US NGL Supply Outlook:

Exports To Balance

Darryl Rogers
Managing Director, Midstream Oil & NGL
+1 832 679 7265
Darryl.Rogers@ihsmarkit.com

Building a Foundation for Profitable Growth in Uncertain Markets

© 2017 IHS Markit
Discussion topics

• US NGL market backdrop – global crude oil and natural gas prices
and natural gas processing margins
• US natural gas and crude oil production
• US NGL sources of supply – natural gas processing plants and
refineries
• US NGL supply/demand and trade
• US exports and markets served
• Summary and conclusions
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Crude oil markets transition from surplus to
deficit while US natural gas markets remain soft
Crude oil prices (nominal $) • Crude oil market prices are expected to rise
125 after passing through a trough in 2016
100
75
• Crude oil prices are expected to approach
$/bbl

50
25 $80 by 2021
0
2000 2005 2010 2015 2020 • US natural gas prices are expected to be
Source: IHS Energy WTI, Spot Cushing Brent range bounded between $2.80 and $3.40
Henry Hub natural gas prices (nominal $)
per MMBtu between 2017 and 2021
10
8
• US natural gas price is expected to average
$/MMBtu

6 $3 per MMBtu through 2021

4
2
0
2000 2005 2010 2015 2020
Source: IHS Energy

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Rising crude oil prices and low natural gas prices
support midstream/downstream investments
Crude-to-gas price ratio • Crude-to-gas ratios will remain elevated as
40 compared to history
$ per bbl / $ per

30
MMBtu

20 • A high crude-to-gas ratio is synonymous to

10
natural gas processing margins
0 • Natural gas processing margins reflect the
2000 2005 2010 2015 2020
Source: IHS Energy total value available across the midstream
US Gulf Coast natural gas processing margin supply chain from wellhead to NGL end use
100 markets
80
60 • US Gulf Coast natural gas processing
cpg

40
20 margins are expected to rise
0
-20
2000 2005 2010 2015 2020
Source: IHS Energy

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US Lower 48 natural gas production continues to
expand led by the Marcellus and Utica plays
US lower 48 natural gas production • US Lower 48 resource base is quite
100 large
90
• More than 1400 TCF (demand
80 beyond 2040) is economically
US lower
70 48 recoverable at or below $4 per
Bcf/d

60 MMBtu
50
40 • Natural gas production is
30 Marcellus
concentrating from the most prolific
20 and Utica unconventional plays – shale gas
10 and tight oil plays
0
2001 2006 2011 2016 2021
Source: IHS Energy

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US Lower 48 crude oil production turns up as
producers move out of Eagle Ford toward Permian
US lower 48 crude oil production • US Lower 48 crude oil production
12 passed through a trough in 2016
and is expected to recover
10 US lower
48 • Production is expected to reach the
previous peak by 2019;
Million b/d

8
approximately 9.5 million b/d
6 Eagle Ford
• Upstream producers have set their
4 sights on oil and are flocking to the
tight oil opportunities in the
2 Permian
Permian Basin
0
2001 2006 2011 2016 2021
Source: IHS Energy

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US Lower 48 NGL production growth is
underpinned by upstream producers’ activity
US lower 48 NGL production by industry • US Lower 48 NGL production from
6 refineries will remain relatively flat
while NGL recovered from natural
5 gas will expand
Refineries
• Total NGL production is expected to
Million b/d

4
rise by about 1.3 million b/d
3 between 2016 and 2021; reaching
around 5.4 million b/d in 2021
2
Natural gas
• NGL from natural gas processing
1
share of the total will increase from
0
85 to 88% over the same period
2001 2006 2011 2016 2021
Source: IHS Energy

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US Lower 48 ethane and propane production will
continue to expand outpacing other NGL
US lower 48 NGL production • Ethane production is expected to
6 increase from 1.26 million b/d in
2016 to just over 2 million b/d by
Natural
5 Gasoline 2021

• Propane production is expected to

Million b/d

Isobutane
4
increase from 1.74 million b/d in
3 Normal 2016 to just over 2 million b/d by
Butane
2021
2 Propane
• The balance of the NGL are
1
Ethane expected to increase from 1.1
0
million b/d in 2016 to almost 1.4
2001 2006 2011 2016 2021 million b/d by 2021
Source: IHS Energy

