Export Demand for Propane and Butane Platts 7 th Annual NGLs Conference

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1 Export Demand for Propane and Butane Platts 7 th Annual NGLs Conference October 31, 2017

2 Forward - Looking Information This presentation contains forward-looking statements and forward-looking information (collectively referred to as forward-looking statements ). When used in this presentation, the words will, intend, plan, potential, generate, deliver, can, continue, drive, anticipate, target, come, create, position, achieve, seek, propose, forecast, estimate, expect, solution and similar expressions (or the negative of such expressions), as they relate to AltaGas Ltd. ( AltaGas ) or any affiliate of AltaGas, are intended to identify forward-looking statements. In particular, this presentation contains forward-looking statements with respect to, among others things, business objectives, strategies, expected growth, results of operations, performance, expectations regarding growth and development projects and opportunities (including expected EBITDA, capital expenditures, facility design specifications, location and location benefits, site layout, progress of construction, development timelines, capacity, connection capability to infrastructure, transportation options, transmission options, options for producers, access to markets, sale and purchase of LPG, export capability, and expected dates of construction completion, final investment decision, commercial operation, in-service and on-stream), supply and demand of propane and benefits for producers. Information and statements contained in this presentation that are not historical facts may be forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forwardlooking statements. Such statements reflect AltaGas current views with respect to future events based on certain material factors and assumptions and are subject to certain risks and uncertainties including without limitation, changes in market competition, governmental or regulatory developments, changes in political environment, changes in tax legislation, general economic conditions, capital resources and liquidity risk, market risk, commodity price, foreign exchange and interest rate risk, operational risk, volume declines, weather, construction, counterparty risk, environmental risk, regulatory risk, labour relations and other factors set out in AltaGas continuous disclosure documents. Many factors could cause AltaGas or any of its business segments actual results, performance or achievements to vary from those described in this presentation including, without limitation, those listed above as well as the assumptions upon which they are based proving incorrect. These factors should not be construed as exhaustive. Should one or more of these risks or uncertainties materialize, or should assumptions underlying forward-looking statements prove incorrect, actual results may vary materially from those described in this presentation as intended, planned, anticipated, believed, sought, proposed, forecasted, estimated or expected, and such forward-looking statements included in this presentation herein should not be unduly relied upon. These statements speak only as of the date of this presentation. AltaGas does not intend, and does not assume any obligation, to update these forward-looking statements except as required by law. The forward-looking statements contained in this presentation are expressly qualified by this cautionary statement. Financial outlook information contained in this presentation about prospective financial performance, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management s assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this presentation should not be used for purposes other than for which it is disclosed herein. In this presentation we use certain supplementary measures, including Normalized EBITDA and Normalized Funds from Operations, that do not have any standardized meaning as prescribed under U.S. generally accepted accounting principles ( GAAP ) and, therefore, are considered non-gaap measures. AltaGas method of calculating these non-gaap measures may differ from the methods used by other issuers. Readers are advised to refer to AltaGas annual Management s Discussion and Analysis ( MD&A ) for the year ended December 31, 2015 for a description of the manner in which AltaGas calculates such non-gaap measures and for a reconciliation to the nearest GAAP financial measure. Readers are also cautioned that these non-gaap measures should not be considered as alternatives to other measures of financial performance calculated in accordance with GAAP. Additional information relating to AltaGas can be found on its website at The continuous disclosure materials of AltaGas, including its annual MD&A and Consolidated Financial Statements, MD&A and unaudited condensed interim Consolidated Financial Statements for the period ended June 30, 2016, Annual Information Form, Information Circular, material change reports and press releases, are also available through AltaGas website or directly through the SEDAR system at and provide more information on risks and uncertainties associated with forward-looking statements. This presentation does not constitute an offer or solicitation in any jurisdiction or to any person or entity. No representations or warranties, express or implied, have been made as to the accuracy or completeness of the information in this presentation and this presentation should not be relied on in connection with, or act as any inducement in relation to, an investment decision. 1

3 Ridley Island Propane Export Terminal RIPET Joint venture between AltaGas LPG and Vopak Canada JV controls right to export propane and butane from Ridley Island 40,000 B/D of propane using an existing dock Supplied 100% by rail Under construction with COD of Q1/19 Self-perform model for construction of LP tank 2

4 RIPET Proud of our EPC Capabilities Outer wall of LP tank will consist of nine pretensioned concrete segments Pictures taken on Sept. 7 Shows framing in place for pour of second concrete wall 3

5 RIPET Commercial Considerations 50% of supply from AltaGas facilities with remainder from WCSB producers SPA executed with Astomos Energy Corporation for 50% of anticipated facility output Strategic locational advantage over other commodity export terminals What should the joint venture be thinking post-cod: What market related information and trends should be monitored? 4

6 LPG Export Uncertainty Identifying Opportunities and Risks 1. Current Market: What are current export volumes out of the US and other regions? Where are those volumes being consumed? What major structural changes have occurred? 2. Potential Changes: What areas can see the broadest shift in supply? What factors and events can shift future demand? Will changing fundamentals result in new structural shifts? What are the wild cards to consider? 5

7 Current Market Where US NGLs are Coming From Butane in 2016: 11,000 B/D Propane in 2016: 6,000 B/D Butane in 2016: 12,000 B/D Propane in 2016: 29,000 B/D Butane in 2016: 4,000 B/D Propane in 2016: 40,000 B/D Butane in 2016: 79,000 B/D Propane in 2016: 721,000 B/D Total US Exports: YTD Propane 795,000 B/D 945,000 B/D Butane 107,000 B/D N.A. Source: U.S. Energy Information Administration 6

