Energy and commodity price benchmarking and market insights

Transcription

1 Energy and commodity price benchmarking and market insights London, Houston, Washington, New York, Portland, Calgary, Santiago, Bogota, Rio de Janeiro, Singapore, Beijing, Tokyo, Sydney, Dubai, Moscow, Astana, Kiev, Porto and Johannesburg

2 North American shale gas revolution: Exports and new pricing for Asian LNG and LPG Singapore Jeff Kralowetz 19 April 2013

3 Growing US shale gas production The new trajectory of US gas production The broken link between rig rates and output Where is the demand? Will the US commit to LNG exports? Will British Columbian gas beat US LNG to Asia?

4 US gas shale production history and trends

5 Global shale reserves US is not the only game

6 Shale leads US natural gas production EIA 2013

7 Gas rise rooted in new technology

8 Wood Mackenzie sees liquids as the key

9 US shale counters offshore production declines US Lower 48 gross production Dec 2012 Texas 30% Wyoming 8% Other States (Excluding Alaska) 33% US Lower 48 gross production Dec 2007 Texas 34% Wyoming 11% Other States (Excluding Alaska) 20% Oklahoma 8% New Mexico 5% Louisiana 10% Federal Offshore Gulf of Mexico 6% Oklahoma 8% New Mexico 7% Louisiana 6% Federal Offshore Gulf of Mexico 14% Source: US EIA, Form-914 data Gulf of Mexico offshore output down 13pc since 2007 Total US production up 32pc since 2005 Shale gas areas Marcellus, Bakken reflected in other states

10 Canada is part of the trend British Columbia production is 3 Bcf/d and should rise to > 8 Bcf/d by 2020 with shale development Shale & tight gas make up 50pc of current BC output Alberta gas production was 10.7 Bcf/d in 2011 Less than 0.1pc of Alberta gas is from shale Production data from state regulators, energy ministries, EIA

11 Decline curves should make output respond to price

12 Link between rigs and output no longer firm

13 No revolution in US demand to match supply

14 Exports

15 Argus forward curves: US gas price below $5.75 to 2019

16 US becomes net gas exporter by 2020

17 EIA sees gas exports to Mexico and Canada

18 $/mmbtu Bcf/d US exports to Mexico have risen in recent years Export volumes: 1.7 Bcf/d Bcf/d Bcf/d 2008 US exports and export prices to Mexico Export vols to hit 4.7 bcf/d by 2035 (EIA) CFE shifts to gas Mexican shale resource big, but will it be developed? Jan-07 Jan-09 Dec-10 Dec-12 Prices Volumes Sourc: US EIA

19 IEA expects Asian deficit in gas to continue

20 Australia may lose most from US exports to China

21 and Japan Copyright 2012 Argus Media Ltd. All rights reserved.

22 US and Canadian LNG plans

23 US and Canada have long list of LNG export proposals

24 Sabine Pass is only approved US LNG export plan

25 US LNG to Japan setting new price precedent

26 Canada rivals US LNG to Asia Canadian project approval faster, less opposition Shipping distance is shorter Integrated projects Three projects already have approved export licenses from National Energy Board: LNG Canada = Shell, Korea Gas, Mitsubishi, PetroChina 1 bcfd Coastal GasLink line by TransCanada Kitimat LNG = Apache, Chevron (EOG & EnCana out) 1.7 bcfd Pacific Trails pipeline BC LNG Co-op = Haisla Nation, LNG Partners in Houston

27 BC government seeking Prince Rupert LNG Solicited expressions of interest in building LNG project on Crown land at Grassy Point new Prince Rupert. Bidders were: Nexen (CNOOC)/Japan s INPEX and engineering company JGC Australia s Woodside Petroleum (operator of North West Shelf, owner of Pluto) Korea s SK Canada s Imperial Oil Resources /ExxonMobil Canada

28 BC gas export scenario from Frazier Institute/NEB

29 Projected LNG exports from British Columbia

30 NGL implications

31 US NGL supply growth to continue Shale development will continue to boost NGL production from gas and associated crude drilling In the near term, production will continue to outpace demand EIA NGL production forecast, 000 b/d

32 NGL inventories way above 5-year average 80,000 65,000 50,000 35,000 20,000 Propane Ethane Butane Oct-12 5-year average Source:EIA

33 BOE, $/BBL Ethane from shale oversupplied, rejected to gas Crude Oil Nat Gas Ethane Propane Ethane discount increases as supply increases

