Global NGLS: Jumping into China’s NGL feedstock pull€¦ · Global NGLS: Jumping into China’s NGL feedstock pull ... More than 600,000 b/d of ethane rejection should gradually

Confidential. © 2018 IHS MarkitTM. All Rights Reserved.Confidential. © 2018 IHS MarkitTM. All Rights Reserved.

22 March 2018Hilton Americas | Houston, TX, US

Global NGLS:

Jumping into China’s NGL feedstock pull

Dr. Walt HartVice President, NGLs

US NGL production continues to grow rapidly due to ongoing shale development. Ethane and propane production are growing faster than the other NGLs. More than 600,000 b/d of ethane rejection should gradually be reduced as the first wave of domestic crackers and ethane export projects come on line before 2020. After 2020, we are projecting that the incremental ethane and remaining rejection will be consumed mostly by domestic cracker projects. However, interest in US ethane from other countries – especially China – makes it uncertain whether the US will be consuming the 2nd wave of available US ethane supply, and US ethane prices are dependent upon that outcome. The two existing ethane export terminals are likely sufficient to meet firm demand through the mid‐2020s. However, announced Chinese petrochemical projects and other announced export projects cast doubt on the outlook. The Chinese are interested in US ethane because, despite a landed ethane cost that is roughly twice the Mont Belvieu price, ethane would compete favorably vs. other feedstock options, and there is also a capital cost advantage. If all the 2nd wave ethane was exported instead of consumed domestically, it is likely the US ethane price would rise to domestic feedstock cash cost parity. However, if insufficient demand (domestic and export) occurs, rejection would increase and the ethane price could slide back toward thermal value.

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LPG is a by‐product, and waterborne export supply will be dominated by three gas‐sourced regions: the US/Canada, Russia and the Middle East. Demand growth is dominated by Asia, as countries with rising, increasingly wealthy populations convert from primitive cooking fuels to LPG – frequently with government support. The new demand comes from countries that prefer butane rich LPG supply. With propane supply rising rapidly and much of the premium demand being butane‐rich, surplus propane is available for chemical feedstock consumption. Butane supply is growing less quickly, and butane demand is rising only slightly less rapidly. There will be more surplus butane available, but we should expect occasional periods of market tightness. Long term, LPG prices are expected to roughly maintain their ratio to crude oil prices, with US LPG having a price discount to other international benchmarks to cover an export arb. Propane will likely have a larger arb since more will need to find its way to East Asia.

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Confidential. © 2018 IHS MarkitTM. All Rights Reserved.

Ethane

2


0

20

40

60

80

100

120

2001 2004 2007 2010 2013 2016 2019 2022 2025

Marcellus

Utica

SCOOP/STACKWoodford

Niobrara

Eagle Ford

Barnett

Bakken

Permian

Other

US natural gas production

Source: IHS Markit © 2018 IHS Markit

Bcf

/d

US natural gas production is constrained by domestic and LNG demand – natural gas demand not met by associated gas will be met by non-associated gas

0

20

40

60

80

100

120

2001 2004 2007 2010 2013 2016 2019 2022 2025

Associated

Non-Associated

US associated and non-associated natural gas production


Bcf

/d

3


0

1

2

3

4

5

6

7

2001 2005 2009 2013 2017 2021 2025

NaturalGasoline

Isobutane

NormalButane

Propane

Ethane

US NGL production by product

Source: IHS Markit © 2018 IHS

Mill

ion

ba

rrel

s p

er

da

y

0

1

2

3

4

5

6

7

2000 2005 2010 2015 2020 2025

Permian

SCOOP

Woodford

Utica

Niobrara

Marcellus

Eagle Ford

Barnett

Bakken

Other gassourcedRefining

US NGL production


Mill

ion

barr

els

per

day

The rapid rise in US NGL production is driven by continued development of the major shale gas and tight oil plays; supply from refining is relatively flat

Largest production increases will continue to be from ethane and propane

4


0.0

0.5

1.0

1.5

2.0

2.5

3.0

2005 2010 2015 2020 2025Base Chemical Price Sensitive Miscellaneous Fuel Exports Rejection

US ethane demand and rejection


Mill

ion

barr

els

per

day

1st wave

2nd wave

US ethane demand is dominated by petrochemicals and exports; a second wave of US crackers and/or increased exports should diminish rejection to historical levels

?

