Al Garcia Business Manager-Americas C4U Trade USA, Inc.

Transcription

1 Revealing Global Trade Flows For Propane And Implications For Supply- Future export markets for North American propane and what this means for PDH feedstock security Al Garcia Business Manager-Americas C4U Trade USA, Inc.

2 Content 1. C4U Trade: specialized logistics & physical trading services firm 2. Global propane arbitrage: driving investment in NGLs 3. On-purpose propylene projects outside U.S: Their effect on U.S. propane pricing and on availability of supply 4. Fuel market dynamics in developing economies, a growing destination for North American NGL exports 5. The effect of exports on domestic pricing and their impact on the business case for PDH production in North America THE KEY QUESTION: Is there enough C3 for everybody? C4U TRADE 2

3 1. C4U Trade Multi-modal, specialized logistics services C4U Trade: A logistics and trading services provider (ship, barge, train) Our logistics-first approach aims to create long term, value- added relationships We increase market efficiency and lower costs by facilitating transactions and leveraging industry partnerships C4U TRADE 3

4 2. Capturing the arb Shale gas discoveries changed global propane market dynamics Shale gas revolution to have long term effect: wells have high depletion rates but very long tails (Adam Sieminsky, EIA Administrator, December 2013) Fractionation capacity at Mont Belvieu increased ONEOK Partners, Lonestar NGL, ETP, and Targa projects will result in a total of 1.7 million barrels of fractionation capacity online by end of 2014 Continuous terminal development led to an increase in propane exports: The quiet (until now) energy export revolution. Upstream, midstream and trading players linking U.S. energy markets to the rest of the world C4U TRADE 4

5 U.S. Propane Export Capacity Existing and Proposed U.S. LPG Terminals Company Capacity (MM tons/year) Location Enterprise 7.5 Houston Ship Channel (HSC) Targa 3.5 HSC Sunoco 0.3 Marcus Hook Enterprise 1.5 HSC. Starting Q Enterprise 6.0 HSC. Starting Q Targa 2.0 HSC. Starting Q Sunoco/Lonestar 6.0 Nederland, TX. Starting Q Williams/Boardwalk N/A Lake Charles, LA. 2016? Phillips Freeport, TX TOTAL 31.2 Source: ICIS, Companies C4U TRADE 5

6 U.S. Average Daily Exports-Propane and Propylene (Thousand Barrels per Day) Source: EIA C4U TRADE 6

7 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Propane spreads as indicators The current forward curve, with a widening spread after the heating season, would seem to indicate that for the time being the propane market is not ready to be bullish Winter Why? I. Unwillingness to reverse a long-term bearish trend. The outlier view II. NGL supply in Marcellus/Utica still to be unlocked sends bearish signal III. Lower market liquidity twelve months out Mont Belvieu/NWE Spread (USD/Ton) Mont Belvieu/Far East Spread in (USD/Ton) C4U TRADE 7

8 3. On-Purpose propylene projects outside U.S. and their effect on U.S. Prices Shale production of NGLs in the U.S. will continue to make U.S. propane an attractive feedstock in the global market China-PDH units as a new market for U.S. propane A total of 17 PDH projects approved=12 MM tons of propane/yr Tianjin Bojai=600,000 tons/year Operational Shaoxing Sanyuan Petrochemical=450,000 tons/year H Zhejiang Satellite Energy=450,000 tons/year H Ningbo Haiyue New Materials=600,000 tons/year H Yantai Wanhua Group=600,000 tons/year H more coming online =2.3 M tons/year Korea and SE Asia-PDH projects would add to demand The Middle East will be competing with U.S. to supply Asian PDH projects Source: ICIS, Sanford C. Bernstein C4U TRADE 8

9 4. U.S. propane as fuel in developing countries Asia-Propane used for heating in NW Asia creates seasonal price volatility. Panama Canal expansion next year will create new opportunities for exports to Asia. Significant effect on U.S. Transportation fuel in many Asian countries. India and SE Asia attractive as growing markets Latin American imports I. Mexico using less propane for cooking. If supported, car market would have good potential II. Brazil-Demand outstripping supply, for now III. No sign of further growth potential African countries offer long term potential for propane as substitute for biomass C4U TRADE 9

10 Mexico LPG demand-gradual decline Mexico: PEMEX LPG Monthly Average Imports (Thousands of barrels/day) Source: PEMEX C4U TRADE 10

11 5. The business case for PDH projects in the U.S. and the effect of propane exports on domestic pricing SUPPLY SIDE The shale revolution is just getting started; C3 resources plentiful; legal and regulatory environment is favorable in the U.S. Technology improvements already leading to higher well productivity Other propane sources (UK, Poland, Argentina, etc) will eventually offer alternatives to U.S. sources; PDH projects create stable demand Gulf Coast offers existing infrastructure and proximity of supply DEMAND SIDE U.S. economy strongest of major economies, consumer spending rising and stimulating demand PDH-produced propylene will help meet rising demand and fill the supply drop caused by lighter feedstock cracking American industrial production expected to continue to recover, generating demand for polypropylene C4U TRADE 11

12 U.S. PDH Projects NORTH AMERICA PDH PROJECTS (TONNES/YEAR) Company Capacity Location Projected start-up C3 Petrochemicals c. 600,000 Alvin, Texas, US Q Enterprise Products 750,000 Texas, US Q Dow Chemical 750,000 Freeport, Texas, US 2015 Formosa Plastics 600,000 Point Comfort, Texas, US 2016 Williams 500,000 Alberta, Canada Q Dow Chemical II 750,000 N/A 2018 Petrologistics 660,000 Houston, Texas, US Operating Enterprise Products II 750,000 Texas, US N/A Source: ICIS and IHS C4U TRADE 12

13 Winter : Testing a Tight Market U.S. Stocks of Propane/Propylene (in Thousands of Barrels) Year Min 5 year Max Week Source: EIA C4U TRADE 13

14 Conclusions Supply and demand factors currently support the long term investment being made in U.S. PDH units Exports likely to add volatility to U.S. propane prices as we are affected by demand signals elsewhere. Especially true after Panama Canal expansion in 2015 With the recent S/D imbalance gone, propane could command a higher winter risk premium. This will place increased emphasis on risk management, logistical flexibility and transportation assets, all of which will be key to manage a more complex market C4U TRADE 14