34 $/t Cheap US ethane gives US petchems advantage vs Asia US ethane is by far cheapest feedstock versus naphtha worldwide Only competition to US ethylene is from Middle East; eventually other crackers may switch to lighter feedstocks Ethane v Naphtha 1,300 1, Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Naphtha Japan Naphtha NWE Naphtha USGC US ethane

35 US petchem expansions kick in about 2016

36 BOE, $/BBL US propane oversupplied, kicked out by petchems Crude Oil Nat Gas Ethane Propane Shale gas ethane detrimental to propylene co-production but Shale gas propane leads to PDH on-purpose propylene opportunities

37 Incentive to make propylene on purpose via PDH Differential Typically > $500/mt 2012 Avg > $750/mt Future? Propane exports New propylene capacity

38 New PDH will bring US propylene supplies back PDH: 5 Plants announced in US; 1 in Canada U.S. Propylene, KTA 3.4 Mil Ton/yr New PDH plants to consume 210,000 b/d of C3 Propylene output to rise 40,0000bl/month + >20% capacity in 2015/2016

39 NGL export outlook

40 $/t Propane most likely NGL export Arbitrages consistently strong China needs PDH feedstock Panama Canal expansion in 2015 cuts time and cost to Asia Will compete with Latin America for US propane US Propane vs FEI, ARA Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 US ARA arb US FEI arb

41 Panama Canal expansion is a fundamental change Could cut freight costs by 30pc VLGCs transit from Caribbean to Japan will be cut by 11 days Canal expansion scheduled for mid 2015 just as Mt Belvieu export expansions begin operating Photo courtesy of Panama Canal Authority

42 US propane exports already trending up Enterprise Terminal o Expansions online in March o 7.5mn bl/m expanded capacity Targa Terminal o Expansions underway o 5mn bl/m expanded capacity Sunoco Mariner East o ~900,000 bl exported in 2012 o 70,000 b/d expanded capacity U.S. Exports of Propane and Propylene ('000 bl/mo) Source: EIA

43 US propane export/pdh capacity

44 Other C3 export projects on deck Vitol/Itochu Beaumont, TX 40 ft draft, 3mn bl/month, FID June 2013; in service 2014 Sunoco/Lone Star Nederland, TX 5 docks connected to refineries, complete 2015 Intercontinental Deer Park (Houston Ship Channel) barge and rail connected, complete 2015 BG Americas Lake Charles, LA unannounced, near LNG terminal Occidental Ingleside, TX (Corpus Christi) 45 ft draft, supply agreement with DCP Sand Hills pipeline BP Cherry Point, WA speculative AltaGas/Idemitsu Kitimat, BC feasibility study underway, near Pacific Northern pipeline, 2016 planned operation Copyright 2012 Argus Media Ltd. All rights reserved.

45 LPG Exports in 2012 Mexico 10.8mn bl Central America 1.3mn bl Caribbean - 6mn bl South America 17.3mn bl Europe 6.8 mn bl Far East 3.7mn bl Source: Enterprise Product Partners estimates

46 Jan 2012 Mar 2012 May 2012 Jul 2012 Sep 2012 Nov 2012 Jan 2013 Mar 2013 Will the US/Asian arbitrage remain open? Propane Argus Far East Index, USD/t, cfr Propane Mt Belvieu Non-LST USD/t, pipeline fob Propane Saudi Aramco CP month 1, USD/t, fob

47 Conclusion Shale gas production growth to continue Gas and NGL demand outpace demand in US/Canada Limited opportunities for fuel switching LNG export will be approved more limited in the US than in Canada US petrochemical industry will expand to use low-cost ethane US propane export capacity growing, supported by Panama Canal expansion in 2015

48 Any questions?

49 Thank you Jeff Kralowetz Vice President, Business Development Phone: URL: Copyright notice All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence from Argus. Without limiting the foregoing, by reading this presentation you agree that you will not copy or reproduce any part of its contents (including, but not limited to, single prices or any other individual items of data) in any form or for any purpose whatsoever without the prior written consent of Argus. Trademark notice ARGUS, ARGUS MEDIA, the ARGUS logo, FMB, DeWitt, ARGUS publication titles and ARGUS index names are trademarks of Argus Media Ltd. Visit for more information. Disclaimer All data and other information presented (the Data ) are provided on an as is basis. Argus makes no warranties, express or implied, as to the accuracy, adequacy, timeliness, or completeness of the Data or fitness for any particular purpose. Argus shall not be liable for any loss or damage arising from any party s reliance on the Data and disclaims any and all liability related to or arising out of use of the Data to the full extent permissible by law.

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