US Shale and Its Potential to Invade Asian Shores

Transcription

1 US Shale and Its Potential to Invade Asian Shores Michael McCafferty, Petrochemical Analyst APIC, Platts, McGraw Hill Financial. All rights reserved.

2 Outline of presentation Overview of US NGL market growth Where can the incremental US barrels go? How does this change the Arab Gulf s role? What are the economics for ethane exports? 2

3 US NGL production on steady upswing Mb/d 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Source: Bentek US NGL Production from Gas Plants About 40% of the US NGL barrel is ethane, 30% is propane. 3

4 US LPG Market: exports, exports, exports 4

5 Propane s/d balance, exports growing MMb/d 1,800 US Propane Supply/Demand Balance 1,600 1,400 1,200 1, Inventory Draw Exports Res/Comm Petchem Total Supply

6 Oversupply causes depressed US prices 1400 International Propane Values $/mt Japan Propane Europe Propane US Propane /5/ /5/ /5/ /5/ /5/2013 6

7 US LPG exports at record high 500 LPG Export Volumes Mb/d Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 Propane/propylene Butane/butylene Source: EIA, Bentek 7

8 Build-out of US LPG Export Projects Company Project Name State LPG Export Capacity (Mb/d) In-Service Date Existing LPG Export Terminals 400 Enterprise Enterprise TX 130 NA Enterprise Enterprise Expansion I TX Targa Galena Park TX 50 NA Targa Galena Park Expansion Phase I TX Sunoco Logistics Marcus Hook PA 17 NA Brownfield Expansions 490 Enterprise Enterprise Expansion II TX Enterprise Enterprise Expansion III TX Targa Galena Park Expansion Phase II TX Sunoco Logistics Marcus Hook Expansion I PA Sunoco Logistics Marcus Hook Expansion II PA Greenfield -- New Builds 350 Occidental Chemical Oxy TX Sunoco Logistics Mariner South TX Crosstex Energy LP Crosstex LA NA 2015 Repurpose 147 Phillips 66 Freeport LPG TX

9 US LPG trading partners 9

10 Global VLGC flows Major US export partners since 2008 Brazil 15% Canada 15% Mexico 43% Netherlands 14% Japan 10% China 3%

11 Panama Canal changes game US Gulf - Japan (via Cape of Good Hope) 15,600 nautical miles *100 days round voyage *6.4 vessels/million ton LPG

12 Panama Canal to cut shipping costs Middle East - Japan 6,600 nautical miles 46.5 day round voyage 3.0 vessels/million ton LPG

13 Panama Canal changes game US Gulf - Japan (via Panama) 9,200 nautical miles 65 days round voyage 4.2 vessels/million ton LPG

14 Houston-Asia freight eases on Canal expansion 350 Int'l LPG freight rates $/mt Houston-Europe Houston-Japan AG-Japan

15 What product can land in Asia? 15

16 China s PDH plants stoke propane demand/imports Total propylene production from Chinese PDH could reach roughly 8.5 MTPA by 2016 Nine firms building 11 PDH plants by 2015, projected to need 8.04 MTPA propane Four Chinese firms have concluded term contracts to buy 8.27 million mt of propane from the US over Four more PDH plants planned post-2015, one likely in If these 5 projects are realized, expected to need 3.13 MTPA of incremental propane.

17 China s PDH propane contracts Buyer Seller Volume* (MT) Period Source Fujian Meide Targa US Shaoxing Sanyuan Zhejiang Satellite Targa via SK Chemical Astomos, E1, Sojitz US Total 198, US/AG Ningbo Haiyue SK Gas 2x44, AG Ningbo Haiyue Oil Major NA Tianjin Bohai Chem Zhangjiagang Oriental: Contract 1 Zhangjiagang Oriental: Contract 2 Targa via Everglory US Targa/Enterprise via Vilma US Enterprise via E Aug US Zhangjiagang Oriental: Contract 3 Enterprise via E Aug US