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US Lower 48 NGL supplies are outpacing demand
and exports are required to balance the market
US lower 48 exports by product (pipeline + waterborne) • US exports of LPG (propane and
1.0 butane) starting increasing rapidly
0.9 Ethane
between 2012 and 2014
0.8 • US propane export terminals have
expanded and additional capacity is
Million b/d

0.7 Propane
0.6 not required before 2021
0.5 Normal

0.4
Butane
• US ethane pipeline exports started
0.3 Isobutane in 2014 to Canada and have
increased through the Marcus Hook
0.2
Natural and Morgan’s Point export terminals
0.1 Gasoline
0.0 • Natural gasoline is exported via
2001 2006 2011 2016 2021 pipeline to Canada
Source: IHS Energy

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Propane and butane exports from the US are
penetrating traditional and new markets
US propane exports by destination • Total US propane and butane exports are
30 Southeast Asia
expected to increase from 4 million metric
Million metric

25 Taiwan
20 Korea tons in 2008 to around 38 million metric
tons

Japan
15 Middle East tons by 2021
10 Africa
5 Europe
0 Latin America • US propane exports have increased to
2001 2006 2011 2016 2021 Canada China and are expected to increase while
Source: IHS Energy
China
butane exports have increased to Japan
US total butane exports by destination
12 China • US propane exports to China are expected
Million metric

10 Southeast Asia
8 Taiwan to rise to over 12 million metric tons by
2021
tons

6 Korea
4 Japan
Africa
2
Europe • US butane exports to China are expected to
0
2001 2006 2011 2016 2021 Latin America rise to almost 6 million metric tons by 2021
Source: IHS Energy
Canada

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US ethane production is finding alternative
markets on continent and internationally
US ethane lifted volumes (actual / estimated) • Total US ethane exports from the US
1,200
Northeast and US Gulf Coast are finding
Thousand Metric

800 new markets

tons

400
0 • The new markets are Canada, Western
2016 2017 Total Europe, and India; penetration into other
Morgan's Point Marcus Hook
(September 2016) (March 2016) international markets depends on the US
Source: IHS Energy
ethane price, supply chain costs, and
US ethane lifted volumes on a ratable basis ethylene production cash costs versus the
150 “local” ethylene feedstock alternative
Thousand b/d

100
• US ethane waterborne exports are
50
expected to approach 215,000 b/d (4.4
0 million metric tons) by 2021
2016 2017 Total
Source: IHS Energy
Marcus Hook Marcus Hook

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The US crude oil and natural gas markets supply
length and strength will result in excess NGL
• Low natural gas relative to crude oil prices will support midstream and
downstream investments
• US supplies of natural gas and crude oil from unconventional plays and basins will
drive NGL production growth
• US LPG, propane and butane, exports are required to balance the market
• US ethane exports via pipeline to Canada and waterborne trade to Europe and
India have started and will slowly increase in the coming years
• US midstream and NGL infrastructure, specifically pipelines and exports
terminals, will need to be expanded to support increasing trade

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 Appendix

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Existing and potential US ethane export points for
waterborne transportation and deliveries
Company / Location Availability of export capacity Ethane supply structure Terminal logistics

Enterprise Products • 200 kb/d operating capability, operating Q3 • Long term contracts • Demethanizer at the terminal to
1 Partners (Morgan’s 2016 • FOB basis remove methane
Point, TX) • Firm contracts for 150 kb/d with options to • Prefer VLEC/Dragon vessels
increase to 190 kb/d
Sunoco Logistics • ME1 72 kb/d operating capacity and batch • Long term contracts • Fast loading
(Marcus Hook, PA) mode • FOB basis • Cryogenic storage
2 • ME 1 converts to ethane service 65 kb/d • Can handle large or small ships
when ME2 is operational
• ME2 275 kb/d primarily LPG (some ethane
volume commitments TBD) expected startup
by late 2017
• ME2x open season
American Ethane • 250 kb/d (2018 planned) • Uncertain supply plan • Terminal would be located in
3 (Shady Grove, LA) Louisiana.

• Other US ethane export business development projects are likely in the works

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