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LPG Production in the North Atlantic Basin
Prepared by:
Walt Hart, Ph.D., P.E.
Purvin & Gertz, Inc.
Prepared For:
WLPGA North American-European Summit
February 9, 2011
Ritz Carlton Hotel
Washington, DC, USA
2
Topics for Discussion
North Atlantic LPG Production Overview
Production Infrastructure
LPG Production Outlook
Implications of Shale Gas and Oil
3
LPG Production Is Higher On the West Side of the
Atlantic
0
10
20
30
40
50
60
70
West of
Atlantic
East of
Atlantic
NorthAfrica
WestEurope
Mexico
US
Canada
North America is the largest producing region of LPG in the world
West Europe is the largest producer on the east side of the North Atlantic
The CIS is also a large producer of LPG, but most LPG stays within the CIS
The Caribbean and Central America are relatively small producers
LPG Production, Million Tonnes
4
LPG Is a By-Product From Refineries and From
Associated and Non-Associated Gas Production
Western Europe
67%
33%Refinery
Gas
Canada
74%
26%
Refinery
Gas
United States
60%
40%Refinery
Gas
Mexico
87%
13%
Refinery
Gas
Northern Africa15%
85%
Refinery
Gas
2010 est.
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Refinery Locations Are Highly Distributed
Refineries tend to be located near population centers with good port access
Some refineries are located near crude oil supplies
Sovereign nations seek security of supply
LPG by-products are a relatively unimportant consideration in locating a refinery
Refinery Locations in the North Atlantic Region
6
LPG From Natural Gas Comes From Specific
Locations Within the East Atlantic Basin
Nearly all LPG from
natural gas in Western
Europe is sourced
from the North Sea
region
85% of LPG from North
Africa comes from
natural gas
Of the gas-based LPG
supply in North Africa,
Algeria and Egypt
contribute over 90%
North
Sea
North Africa
Refineries Indicated by Red Dots
7
In North America Specification LPG from Natural
Gas Is Produced Mainly At Fractionation Plants Natural gas must meet
pipeline specifications
Mixed NGLs are separated from raw associated and non-associated natural gas at gas processing plants near the wells
Mixed NGLs are shipped to fractionation plants via y-grade pipelines
Specification products such as propane and normal butane are mostly produced from centralized fractionation plants
Mixed butanes are separated into normal and iso-butane
Selected Gas Processing Plants Indicated by Red Dots
Areas With Fractionation Indicated by Blue Dots
Dashed Lines Are Major Y-Grade Pipelines
8
Most of Mexico’s LPG Production From Natural
Gas Is In The Southern Region
Large plants are Nuevo Pemex, Cangrejera, Morelos and Cactus
Typical Mexican mix including imports is about 70% propane
Imports generally have a higher propane content than domestic production
Northern Mexico largely served by U.S. imports
Reynosa
Arenque
Poza Rica
Matapionche Cactus
Cangrejera
Morelos
Nuevo Pemex
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Overall LPG Production East of the North Atlantic
Ocean Should Increase in the Forecast Period
0
5
10
15
20
25
30
35
40
45
2000 2002 2005 2008 2009 2010 2011 2013
North AfricaWestern Europe RefineryWestern Europe Nat Gas
LPG production from the
North Sea has peaked
and should continue to
decline
Refinery LPG production
from Western Europe
should modestly
increase after recent
reductions
We expect LPG
production from North
Africa to increase but
the rate depends on the
progress of Algerian
projects
LPG Production, Million Tonnes
10
LPG Production West of the North Atlantic Should
Rise Due Mainly to Unconventional Gas and Oil
0
10
20
30
40
50
60
70
2000 2002 2005 2008 2009 2010 2011 2013
Canada Nat Gas Canada RefineryUS Nat Gas US RefineryMexico
Refinery LPG production in the US and Canada was reduced in 2010 but should resume slow growth
US LPG production from unconventional natural gas and oil should offset declines from conventional sources
Canada LPG production from natural gas should decline due to declining production of conventional natural gas and decreased natural gas import demand from the US
LPG production in Mexico appears to have bottomed out and should begin to grow
LPG Production, Million Tonnes
11
Shale Gas Is Driving An Increase In Non-
Associated Natural Gas Production in the US
0
10
20
30
40
50
60
2000 2002 2005 2008 2009 2010 2011 2013
Non-shale Lower 48 Non-Associated Gas Lower 48 Shale Gas (Gross)
U.S. Lower 48 Non-Associated Gross Gas Production, Bcfd
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Excellent Gross Margins for NGL Extraction Drive
Drillers To Liquids-Rich Plays
-20
0
20
40
60
80
100
120
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Ethane Margin
Margin for Total NGLs
Propane Margin
West Texas Gas Processing Margins, Cents per Gallon
Gas processing margins are supported by the price difference
between natural gas and crude oil.
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Some Shale Formations Are Very Dry While Others
Are Primarily Oil Plays
Source: Canada National Energy Board, Nov 2009
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The US Gas Rig Count Has Moderated But The
Number of Active Oil Rigs Continues to Increase
January 14, 2011 Total = 1,691 Rigs
0100200300400500600700800900
1,0001,1001,2001,3001,4001,5001,6001,700
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Oil
Gas
Average
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Shale Gas Is Also Being Pursued Outside the US
Unconventional gas production has been increasing in the US despite depressed natural gas prices Natural gas liquids provide added value
There are limits to gas demand
Oil plays will be drilled whether the gas is needed or not
Shale gas is being developed in western Canada, but costs to market are a deterrent Eastern Canada has shales near the borders with New York
and Michigan
Pemex is reportedly exploring shales near the US border
Europe also has shale gas, but meaningful production is beyond the forecast period European energy companies are gaining expertise through
joint ventures
Population density, lack of infrastructure, drilling costs and environmental uncertainty are among concerns in developing these resources
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Conclusions
North America remains the world’s largest LPG
producing region
Unlike other areas within the North Atlantic
Basin, Western Europe’s LPG production is
primarily from refineries
LPG production is likely to increase on both
sides of the North Atlantic over the next few
years
Gas and oil from shales are changing the LPG
production dynamics within the US and
Canada, and has broader implications for
global LPG trade
17
THANK YOU
FOR YOUR
ATTENTION
18
Disclaimer
This presentation has been prepared for the sole benefit of the
participants in the WLPGA North American-European Summit. Neither the
presentation nor any part of the presentation shall be provided to third
parties without the written consent of PGI. Any third party in possession
of the presentation may not rely upon its conclusions without the
consent of PGI. Possession of the presentation does not carry with it the
right of publication.
PGI conducted this analysis and prepared this presentation utilizing
reasonable care and skill in applying methods of analysis consistent with
normal industry practice. All results are based on information available at
the time of review. Changes in factors upon which the review is based
could affect the results. Forecasts are inherently uncertain because of
events or combinations of events that cannot reasonably be foreseen
including the actions of government, individuals, third parties and
competitors. NO IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE SHALL APPLY.