18 Asian interest not limited to China SK Gas inks deal June 2013 to buy 360,000 mt shale-gasbased LPG over from North America E1 Corp in November 2012 contracted to buy 180,000 mt/year LPG in 2014 from Enterprise Japan s LPG imports from US set to rise to around 3 MTPA by About 25% of total supplies. In 2013, Japan imported 952,000 mt of US LPG, 8% its total imports of million mt

19 Selected Japanese buyers of US LPG Buyer Contract Volume (mt) Period Basis Signed Astomos Annual Term 2,000,000/3 years Mont Belvieu Feb 2013 Astomos Annual Term 400,000/3 yrs Mont Belvieu Astomos Annual Term 800,000/3 yrs Mont Belvieu Sep 2013 Tokyo Gas*** Annual Term 400,000/5 yrs Mont Belvieu Feb 2013 Tepco*** Annual Term 200,000/2 yrs Mont Belvieu Feb 2013 TEPCO, Tokyo Gas received 1st cargo of term US LPG in January based on MB, first time they will pay basis of benchmark other than the Saudi CP

20 What about traditional Asian suppliers? 20

21 Growth in Mid East LPG Trade Volume Mid East 2014 output seen around 65 million mt, half global LPG Annual output growth to about 70 MTPA in 2016 and 85 MTPA by 2020 But Mideast demand also growing About 25 MTPA for domestic use by 2020, especially from growing petrochemical sector Mid East exports seen around 36 MTPA in 2014, over 37 MPTA in 2016 Compare to US export capacity from 13.4 MTPA currently to over 30 MTPA by 2017

22 US ethane an option in Asia? 22

23 Rejection forcing ethane to price floor Ethane prices: gas floor with no place to go Ethane's BTU value $/MMBtu Ethane Gas Price

24 Ethane Waterborne Exports Will Grow Mb/d 2,500 US Ethane Supply/Demand Balance 2,000 1,500 1, Rejection Exports Petchem Total Supply

25 What will it cost? Plant Specs Plant size (million mt) 1 Operating Rate 95% Ethane feedstock requirement (b/d) 50, Total feedstock (b/year) 17,337, Capital Requirements Ship Capacity (bbls) 250,000 Total deliveries needed Vessels needed for total deliveries 12 Vessel cost $ 85,000, Total vessel outlay $ 1,020,000, Per year contract volume (bbl) 17,337, Per year contracted outlay $ 86,940, Total contract outlay (20-years) $ 1,738,800, Anticipated Plant Cost $ 3,500,000, Total plant capital cost $ 6,258,800,

26 Is an ethane cracker economical? Year Margin (cents/lb) Yearly Revenue 2016 $ (6,258,800,000.00) $ 1,047,185, $ 1,021,643, $ 996,725, $ 972,415, $ 671,419, $ 655,043,242 Project IRR 13.5% 26

27 How does naphtha compare? Plant Specs Plant size (million mt) 1 Operating Rate 95% Feedstock requirement (b/d) 75, Operable days Total feedstocks per year (bbl) 26,006, Capital Cost Ship Capacity (bbls) N/A Total deliveries needed N/A N/A Vessels needed for total deliveries Total contract outlay (20-years) N/A Anticipated Plant Cost N/A Total plant cost $ 3,000,000,000 27

28 Is a naphtha cracker economical? Year Margin (cents/lb) Yearly Revenue 2016 $ (3,000,000,000.00) $ 330,690, $ 338,957, $ 347,431, $ 356,116, $ 515,763, $ 528,657, Project IRR 11.5% 28

29 Conclusions US NGL production to grow to 4.6 MMb/d by 2019 (+1.8 MMb/d) LPG supplies will equate to 20 MTPA. Exports necessary to balance US markets LPG exports Ethane pipeline and waterborne exports Asia emerges as fastest growing export demand center Panama Canal expansion cuts freight, increases competitiveness Chinese and north Asian buyers find AG alternative in US supplies Price and supply diversification PDH represents largest growth potential for propane Ethane exports untested, relative returns could justify high capital cost 29

