warmer than the previous 10-year average but colder than last winter, which was 15% warmer than the 10-year average nationally.”

www.eia.gov/steo

Cheniere Energy, Inc.Sabine Pass

Liquefaction Facility

Cheniere – Sabine Pass LNG facility

(2) initial liquefaction trains(4) additional by 2017Initial capacity = 1.5 BcfdDesign capacity = 4.0 Bcfd02/24/16: First LNG shipment heads for Brazil

Asia Vision 3.0 BcfUS “net” exporter for a day (LNG/Canada/Mexico)

U.S. LNG exports began five months ago with the shipment of the first cargo from Train 1 of the Sabine Pass terminal on February 25. First LNG tanker through expanded Panama Canal is traveling from Sabine PassOn July 25, the liquefied natural gas (LNG) vessel Maran Gas Apollonia became the first-ever LNG vessel to transit the recently expanded Panama Canal. The vessel is carrying LNG sourced from the U.S.-based Sabine Pass liquefaction terminal located in Louisiana. The expanded Panama Canal can now accommodate 90% of the world LNG tanker fleet. Transit through the Panama Canal reduces travel time and transportation costs for LNG vessels traveling from the Atlantic Basin liquefaction terminals, located primarily on the U.S. Gulf Coast, to key markets in Asia and the west coast of South America.

Natural Gas Liquids (NGLs)

The first ethane shipment out of Enterprise Products Partners’ (EPP) new export terminal in Morgan’s Point, Texas, is preparing to set sail for Norway.

The United States’ first export terminal, at Marcus Hook, Pennsylvania, has been shipping ethane cargoes since March of this year.

Ethane cargoes from the United States are used as feedstock in European ethylene crackers.