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© 2013 The Williams Companies, Inc. All rights reserved.
Is there going to be enough ethane to support capacity expansion?
Ethane to Ethylene & Derivatives 2013 – Global Petrochemicals Markets Summit Williams NGL & Petchem Services October 29, 2013
Williams Ft. Beeler WV plant
© 2013 The Williams Companies, Inc. All rights reserved. 2 AmericanBusinessConferences | 10/29/2013
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Ethane to Ethylene & Derivatives 2013
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© 2013 The Williams Companies, Inc. All rights reserved. 3 AmericanBusinessConferences | 10/29/2013
Forward-looking statements continued
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In addition to causing our actual results to differ, the factors listed above may cause our intentions to change from those statements of intention set forth in this announcement. Such changes in our intentions may also cause our results to differ. We may change our intentions, at any time and without notice, based upon changes in such factors, our assumptions, or otherwise.
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Investors are urged to closely consider the disclosures and risk factors in Williams’ and WPZ’s annual reports on Form 10-K filed with the SEC on Feb. 27, 2013, and each of our quarterly reports on Form 10-Q available from our offices or from our websites at www.williams.com and www.williamslp.com.
Ethane to Ethylene & Derivatives 2013
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© 2013 The Williams Companies, Inc. All rights reserved. 4 AmericanBusinessConferences | 10/29/2013
Agenda
> NGL Production: More supply, what about demand?
> Infrastructure: The challenges of linking supply with demand
> Alternatives: Are there “new uses” that could change the conventional wisdom?
> Globalization: Will exports change our economic outlook?
Ethane to Ethylene & Derivatives 2013
© 2013 The Williams Companies, Inc. All rights reserved. 5 AmericanBusinessConferences | 10/29/2013
NGL Production: How big is BIG?
Ethane to Ethylene & Derivatives 2013
© 2013 The Williams Companies, Inc. All rights reserved. 6 AmericanBusinessConferences | 10/29/2013
The United States has become the largest oil & gas producer in the world
Ethane to Ethylene & Derivatives 2013
Source: U.S. Energy Information Administration Note: Petroleum production includes crude oil, natural gas liquids, condensates, refinery processing gain, and other liquids, including biofuels. Barrels per day oil equivalent were calculated using a conversion factor of 1 barrel oil equivalent = 5.55 million British thermal units (Btu).
© 2013 The Williams Companies, Inc. All rights reserved. 7 AmericanBusinessConferences | 10/29/2013
Major swing from gas drilling to crude oil drilling
Ethane to Ethylene & Derivatives 2013
© 2013 The Williams Companies, Inc. All rights reserved. 8 AmericanBusinessConferences | 10/29/2013
Will the US maintain the gas-based advantage as crude oil experiences similar development growth?
Ethane to Ethylene Derivatives 2013
© 2013 The Williams Companies, Inc. All rights reserved. 9 AmericanBusinessConferences | 10/29/2013
US NGL supply doubles over the next decade
Ethane to Ethylene Derivatives 2014
-‐
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
US Total NGL Supply by Source(barrels per day)
Refinery Natural Gas Imports Inventory Change
-‐
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
US Total NGL Supply by Product(barrels per day)
Ethane Propane Iso-‐Butane Normal Butane Natural Gasoline
Source: Williams proprietary research; assumes total production with no infrastructure constraints
© 2013 The Williams Companies, Inc. All rights reserved. 10 AmericanBusinessConferences | 10/29/2013
NGL “export” volumes have potential for development of advantaged petchem assets
Ethane to Ethylene Derivatives 2013
-‐
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
US Total NGL Demand from All Sources(barrels per day)
Residential/Commercial Utility, Farm, Other
Industrial Fuel
Refinery Chemical
C3+ Supplies available for export Ethane Export/Rejection Potential
Source: Williams proprietary research; assumes total production with no infrastructure constraints
© 2013 The Williams Companies, Inc. All rights reserved. 11 AmericanBusinessConferences | 10/29/2013
Additional ethane available after 2018
Ethane to Ethylene Derivatives 2013
-‐
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
US Ethane Supply by Source(barrels per day)
Natural Gas Refinery Imports Inventory Change
-‐
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
US Ethane Demand from All Sources(barrels per day)
Chemical Utility, Farm, Other Industrial Ethane Rejection Potential
Source: Williams proprietary research; assumes total production with no infrastructure constraints
© 2013 The Williams Companies, Inc. All rights reserved. 12 AmericanBusinessConferences | 10/29/2013
The NE ethane drives the incremental growth opportunities
Ethane to Ethylene Derivatives 2013
-‐
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
1990
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US Ethane Supply from Natural Gas by Region(barrels per day)
Gulf Coast Midwest Rockies West Coast Northeast
Source: Williams proprietary research; assumes total production with no infrastructure constraints
© 2013 The Williams Companies, Inc. All rights reserved. 13 AmericanBusinessConferences | 10/29/2013
Ethane margin is gone & may not return until 2017+
Ethane to Ethylene Derivatives 2013
© 2013 The Williams Companies, Inc. All rights reserved. 14 AmericanBusinessConferences | 10/29/2013
NGL Production: How big is BIG?
