Gas Processing Management Inc.

What Are We Going To Do With All

These NGLs ?
Presented to

The CERI 2015 Petrochemical Conference

Kananaskis, Alberta

Gerry Goobie, P.Eng.

Dave Tulk, P.Eng.
June 8, 2015

Gas Processing Management Inc.

Gas Processing Management Inc.

Just What The *&#% Is Going On

With Propane ?
Presented to

The CERI 2015 Petrochemical Conference

Kananaskis, Alberta

Gerry Goobie, P.Eng.

Dave Tulk, P.Eng.
June 8, 2015

Gas Processing Management Inc.

Just What The *&#% Is Going On With Propane?

Edmonton propane has been priced at
less than shrinkage value since the
beginning of 2015 !
Edmonton propane prices have been
negative for the last several weeks !
Are we swimming in propane ?
Is there a Petrochemical opportunity ?
What about West Coast exports ?
How serious is this ?

June 8, 2015

Gas Processing Management Inc.

Presentation Outline
GPMi Introduction
Canadian and U.S. NGL Production
Recent Prices and Margins
How Bad Is It?

What Will Happen Next?

Disposition Options
Petrochemical Opportunity

Conclusion

June 8, 2015

Gas Processing Management Inc.

Presentation Outline
GPMi Introduction
Canadian and U.S. NGL Production
Recent Prices and Margins
How Bad Is It?

What Will Happen Next?

Disposition Options
Petrochemical Opportunity

Conclusion

June 8, 2015

Gas Processing Management Inc.

Gas Processing Management Inc.

For 15 years, GPMi has been delivering industry leading
solutions to the Business of Energy Infrastructure Worldwide!
Over 400 man years of hands-on front line Senior Management
and Executive Level Experience in the Natural Gas, NGL and
Petrochemical industries
Areas of Expertise
NGLs

Petrochemical

Gas & LNG

Other

Feedstock
Ethylene business
development &
infrastructure
New plant economics
Alberta Advantage

Processing Fees &

negotiation
Gas plant operations
Unconventional gas
infrastructure
development
Sour gas processing
JV agreement
development, negotiation
& related services

Strategic planning for natural gas, LNG

and NGL infrastructure
Acquisitions & divestitures
Mediation, arbitration & expert witness
testimony
Knowledge transfer & mentoring
Facility evaluation & economic analysis
Infrastructure development &
project/commercial management
Contract negotiation

Supply
Demand
Markets
Pricing
outlooks
Netbacks
Infrastructure
Development
Regulatory

www.gasprocessing.com
June 8, 2015

Gas Processing Management Inc.

Who Is GPMi ?

A bunch of cranky old guys who have spent their

careers in the gas, NGL and petrochemical
industries but dont want to retire!
June 8, 2015

Gas Processing Management Inc.

Presentation Outline
GPMi Introduction
Canadian and U.S. NGL Production
Recent Prices and Margins
How Bad Is It?

What Will Happen Next?

Disposition Options
Petrochemical Opportunity

Conclusion

June 8, 2015

Gas Processing Management Inc.

Current Situation
The development of
unconventional petroleum
resources has glutted North
American natural gas and NGL
markets
Price relationships have
changed
The situation has deteriorated
sharply in recent months
North American gas and NGL
markets are demand
constrained
June 8, 2015

Gas Processing Management Inc.

U.S. NGL Production

U.S. NGL production
growth is driven by rich
gas developments in the
Marcellus, Utica, Eagle
Ford and other plays
Total C2, C3 & C4
production has increased
by about 1.5 million bpd
since 2009
Ethane production
growth has been
constrained awaiting new
petchem demand

kbpd

U.S. NGL Production

4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2007

2008

2009

2010

Ethane

Propane

2011

2012

n-Butane

2013

2014

2015

i-Butane

Source: US EIA

Up to 500 kbpd is being

rejected
June 8, 2015

Gas Processing Management Inc.

10

US LPG Exports
U.S. LPG Exports

kbpd

The U.S. has switched

from being a net LPG
importer to become the
worlds largest LPG
exporter
Butane and ethane
exports are increasing
as well

800

600

400

200

0
2007

2008

2009

2010
Ethane

2011
Propane

2012

2013

2014

2015

Butane

Source: US EIA

June 8, 2015

Gas Processing Management Inc.