5


0

2

4

6

8

10

12

14

16

2000 2005 2010 2015 2020 2025

Ethane Price Forecast (1Q 2018) Henry Hub Gas

Us Ethane and Natural Gas Prices


Con

stan

t 20

17 $

/MM

BT

U

Mont Belvieu ethane prices have lifted off of fuel value and will continue to rise as new demand comes online

Pre-shale: Following crude oil

Shale: Nat gas falls

away

Ethane oversupply;

falls to thermal value

Reducing ethane rejection; rising off thermal

value

Ethane ceiling set by competition with Asian naphtha

crackers

?

6


0

100

200

300

0

2

4

6

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Th

ou

san

d b

arre

ls p

er d

ay

Mil

lio

n t

on

s et

han

e p

er y

ear

Marcus Hook: ME1 Morgan's Point NorwayUK Sweden IndiaBrazil Mexico Other Asia

Selected announced ethane exports vs. existing capability


US ethane exports currently well below capacity, but Asian imports could fill the void

7


01002003004005006007008009001000

0

4

8

12

16

20

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Th

ou

san

d b

arre

ls p

er d

ay

Mil

lio

n t

on

s et

han

e p

er y

ear

Marcus Hook PA: ME2 Port Arthur TX: Am Ethane ETP

Zhejiang Satellite Nanshan Juneng Heavy Ind

Selected announced ethane exports vs. potential incremental ethane export capability


Some announced ethane import projects would require additional US export capacity*

*ME2 reflects potentially available ethane but no specific announcement has been made

8


NorthAmerica

SouthAmerica

Africa

EuropeNorthAmerica

SouthAmerica

Africa

EuropeNorthAmerica

SouthAmerica

Africa

Europe

12/20/2016 – 3/10/2017

NorthAmerica

SouthAmerica

Asia

Logistics costs are significant part of cost of imported ethane feedstock in Asia –roughly half of delivered cost to India

0

50

100

150

200

250

300

350

400

MP-Suez-India

MP-Suez-China

MH-Suez-China

MH-Panama-China

Eth

ane

cost

s, $

/ton

Source E price Terminal Fee Freight Canal Fee

Ethane delivered cost build up


9


If long term MB ethane is priced based on derivative competition with naphtha crackers in Asia, imported ethane cash costs look competitive

0

100

200

300

400

500

600

700

800

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

US ethane - Marcus Hook US ethane - Morgan's Point C&F JapanPropane (spot Japan) n-Butane (spot Japan)Naphtha (spot Japan)

Northeast Asia ethylene cash costs

Co

nst

ant

$ /

MT

of

eth

yle

ne


10


If 2nd wave ethane gets exported ethane prices could be 8 cpg higher in 2025

If 2nd wave ethane does not get consumed, price could fall back to thermal value

0

2

4

6

8

10

12

14

16

2000 2005 2010 2015 2020 2025

Ethane Price Forecast (1Q 2018) Henry Hub GasEthane Price if most ethane goes to China Ethane Price if projects don’t succeed

USGC Mont Belvieu Ethane and Henry Hub Gas Prices


Con

stan

t 20

17 $

/MM

BT

U

8 cpg

11


0

100

200

300

400

500

600

700

800

900

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

US ethane - Marcus HookUS ethane - Morgan's Point C&F JapanPropane (spot Japan)n-Butane (spot Japan)Naphtha (spot Japan)

Northeast Asia ethylene cash costs

Con

stan

t $ /

MT

of e

thyl

ene


If nearly all 2nd wave US ethane is exported, both Asian and US ethane cash costs will be higher

0

10

20

30

40

50

2000 2005 2010 2015 2020 2025

Purity Ethane Propane Lt Naphtha Butane

USGC Ethylene Variable Cash Costs


Con

sta

nt 2

017

cent

s / l

b C

2

12


LPG

13


0

2

4

6

8

10

12

0

50

100

150

200

250

300

350

400

2010 2015 2020 2025

Mil

lio

n b

arre

ls p

er d

ay

Chart Title

China / India refinery Middle East gas CIS gas US / Canada gas Other gas Other refinery

Global LPG production by major source


Mill

ion

met

ric

ton

s p

er y

ear

Most global LPG growth is driven by a few regions that already have more LPG than they need

Incremental waterborne exports are from gas-based sources, typically propane-rich