> NGL supply doubles over the next decade
> Exports are required to balance demand with supply – Timing constraints to building infrastructure and consuming plants – Difficult to commit to downstream investments without certainty of supply
> Ethane could remain in rejection for an extended period of time
> Wildcard: Will crude oil production growth change the economics of ethane cracking?
> Infrastructure constraints will limit growth at times
Ethane to Ethylene & Derivatives 2013
© 2013 The Williams Companies, Inc. All rights reserved. 15 AmericanBusinessConferences | 10/29/2013
NGL Infrastructure: The challenge of linking supply with demand
Ethane to Ethylene & Derivatives 2013
© 2013 The Williams Companies, Inc. All rights reserved. 16 AmericanBusinessConferences | 10/29/2013
Balancing NGL supply & petchem demand will result in price volatility over the next decade
Ethane to Ethylene & Derivatives 2013
Nat Gas Plants in US Relative To Shale Plays
Supply develops incrementally, well-by-well, but Demand increments are step changes
• Ethylene Cracker world-scale plant size increases from 60,000 bpd to 90,000 bpd of ethane
• LPG export terminal designs increase to accommodate VLGCs
• Propane Dehydrogenation (PDH) world-scale plant size increases from 18,000 bpd to 33,000 bpd of propane
Source: EIA
© 2013 The Williams Companies, Inc. All rights reserved. 17 AmericanBusinessConferences | 10/29/2013
Williams Marcellus Position: Linking Producers to High Value Markets
• Laurel Mountain Midstream
• Susquehanna Supply Hub
• Ohio Valley Midstream
• Blue Racer Midstream
• Three Rivers Midstream
• Constitution Pipeline – 2015*
• Proposed Leidy Southeast – 2015*
Williams Marcellus Overview
© 2013 The Williams Companies, Inc. All rights reserved. 18 AmericanBusinessConferences | 10/29/2013
Williams Marcellus Focus: Timing and Scale
> Bluegrass provides producers a timely solution to gets NGLs to the highest valued market available.
> Using existing pipeline assets will reduce the development time (late 2015 completion date).
> Configuration of NGL gathering (north end) and fractionation and distribution (south end) are under development.
© 2013 The Williams Companies, Inc. All rights reserved. 19 AmericanBusinessConferences| 1029/2013
| 5/29/2013
Ethane infrastructure in the NE – options are developing
Ethane to Ethylene Derivatives 2013
Bluegrass Pipeline Williams/Boardwalk JV
200-400,000 bpd Y-Grade In-Service = End of 2015
PA MB
LC Geismar
Local Demand? Shell or other cracker projects
ATEX Pipeline Enterprise (EPD)
175,000 bpd C2/C3 In-Service = Q1 2014
Marcus Hook
Mariner East 1 Energy Transfer (ETE)
72,000 bpd C2/C3 In-Service = 1st Half
2015
Mariner West Energy Transfer (ETE)
50,000 bpd Ethane In-Service = Q4 2013
Sarnia
Export to NW Europe
© 2013 The Williams Companies, Inc. All rights reserved. 20 AmericanBusinessConferences | 10/29/2013
Supply > Demand: NE Nat Gas & NGLs
Ethane to Ethylene Derivatives 2013
Source: U.S. Energy Information Administration based on Bloomberg LP Note: Spot prices computed by averaging daily prices for TCO Appalachia and Henry Hub points and then subtracting the average monthly price for Henry Hub from TCO Appalachia. A negative price means that TCO Appalachia has a lower price than Henry Hub. The forward price for TCO Appalachia is the Nymex basis futures contract.
© 2013 The Williams Companies, Inc. All rights reserved. 21 AmericanBusinessConferences | 10/29/2013
Current major projects
> Under construction: − Ethane pipeline system expansion
• First customer deliveries April, 2013 − Texas Belle Pipeline:
Isobutane and Normal Butane
> Under development: − Promesa Pipeline: Ethylene
Pipeline and Storage Hub − Jackrabbit Pipeline: PGP Pipeline
and Storage Hub Development
Williams Petchem Services: Open access solutions for the petrochemicals industry
Petrochemical Products Markets
© 2013 The Williams Companies, Inc. All rights reserved. 22 AmericanBusinessConferences | 10/29/2013
NGL Infrastructure: The challenge of linking supply with demand
> Lead time to complete infrastructure is growing – Competition for resources: labor, engineering, equipment – Permitting backlog – Company limitations on project management and focus
> Multiple solutions are developing – Domestic consumption vs. export – Northeast vs. Gulf Coast
> US has a unique advantage: existing infrastructure to redeploy
> Infrastructure buildout has just started with much work left to be done
© 2013 The Williams Companies, Inc. All rights reserved. 23 AmericanBusinessConferences | 10/29/2013
Globalization: Will exports change our economic outlook?