11

U.S. LPG Exports

U.S. LPG exports have
gone primarily to Canada,
Latin America and Europe
Exporters have been
capturing large arbitrage
opportunities in the
Atlantic and Pacific basins

Recently, increased volumes

have been moving to S.E.
Asia

Average > 200 kbpd in 2015

Volumes from a West Coast

terminal would be very
competitive in SE Asia

June 8, 2015

U.S. LPG Exports

kbpd

800

600

400

200

0
2007

2008

2009
Canada

2010

2011

Latin America

2012
Europe

2013
Asia

2014

2015

Other

Source: US EIA

Gas Processing Management Inc.

12

Western Canadian NGL Production

Alberta & BC Natural Gas Production

bcfd
25

Canadian natural
gas volumes have
declined but NGL
production has
remained fairly
constant
NGL recovery rates
have increased as
producers continue
to develop rich gas
plays

20

15

10

0
2007

2008

2009

2010

2011
Alberta

BC

2012

2013

2014

2015

Alberta & BC NGL Production

kbpd
700
600
500
400
300
200
100
2007

June 8, 2015

2008
2009
2010
2011
2012
Ethane
Propane
Butane
NGL Mix

Gas Processing Management Inc.

2013
2014
Alliance NGL

2015

Source: Alberta AER & BC Statistics

13

Canadian Propane Demand Outlook

Propane supply will
increase with
growing natural gas
supply for LNG
Canadian domestic
propane demand will
not grow fast
enough to absorb
much of the surplus

Canadian Propane Demand Outlook

kbpd
300
250
200
150
100
50
0
2000

2005

2010

Mining Oil & Gas

Road Transportation
Construction

2015

2020

Commercial Institutional
Residential
Exports

2025

2030

Manufacturing
Agriculture

Source: GPMi Analysis

June 8, 2015

Gas Processing Management Inc.

14

Canadian Propane Exports

Canadian Propane Exports

MM m3/yr

$C Billions

(Volume & Revenue)

10

$3.0
$2.5

$2.0
6
$1.5
4
$1.0
2

$0.5

$0.0
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source: National Energy Board

Most export volumes are

moving by rail
June 8, 2015

Propane exports are

declining while
production rises
Revenue will decline
further with the price
impact in 2015
Continuing to push
product into a well
supplied market is
not a recipe for
success
We need new
markets for our
propane

Gas Processing Management Inc.

15

Presentation Outline
GPMi Introduction
Canadian and U.S. NGL Production
Recent Prices and Margins
How Bad Is It?

What Will Happen Next?

Disposition Options
Petrochemical Opportunity

Conclusion

June 8, 2015

Gas Processing Management Inc.

16

How Bad Is It?

Propane Prices

US cpg

300
250
200
150
100
50
0
Jan-13

Jul-13

Mt. Belvieu

Jan-14

Conway

Jul-14

Edmonton

Jan-15

Sarnia

Its bad ! - Negative propane prices at Edmonton

The uplift from Edmonton to anywhere else is huge
Somebody is doing very well on the volumes that move
June 8, 2015

Gas Processing Management Inc.

17

How Bad Is It?

$Cdn/GJ

Propane Available Netback over Shrinkage

$16
$14
$12
$10
$8
$6
$4
$2
$0
-$2
-$4
-$6
Jan-13

Jul-13

Jan-14

Edm - Chi

Jul-14
Edmonton

Jan-15

Jul-15

Jan-16

Chicago

Source: GPMi Monthly NGL Report

Its bad ! producers are losing ~ $5/GJ on propane

The propane margin probably wont become positive
for the balance of this year
June 8, 2015

Gas Processing Management Inc.

18

Revenue and Operating Margins

$/GJ

WCSB Extraction - Component Revenue

$6
$5
$4
$3
$2
$1
$0
Jan-13

Jul-13
Gas

$/GJ

Jan-14
Ethane

Jul-14
Propane

Jan-15
Butane

Jul-15

Jan-16

Pentanes +

WCSB Extraction - Component Op Income

$/GJ

$6

$6

$5

$5

$4

$4

$3

$3

$2

$2

$1

$1

$0

$0

-$1
Jan-13
Gas

Jul-13
Ethane

Jan-14
Propane

Jul-14
Butane

-$1
Jan-15
Jul-15
Jan-16
Pentanes +
Total Margin

Methane is still the

largest revenue and
margin component
Ethane is near
breakeven
Propane is deep
underwater
Butanes and pentanes+
are profitable
The best strategy is to
dump ethane and
propane into the gas

Source: GPMi Monthly NGL Report

June 8, 2015

Gas Processing Management Inc.

19

Presentation Outline
GPMi Introduction
Canadian and U.S. NGL Production
Recent Prices and Margins
How Bad Is It?

What Will Happen Next?