30 Thank you! Michael McCafferty, Petrochemical Analyst 2013 Platts, McGraw Hill Financial. All rights reserved. 30

31 Supplemental Slides 2013 Platts, McGraw Hill Financial. All rights reserved. 31

32 China s Top 5 LPG Suppliers in 2013 (mt) Country December 2013 Qatar 152,450 UAE 129,361 Australia 53,902 Iran 53,092 Kuwait 81,170 Total* 488,760 Country Full-year 2013 UAE 1,093,199 Qatar 990,547 Kuwait 549,451 Iran 400,214 US 288,086 Total* 4,166,032 Country January 2014 UAE 196,769 US 73,649 Saudi Arabia 73,649 Qatar 44,965 S.Korea 44,096 Total* 473,486 Note: *Includes other countries Source: China's General Administration of Customs

33 Enterprise joins the ethane export game Owner Project Name Location Ethane Capacity (MB/d) In-Service Date Region Sunoco Logistics Marcus Hook Delaware, PA Northeast Enterprise TBD TX US Gulf Coast 33

34 China PDH Plants Propane Contracts Buyer Seller Volume* Period Source Tianjin Bohai Chem Zhangjiagang Oriental: Contract 1 Targa via Everglory Targa/Enterprise via Vilma Aug US Aug US Zhangjiagang Oriental: Contract 2 Zhangjiagang Oriental: Contract 3 Enterprise via E Aug US Enterprise via E Aug US *volume in million mt and all Mont Belvieu-priced related; one cargo around 44,000 mt except for Satellite, which is also based on MB and CP

35 China PDH Propane Contracts Buyer Seller Volume* Period Source Fujian Meide Targa US Shaoxing Sanyuan Zhejiang Satellite Targa via SK Chemical Astomos, E1, Sojitz US Total 198, US/AG Ningbo Haiyue SK Gas 2x44, AG Ningbo Haiyue Oil Major NA Tianjin Bohai Chem Zhangjiagang Oriental: Contract 1 Zhangjiagang Oriental: Contract 2 Targa via Everglory US Targa/Enterprise via Vilma US Enterprise via E Aug US Zhangjiagang Oriental: Contract 3 Enterprise via E Aug US

36 Japanese Buyers of LPG from US Enterprise Products Partners Buyer Contract Volume (mt) Period Basis Signed Eneos Annual Term 200, Mont Belvieu Jul 2012 Eneos Annual Term 300, Mont Belvieu May 2013 TonenGeneral Multi-Year Term 600,000 N/A Mont Belvieu May 2013 Idemitsu Annual Term ,000/3 yrs Mont Belvieu Jul 2012 *Calculated based on company announcement **Under same deal as previous contract ***Astomos to supply Sources: Official statements, traders, domestic media reports

37 Butane supply/demand balance Mb/d 700 US Normal Butane Supply/Demand Balance Exports Isomerization Refinery Inputs Petchem Total Supply

38 Butane price differentials remain wide 1400 Int'l Butane Prices $/mt US Asia Europe

39 Natural gasoline s/d MMb/d 700 US Natural Gasoline Supply/Demand Balance Exports Renewable Fuels Refineries Petchem Total Supply

40 Growth in Global LPG Trade Volume MidEast 2014 output seen around 65 million mt, half global LPG Natural gas production accounts for >50% of regional LPG supply growth since 2008 ~10% of LPG production from refineries Annual output growth to average 2.6%, to about 70 MTPA in 2016 and 85 MTPA by 2020

41 Global trade competition set to heat up Steady-to-higher term supply from Saudi Aramco, ADNOC, Tasweeq in 2014 More butane term supplies, especially to India, Japan Global LPG trade to rise to near 88 million mt in 2017, vs 69 million mt in 2013 Bulk of volumes to come from US

42 UAE output to rival Qatar Abu Dhabi set to rival Qatar as top LPG producer, exporter: ADNOC exec Singapore (Platts)-- 13Jun2013/954 am EDT/1354 GMT Abu Dhabi's LPG output is expected to jump to million mt by 2017, up 3.6 million mt from this year as two new gas projects come on stream over the next year, rivaling Qatar as the top Middle Eastern producer and exporter, an executive with Abu Dhabi National Oil Co said Thursday. The two projects are the 3.3 million mt/year Integrated Gas Development, due to start up in the fourth quarter of 2013, and the 810,000 mt/year Shah Gas Development, slated to be launched in Q Ramthan Hussain,

