Cass Business School Presentation 29 January London

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1 Cass Business School Presentation 29 January London

2 Connecting high quality analytics with commercial decision making Commercial Advice Consulting Market Insights Multiclient Products Retainer Agreements NGLS Expertise LPG Ethane Olefins and their feedstocks Global petchem gases trade Training/Workshops Jan-18 2

3 Disclaimer IT SHALL BE KNOWN AS NGLSTRATEGY, LLC NGLS. THIS PRESENTATION IS FOR GENERAL INFORMATION PURPOSES ONLY. IT SHOULD NOT BE TAKEN AS PROFESSIONAL ADVICE ON THE MERITS OF THE SUBJECT MATTER OF THIS PRESENTATION. IF NECESSARY, PROFESSIONAL ADVICE SHOULD BE OBTAINED FROM A PRACTITIONER WITH EXPERTISE IN THE FIELD OF THIS SUBJECT MATTER. NGLS MAKES NO REPRESENTATIONS, OR WARRANTIES, OF ANY KIND WITH RESPECT TO THE ACCURACY, COMPLETENESS OR SUITABILITY FOR ANY PURPOSE OF THE INFORMATION CONTAINED IN THIS PRESENTATION. NGLS EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE REGARDING THE MATERIALS AND THIS PRESENTATION. THESE SLIDES MAKING UP THIS PRESENTATION ARE THE INTELLECTUAL PROPERTY OF NGLS AND ARE PROTECTED BY THE COPYRIGHT LAWS OF THE UNITED STATES OF AMERICA AND OTHER COUNTRIES. USE OF THESE SLIDES ARE STRICTLY PROHIBITED WITHOUT EXPRESS PERMISSION OF NGLS. NGLStrategy, LLC Copyright 2018 Jan-18 3

4 LPG Market Fundamentals A Closer Look into the Market Gas Liquid Shipping Intro The Role of the Modern Commodity Analyst Jan-18 4

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6 C1 Methane Power generation and industrial/residential fuel C2 Ethane Petrochemicals Non Associated Gas C3 Propane Petrochemicals and industrial/residential fuel Gas Y-Grade Purities NGL LPG ic4 Isobutane Gasoline components and petrochemicals Gas Plant Fractionation nc4 Butane Gasoline components and petrochemicals C5+ Natural Gasoline Gasoline Associated Gas Crude Condensate (API 47+) Crude blending and diluent Oct-2017 Jan-18 6

7 Upstream Processing Midstream Downstream Exploration Fractionation Refinery Industrial Petrochemical Storage Production Transportation Gasoline Blending PowerGen Truck Shipping Gas Plant Railcar Pipeline Autogas Residential Oct-2017 Jan-18 7

8 USA LPG Downstream Break-down 2016 India LPG Downstream Break-down 2016 Gas Plant Refinery Imports 79% 16% 5% Gas Plant Refinery Imports 10% 42% 48% Total Supply Total Supply 14% 22% 90% 4% Residential 1% 20% Petchem Residential 4% 0% Petchem Autogas 3% 40% Refinery Uses Autogas 1% 1% Refinery Uses Exports Exports Other Other Oct-2017 Jan-18 8

9 mm t Cumulative Increase % Retail vs Petchem Demand Cumulative Increase (%) % % % Retail Petchem Retail Petchem Jan-18 9

10 The main applications within the large bulk sector include the use of LPG components as feedstocks. LPG and ethane, are used to produce ethylene and propylene, which are the building blocks for various petrochemicals & polymers. Feedstocks Naphtha Ethane LPG Petrochemicals Aromatics Olefins (Petchem Gases) Finished Products Fibres Rubber Plastics Oct-2017 Jan-18 10

11 Olefins Major Derivatives Major final Products Ethylene LDPE LLDPE HDPE Ethylene Oxide Propylene Polypropylene Propylene Oxide Acrylonitrile Butadiene PBR SBR SB Latex Oct-2017 Jan-18 11

12 mm t mm t General Factors Market Factors Weather Population GDP/Inflation Price Elasticity Consumption per Capita Stable to Decreasing Stable to Decreasing Some Growth Stable to Decreasing Government intervention Competition with other products Anticipating Changes Infrastructure Funding Availability Retail Growth West High Growth Marketing/Penetration Retail Growth East 20 Some Growth High Potential Jan-18 12

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14 Global Supply 290 mm t Global Supply 365 mm t Global Supply 430 mm t Retail 70% Retail 62% Retail 60% Petchem 20% Petchem 29% Petchem 32% Refinery 9% Refinery 8% Refinery 8% Power Gen Spiking 1% Power Gen Spiking 1-2% Power Gen Spiking 1-2% Oct-2017 Jan-18 14