Disposition Options
Petrochemical Opportunity

Conclusion

June 8, 2015

Gas Processing Management Inc.

20

How Long Will The Glut Last?

The reality is that
the US no longer
needs Canadian
gas and NGLs
It is fixing its own
surplus

This is a
fundamental,
permanent shift
The glut will last
until we develop
alternative markets
June 8, 2015

Gas Processing Management Inc.

21

What Will Happen Next? Option 1

June 8, 2015

We muddle along
The NIMBYs and
BANANAs slow
everything down
We miss the boat for
LNG and LPG exports
Canadian natural gas
and NGL industry
declines
The probability of this
option is way too high
!
Gas Processing Management Inc.
22

What Will Happen Next? Option 2

Waterborne LPG
exports increase
Petrogas at Ferndale
Pembina at Portland
Others Prince Rupert?

We capture a share of
the S.E. Asia market
This option is difficult
but doable
Canada desperately
needs this option
June 8, 2015

Gas Processing Management Inc.

23

What Will Happen Next? Option 3

Hot LNG
Ethane & propane
streamed to the west
coast with C4 & C5s
to Alberta
Potential risk to
existing ethane supply
for petchems

Canada needs the

LNG option to save
the gas industry from
irreversible decline
June 8, 2015

Gas Processing Management Inc.

24

What Will Happen Next? Option 4

Petchem demand
increases
Petchems maximize
propane cracking
They consider adding
C3 cracker capacity
PDH and
polypropylene plants
get built
This probability of this
option is uncertain
June 8, 2015

Gas Processing Management Inc.

25

What Will Happen Next? Option 5

June 8, 2015

A Deus Ex Machina
saves the day
Geopolitical events
drive prices back to
high levels
The NIMBYs finally
understand
economics
We implement
supportive
government policy
Stranger things have
Gas Processing Management
Inc.
26
happened

Petrochemical Option
The Petrochemical
Industry needs a
healthy producing
sector
Without it, there is no
feedstock and no
Petrochemical Industry

It is a buyers market
and a good time to
lock up long term
supply
Is there a role for
government?
Son of IEEP perhaps ?
June 8, 2015

Gas Processing Management Inc.

27

Presentation Outline
GPMi Introduction
Canadian and U.S. NGL Production
Recent Prices and Margins
How Bad Is It?

What Will Happen Next?

Disposition Options
Petrochemical Opportunity

Conclusion

June 8, 2015

Gas Processing Management Inc.

28

Conclusion
We have a large and growing surplus
of natural gas and NGLs in Western
Canada
Existing markets cannot consume it
and the U.S doesnt need it
The upstream sector is fighting for
survival
Canada must develop alternative
markets for its gas and NGLs
June 8, 2015

Gas Processing Management Inc.

29

Conclusion
We are all in this together
Producers, Midstreamers and Petchems
as well as Provincial and Federal
governments

Survival of the Petrochemical Industry

depends upon a healthy Upstream
Sector
If we dont solve this problem soon,
there may not be many more CERI
Petchem conferences
June 8, 2015

Gas Processing Management Inc.

30

Gas Processing Management Inc.

Gerry Goobie, P.Eng.
gerry@gasprocessing.com
403-680-9110
Dave Tulk. P. Eng.
tulk @gasprocessing.com
403-813-0254
www.gasprocessing.com
June 8, 2015

Gas Processing Management Inc.

31

Disclaimer
This presentation has been prepared for the sole benefit of attendees at
the CERI 2015 Petrochemical Conference. This presentation or any part
of it shall not be provided to third parties without the express written
consent of Gas Processing Management Inc.
Gas Processing Management Inc. conducted the analysis herein utilizing
reasonable professional skill, expertise, diligence and care consistent
with normal industry practice. All results are based on information
available at the time the analysis was conducted. Changes in factors
upon which the analysis is based could affect the results. Forecasts are
inherently uncertain and Gas Processing Management Inc. accepts no
liability with respect to the Clients or any other third partys conclusions
or decisions which are based on the analysis or forecasts herein.
Some of the information on which this analysis is based has been
provided by others. Gas Processing Management Inc. has utilized such
information without verification unless specifically noted otherwise. Gas
Processing Management Inc. accepts no liability for errors or
inaccuracies in information provided by others.

June 8, 2015

Gas Processing Management Inc.

32

Other GPMi Areas Of Expertise

Just What The *&#% Is Going On With

Ethane ?
Natural Gas ?
Other NGLs ?
Gas Processing ?
Petrochemicals ?

June 8, 2015

Gas Processing Management Inc.

33