Ethane to Ethylene & Derivatives 2013
© 2013 The Williams Companies, Inc. All rights reserved. 24 AmericanBusinessConferences | 10/29/2013
Exports are required to meet growth expectations
> Some signals we’re watching – China PDH projects – Ethylene and propylene demand – LNG spiking with LPG for int’l specs – Bottle gas demand in developing
countries – Panama Canal construction – International pricing 2
4
© 2013 The Williams Companies, Inc. All rights reserved. 25 AmericanBusinessConferences | 10/29/2013
The World Needs our LPG… > At 2011 prices, regular users of LPG would need a monthly household
income in excess of US$350 > IEA estimates 40% of households gaining access to modern energy by
2030 will do so by switching to LPG
From “The Role of Liquified Petroleum Gas in Reducing Energy Poverty”,
The World Bank, Extractive Industries for Development Series,
Dec. 2011
© 2013 The Williams Companies, Inc. All rights reserved. 26 AmericanBusinessConferences | 10/29/2013
Bluegrass Project Structure
Ø 1,200 Miles of existing and new pipeline to be placed in Y-Grade NGL service
Ø 200,000 Bbls/d of capacity, expandable to 400,000 Bbls/d
Ø LPG export facility with refrigerated storage for expedited loading
Ø Capable of loading VLGC’s for international markets
Ø Intracoastal barge loading facility for access to local Gulf Coast refinery markets
Bluegrass Project (in service 4Q-2015)
Ø 2 - 100,000 Bbls/d fractionation trains capable of making HD-5 and International grade propane
Ø Y-Grade and purity product storage
Ø Access to pipelines with markets in Lake Charles, Mont Belvieu, Beaumont and the Mississippi River Corridor
© 2013 The Williams Companies, Inc. All rights reserved. 27 AmericanBusinessConferences | 10/29/2013
Williams NGL & Petchem growth strategy is focused on linking new supplies with markets
Canada Petchem
Petrochemical Product Markets
Redwater PDH
© 2013 The Williams Companies, Inc. All rights reserved. 28 AmericanBusinessConferences | 10/29/2013
Alternatives: Are there “new uses” that could change the conventional wisdom?
Ethane to Ethylene & Derivatives 2013
© 2013 The Williams Companies, Inc. All rights reserved. 29 AmericanBusinessConferences | 10/29/2013
How do we bring manufacturing back to the US?
Ethane to Ethylene & Derivatives 2013
© 2013 The Williams Companies, Inc. All rights reserved. 30 AmericanBusinessConferences | 10/29/2013
Ethane to Ethylene Derivatives 2013
0
1,000
2,000
3,000
4,000
5,000
6,000
2008 2013 2018 2023 2028
NGLs – U.S. Supply Growth (No refinery sourced material)
Natural Gasoline
Isobutane
Butane
Propane
Ethane
Manufacturing base requires low-cost supply + infrastructure
Source: Williams proprietary research; assumes total production with no infrastructure constraints
MBbls/day
New market
outlets needed
quickly to sustain development
© 2013 The Williams Companies, Inc. All rights reserved. 31 AmericanBusinessConferences | 10/29/2013
Ethane to Ethylene & Derivatives 2013
Additional ethylene expansions will be needed to keep pace with production growth
0
500
1,000
1,500
2,000
2,500
3,000 20
10
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
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2023
2024
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2028
2029
2030
MB
PD
Estimated US Ethane Supply
Natural Gas Refinery
Estimated US ethane supply
Source: Williams research
Current Announced
Projects
Additional 6 + Crackers Needed
© 2013 The Williams Companies, Inc. All rights reserved. 32 AmericanBusinessConferences | 10/29/2013
Conclusions > The answer to the question “Is there going to be enough ethane to support
capacity expansion?”……. Yes, that is the least of our growth challenges – Other factors will limit our ability to grow before feedstock limits:
• Infrastructure development, particularly new-build pipelines • Capital cost escalation for world-scale projects • Skilled labor availability
– Ethane supplies should be sufficient for 6 additional crackers projects after first wave – Ethane exports could result in additional demand for US production, but transportation
costs are too expensive compared to alternatives to support large volumes
> LPG export is critical to balance NGL markets – The US will quickly become the largest player in the LPG market and the most flexible – LPG export capacity will continue to expand as global demand grows
> The US has a sustainable advantage that will spur manufacturing growth – Growth will be limited by infrastructure development and engineering & construction limits – Combination of US consumer demand and low-cost energy will spur downstream
integration to finished products
Ethane to Ethylene & Derivatives 2013