15 mb/d mmcf/d Major Tight Oil US Production Major Shale Gas US Production 7,000 Permian 70,000 Permian 6,000 Niobrara Haynesville 60,000 Niobrara Haynesville 5,000 Eagle Ford Bakken 50,000 Eagle Ford Bakken 4,000 Appalachia Anadarko 40,000 Appalachia Anadarko 3,000 30,000 2,000 20,000 1,000 10,000 0 Jan-07 Jun-08 Nov-09 Apr-11 Sep-12 Feb-14 Jul-15 Dec-16 0 Jan-07 Jun-08 Nov-09 Apr-11 Sep-12 Feb-14 Jul-15 Dec-16 Source: eia Jan-18 15

16 Global LPG Trade 2005 Global LPG Trade % 10% 52% 41% 3% 19% 8% 25% 13% 4% Total LPG Seaborne Trade mm t +70% % per major region 85 mm t based on total annual volume approximation Total LPG Seaborne Trade 2015 Oct-2017 Jan-18 16

17 mm t mm t Regional Trade Regional Exports <3 Oct-2017 Jan-18 17

18 End Users Trading Supply Export Hub Integrated Traders Petchems Steam Cracking Pure Traders Directly to End-users PDH/nBDH/iBDH Maleic Anhydride Other Refineries Retail/Wholesale Industrial Mostly Blending Heating/Cooking Industrial Use as Fuel Alkylation/Directly Small Commercial Power Generation Aromatization Agricultural NG Enrichment (Spiking) MTBE/ETBE Autogas Other Oct-2017 Jan-18 18

19 Global Influences Middle East Influences N. America Influences N. Europe Influences Far East Influences Oct-2017 Jan-18 19

20 Lower LPG Trade Margins Retail Market Residential Uses Autogas Small Bulk Market Agricultural Uses Small Industrial Uses Large Bulk Market Refinery Uses Petchem Feedstock Large Industrial Uses Power Generation Fuel Substitution including shipping Other industrial Uses Jan-18 20

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22 Product Temp. ( C) Density (t/cbm) Fully Ref Semi-Ref*¹ Pressurized Ethylene*² LNG Methane C 2 Ethane C 3 Propane C 4 Butane ic 4 Isobutane C 3 C 4 Mix LPG Ethylene Propylene VCM Butadiene Butylenes NH 3 Ammonia Membrane*³ Notes *¹ Semi-Ref without ethylene capability *² Semi-Ref with ethylene capability and in some occasions LNG capability *³ GTT s Mark III membrane tanks i.e. Reliance LEGs Oct-2017 Jan-18 22

23 Main LPG Index BLPG Baltic LPG (Baltic Exchange) Route 44,000mt Middle East Gulf to East Publishing time 1600 (London) Index Frequency Monday to Friday Panel Members (as of 2017) Braemar ACM Shipbroking Clarksons Platou Fearnleys EA Gibson Shipbrokers Hesnes Gas Steem1960 Steensland Shipbrokers Poten & Partners Smaller Segments The freight rates in the smaller segments are assessed weekly by the major shipbrokers in the LPG market. TCE rates are based on actual fixtures or in the absence of actual fixtures on market level discussions and bids. TCE rates are assessed for all the LPG shipping segments as published by the shipbrokers weekly. The major segments that brokers are reporting TCE rates are introduced below. Gas Shipping Segments Size ( cbm from) Size (cbm to) VLGC 60,000 86,000 LGC 40,000 60,000 Baltic LPG MGC 22,000 40,000 VLEC 85,000 85,000 Large Semi-Ref 12,000 37,500 Small Semi-Ref 0 12,000 Large Pressurised 6,000 13,000 Small Pressurised 0 6,000 Oct-2017 Jan-18 23

24 Freight Rates Oct-2017 Jan-18 24

25 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Number of Vessels $/t Supply < Demand VLGC S/D Balance Demand turns negative Supply/Demand Balance looks positive beyond 2021 all depends on the global supply/demand factors Baltic LPG (BLPG) VLGC Freight Rate Freight on average levels Freight in historical heights Freight Close to historical lows Net VLGC Supply VLGC Demand Oct-2017 Jan-18 25

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27 Doing the basics in not enough Required to constantly be ahead of the curve Continuous education within and beyond his specialization Be connected with the markets and the commercial world Jan-18 27

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