14


Global LPG demand growth will continue to be led by Asia

0

2

4

6

8

10

12

0

50

100

150

200

250

300

350

400

2010 2015 2020 2025

Mil

lio

n b

arre

ls p

er d

ay

Chart Title

Asia / Pacific Middle East Europe / CIS Latin America US / Canada Africa

Global LPG demand by region


Mill

ion

met

ric

ton

s p

er y

ear

15


0

5

10

15

20

25

30

35

2000 2005 2010 2015 2020 2025

India Indonesia

Per Capita res/com consumption - India & Indonesia

Source: IHS Markit

Kg

per

cap

ita

© 2018 IHS Markit

34%

35%

36%

37%

38%

39%

40%

41%

42%

43%

44%

0

10

20

30

40

50

60

70

80

90

100

2008 2010 2012 2014 2016

Per

cent

but

ane

Mill

ion

tons

per

yea

rButanes Propane % Butane

Global waterborne LPG exports by grade


Growing, butane-rich South Asian residential /commercial markets being met by more propane-rich waterborne LPG pool

16


Large amounts of propane available for chemical feedstock demand, but incremental butane will mostly be consumed by residential / commercial markets

0

1

2

3

4

5

6

7

0

20

40

60

80

100

120

140

160

180

200

2000 2005 2010 2015 2020 2025M

illio

n b

arre

ls p

er d

ayRes/Com Chemical OtherIndustrial Engine fuel Manufactured gasRefinery

Global propane demand by sector

Source: IHS Energy © 2018 IHS Markit

Mill

ion

met

ric

ton

s p

er y

ear

-1

0

1

2

3

4

5

6

0

20

40

60

80

100

120

140

160

180

200

2000 2005 2010 2015 2020 2025

Mill

ion

bar

rels

per

day

Res/Com Chemical RefineryEngine fuel Industrial Manufactured gasOther

Global butane demand by sector

Source: IHS Energy© 2018 IHS

Markit

Mill

ion

met

ric

ton

s p

er y

ear

17


0

20

40

60

80

100

120

0

200

400

600

800

1,000

1,200

2000 2005 2010 2015 2020 2025C

rude

, do

llars

per

ton

Mt. Belvieu, Spot Propane Northwest Europe, C&FMideast, Contract FOB Japan, Spot C&FCrude, Brent

International propane prices

Source: IHS Markit

Con

stan

t dol

lars

per

tonn

e

© 2018 IHS Markit

0.0

0.4

0.8

1.2

1.6

2000 2005 2010 2015 2020 2025

NW Europe Propane/Brent Japan Propane/BrentMont Belvieu Propane/Brent Middle East Propane/Brent

Propane / brent crude oil price relationship

Source: IHS Markit

Pric

e ra

tio (

wt)

© 2018 IHS Markit

Longer term, propane price ratios to crude expected to stabilize, with US propane maintaining discount to cover arbitrage costs

18


0

20

40

60

80

100

120

0

200

400

600

800

1,000

1,200

2000 2005 2010 2015 2020 2025C

rude

, do

llars

per

ton

Mt. Belvieu, Spot n-Butane Northwest Europe, C&FMideast, Contract FOB Japan, Spot C&FCrude, Brent

International butane prices

© 2018 IHS Markit

Con

stan

tdol

lars

per

tonn

e

Source: IHS, OPIS, & Argus (Historical)

0.5

0.8

1.0

1.3

1.5

1.8

2000 2005 2010 2015 2020 2025

NW Europe Butane/Brent Japan Butane/BrentMont Belvieu Butane/Brent Middle East Butane/Brent

Butane / brent crude oil price relationship

© 2018 IHS Markit

Pric

e ra

tio (

wt)

Source: IHS, OPIS, & Argus (Historical)

US butane price ratios to crude could get higher after propane inventories normalize, owing to tightness of butane globally

19


Parting thoughts…

If all second wave US ethane gets exported instead of cracked domestically, long-term USGC ethane price will rise (for everybody)

Ethane

Supplies exceeding premium demand –leaving large amounts for PDH and naphtha substitution

Propane

Outside Americas butane supply and demand trends suggest periodic tightnessButane

20


Contact details

Dr. Walt HartVice President, NGLs

+1 832 679 7240 tel+1 713 591 2399 [email protected]

Houston

21

Documents

Global NGLS: Jumping into China’s NGL feedstock pull€¦ · Global NGLS: Jumping into China’s NGL feedstock pull ... More than 600,000 b/d of ethane rejection should gradually