8 Current Market Average Daily US Propane Exports US rapidly increased propane exports as excess supply became available Maximum throughput continues to increase: the market can take what the US gives On track to be averaging 1.5 MM B/D 7

9 Current Market Average Daily US Butane Exports Gasoline blending creates huge domestic market for butane Exports prior to 2010 (likely from Ferndale) consistently below 50,000 B/D Exports will increase only as a result of lower prices due to supply surplus 8

10 Current Market Where Seaborne NGLs are Coming From Country 2016 (~MTPA) Share United States % Saudi Arabia % Qatar 9 12 % UAE 9 12 % Algeria 6 8 % Norway 4 6 % Kuwait 4 6 % Iran 3 5 % US is world s largest exporter of seaborne LPG 2016 exports from Middle East accounted for ~50% of global seaborne supply At 0.43 MMB/D, exports from Enterprise alone were larger than from any non-us country Doubling volume from Iran would equate to a 12% increase in supply from the US Source: IHS Markit, Finding Global End Use Markets for the Growing LPG Supply 9

11 Current Market Where US NGL Exports are Going 1,400 1,200 1, US LPG Exports by Destination Export % by Destination 2017 YTD 51% 22% 4% 14% 9% LPG exports from US continue to grow Roughly 90% of US LPG exports were propane 51% of YTD volume going to Asia (50% of Enterprise exports in 2016 went to Asia) Exports to other areas of North America, South America, Europe, and Africa remain flat North America South America Europe Africa Asia Source: U.S. Energy Information Administration 10

12 Current Market Global Demand for NGLs Country 2016 (~MTPA) Share China % United States % India 25 9 % Saudi Arabia 20 7 % Japan 10 3 % Rest of World % China is world s largest consumer of LPG The five largest LPG consumers account for ~50% of global demand Changes in demand in China and India can have a large impact Source: IHS Markit, Finding Global End Use Markets for the Growing LPG Supply 11

13 Current Market Recent Structural Changes Changes in US oil and gas production have had a profound global impact: Lower crude and natural gas prices Global propane priced off natural gas (instead of Brent crude oil) US developed new terminals: now the world s largest exporter of NGLs NE Asian LPG prices now set largely by cost to ship from MTB Response of other nations: Additions made to VLGC fleet and related infrastructure Petrochemical feedstocks shifting from naphtha to NGLs Desire for value add plus less refining reduced Middle East surplus of NGLs Lower price increases ability of NGLs to access residential markets 12

14 Current Market Geography Determines Seaborne LPG Routes 13

15 Future Changes Potential Supply Shifts North American supply: Start up of Mariner East II and Marcus Hook Expansion II What will market impact be of 275,000 B/D off the east coast? Will improved NGL egress from Marcellus/Utica create additional barrels? How will flow of supply to other markets change? Westcoast exports set to increase (50, ,000 B/D) Will there be additional investment in Northeast US and USGC fractionation Potential export constraints as US supply grows 14

16 Future Changes Potential Supply Shifts Despite significant growth, Enterprise have suggested that LPG export capacity could become constrained again by 2020 Source: Platts Source: EPD Fundamentals and Company Announcements 15

17 Future Changes Potential Supply Shifts Global supply: Most global LPG growth will be in areas that already have a surplus Middle East LPG production will continue to grow Iran looking to double LPG production (add up to 250,000 B/D) Growing Middle East supply will be balanced somewhat by continued investment in petrochemical facilities A return to higher shipping costs will influence competitiveness of regional supply sources vis-à-vis USGC supply Netback gains for RIPET will be 50% of any increase in shipping costs from USGC to Northeast Asia 16

18 Future Changes Potential Demand Shifts Price considerations: LPG is a by-product: can always be competitive with ethane and methane Rising oil prices will make LPG more attractive as a feedstock than naphtha Environmental considerations: Cleaner fuel than diesel and coal Easier to process, ship, store, and distribute than LNG Economic considerations: Growth of global demand for olefins Increased purchasing power of China and India 17

19 Future Market Additional Structural Changes Limits to growth for US supply: Little room for expansion into Central America, South America and Europe Southeast Asia dominated by Middle East supply Growth for US supply will need to be in Northeast Asia Pricing: Expect MTB to continue as dominant global index Market differentials to be determined based on freight costs Competitive orbits of influence to evolve New markets will require new infrastructure: LPG terminals cheaper to build and easier to operate than LNG terminals Residential markets require investment in downstream facilities and networks 18

20 Future Changes Evolving Orbits of Regional Influence 19

21 Future Changes Potential Wild Cards Radical shift in Middle East approach to LPG pricing Accelerated impact of climate change Increased geo-political instability Advances in battery and renewable energy technology Impact of natural disasters Japan increased propane mix/reserve targets after Fukushima Operating incidents or acts of terrorism NIMBY efforts to delay or impede infrastructure investments 20

22 Conclusions US LPG supplies will likely continue to increase Global LPG supply growth may temporarily be impacted by facility constraints Increased LPG supplies will compete on price and by creating new demand Expanding residential demand in China, India, and new markets will be key MTB will continue to dominant as price discovery mechanism Location will be the major determining factor in market reach of export facilities RIPET rocks! 21