43 UAE petchem demand growing Abu Dhabi National Chemicals Co (ChemaWeyaat) developing Madeenat ChemaWeyaat Al Gharbia chemicals industrial city, western Abu Dhabi Madeenat ChemaWeyaat to get up to 1 MTPA LPG as feedstock from ADNOC Tacaamol Phase 1 project under ChemaWeyaat master plan Project comprises world's largest reformer with 70,000 b/d capacity, integrated BTX unit to produce benzene, toluene, paraxylene, orthoxylene, metaxylene, light naphtha, LPG for export

44 UAE export growth potential ADNOC, ADGAS exported 8 million mt LPG in 2012 Domestic demand in 2014, before incremental demand for new petrochemical projects, estimated at 790,000 mt To rise to 820,000 mt in 2015, 880,000 mt in 2017 Even with incremental 1 MTPA domestic demand from petchem projects, to start post-2014, Abu Dhabi could export just below 11 million mt LPG in 2015

45 Qatari exports facing a precipice? QATAR'S LPG EXPORTS SEEN FALLING TO MIL MT/YEAR AFTER 2018 AS NEW PETCHEM PLANTS START Tokyo (Platts)--6Mar2014/333 am EST/833 GMT Qatar's LPG exports are expected to fall to "around 8.5 million-9 million mt/year" after 2018, down from its current exports of around 11 million mt/year, as two-three petrochemical projects are due to come onstream around then, Tasweeq CEO Saad Al Kuwari told Platts Thursday. Speaking on the sidelines of the International LP Gas Seminar in Tokyo, Kuwari said Qatar's exports volumes were currently at "around 11 million mt/year... until 2017." Qatar's proposed petrochemical projects at Al Sejeel and Al Karaana are expected to reduce exports volume once they start operations, Kuwari said. Also, Qatar Petrochemical Co. has expansion plans which might also reduce LPG exports volume, he added. Takeo Kumagai, takeo.kumagai@platts.com

46 Qatar s output up on new gas fields Barzan Gas to have 1.4 billion cu ft/day supply capacity To meet increased demand for mega-projects, such as 2022 FIFA World Cup, expanding petrochemical sector Gas to be produced from offshore North Field, estimated to hold up to 900 tcf reserves Ongoing work to up output from offshore Maydan Mahzam, Bul Hanine fields

47 But Qatar s new gas field production limited These fields together produce 45,000 b/d Further exploration drilling to up capacity to 90,000 b/d Further production rise to be slight; exports vie with domestic demand 2005 moratorium on further development of North Field offshore gas deposit beyond that slated to supply domestic market to bring LNG capacity to 77 MTPA Target reached in No firm date on lifting North Field development moratorium

48 Qatar exports curbed by growing petchem demand Qatar petchem projects to start post-2018, will use more LPG: Al-Karaana Petrochemicals project to use 1.2 MTPA propane Qatar s Petroleum s cracker to use 1.1 MTPA butane QP building 800,000 MTPA propane dehydrogenation (PDH) plant Qatar will up chemical/petrochemical output to 23 MTPA by 2020, driven by Al-Karaana, Al-Sejeel projects This in addition to expansion by Qatar Fertiliser Co (Qafco), world s largest single-site producer of ammonia and urea

49 Qatar s overseas projects to eat into LPG output Qatar Petroleum International studying overseas projects that would consume LPG livestock: $4 billion Long Son petrochemical complex in Ba Ria- Vung Tau province, southern Vietnam The 3 MTPA project due for completion Will use 1.5 million mt propane, as well as naphtha as feedstock, to be supplied by QPI

50 Saudi Arabia s falling exports Exports declining steadily on new domestic petrochemical plants demand Aramco s LPG output above 24 MPTA in 2011, on higher crude production Of this, MTPA consumed by petchem industry, after a 37% consumption jump in 2010 Plants include Saudi Polymers Co's Jubail facility, Petro Rabigh, Saudi Kayan Petrochemical

51 Saudi LPG diverted to petchem plants More planned: Farabi Petrochemicals Co, Jazan Petrochemicals Project Output flat or down slightly to around 23 MPTA between Exports down from peak around 12 MTPA in 2005, to about 7.7 MTPAin 2011 and 2012, 7 MTPA in 2013 Exports seen near 7 MTPA in 2014, below that by 2016

52 Saudi term exports dominate Exports dominated by annual term contracts Aramco 2013 term volumes seen million mt. Steady-to-slightly-highter volumes seen for 2014 Saudi term exports dominate Saudi Arabia been reducing spot LPG exports since September 2012, to meet petchem and term demand From peak of 11 x 44,000 mt parcels July 2012, spot exports fell to 1 2 cargoes/month and occasionally none as in January-March 2014

53 Kuwaiti output inching up Produces MTPA LPG Exports million mt/year mainly by term deals, occasionally spot KPC terms around 4 million mt for 2014 KNPC started in February LPG Train-4 with 805,000 scf/d processing capacity at Mina Al Ahmadi refinery $1.35 billion Train-4 produces ethane, propane/butane and 106,300 b/d condensate processing capacity Train-4 integrated with current 3 trains with total 500,000 scf/d capacity

54 Kuwaiti output inching up Kuwait's LPG train 4 expected to start up in Q1 2014: source Singapore (Platts)--4Dec2013/333 am EST/833 GMT Kuwait National Petroleum Co, plans to start up its LPG Train-4 project with a gas processing capacity of 805,000 standard cubic feet/day at the Mina Al Ahmadi oil refining complex in the first quarter of next year, a source familiar with the matter said Wednesday. "The fourth LPG train is currently undergoing testing. It would be officially commissioned around February and would act as a back-up for the existing three trains, offering better operational flexibility to handle the company's portfolio," the source told Platts. The $1.135 billion fourth gas train project, integrated with the three existing trains, are able to produce ethane, propane and butane as well as a condensate processing capacity of 106,300 b/d. KNPC had said construction of the fourth train, led by South Korean contractor Daelim, began in April It plans to build a $1.53 billion gas train 5, due for December 2016 completion. Ramthan Hussain, ramthan.hussain@platts.com KNPC plans $1.53 billion LPG train 5, due for completion December 2016 KNPC building $1.37 billion North LPG tank farm, set for March 2015 completion To up LPG storage to meet Trains 4 and 5 needs, allow simultaneous 2 LPG ships loading

55 Middle Eastern response to US flows Tasweeq, Aramco, ADNOC/ADGAS, KPC, not offering much spot tons so far to vie with US Production problems, project delays keep prices supported With more US flows, MidEast producers may feel pressure Must retain traditional term buyers, dominant position by raising exports, lowering prices, as production from Qatar, UAE, Kuwait increases But can their production and export capacity sustain that, due to rising domestic demand?

56 But Mideast demand also growing About 25 MTPA for domestic use by 2020, especially from growing petrochemical sector Mid East exports seen around 36 MTPA in 2014, over 37 MPTA in 2016 Compare to US export capacity from 13.4 MTPA currently to over 30 MTPA by 2017

57 US ethane continues to be oversupplied REJECTION Rejection is leaving ethane in the natural gas stream instead of purifying it out for individual sale. Source: Bentek

58 LPG regularly used as alternate petchem feedstock

59 Robust IRRs for Liquids-Rich & Oil Plays 18% Montney 55% Bakken Dry Gas Play Uinta Pinedale 15% 40% 1% Piceance Permian 46% Niobrara Granite Wash 31% 48% Cleve/Tonk 38% Miss.Lime 44% 8% Ark/Wood 5% 1% Utica 46% Fayetteville Haynesville 26% 6% Marcellus Oil and/or Liquids Play 48% Eagle Ford