32
Badlands NGLs, LLC A US Ethane Project Case Study Feb 24, 2016 Badlands NGLS, LLC 1
Badlands NGLs, LLC
A US Ethane Project Case Study
Feb 24, 2016
Badlands NGLS, LLC1
Badlands Background
• Badlands NGLS, LLC (“Badlands”) was incorporated in
August of 2012. Since its inception, Badlands has been
engaged in the development of an ethane gas to
polyethylene (“PE”) petrochemical business.
• Badlands business plan contemplates PE manufacturing
as close to the wellhead as is feasible in order to take
advantage of physically and economically stranded
natural gas liquid (“NGL”) sourced ethane gas from such
resource plays as the Permian, the Marcellus and the
Bakken.
Badlands NGLS, LLC2
Location Preference
• Permian wet gas contained 4-6 gallons of mixed NGL per thousand cubic feet (“MCF”) of raw wellhead gas.
• Marcellus wet gas has slightly higher concentrations of NGLs.
• The Bakken formation has consistently produced 11 gallons of NGL per MCF of raw gas.
• Three Forks formation is presently producing 14.5 gallons of NGL per MCF of raw gas.
Badlands NGLS, LLC3
In 2012, Badlands correctly recognized that Bakken NGLs and NGL sourced ethane were both physically and economically stranded.
NGL Sourced Ethane
• Polyolefins
• U.S. PE - use combinations of ethane and mixed NGL gases to manufacture ~80% of U.S. PE.
• Asian and European PE is sourced ~80% from naphtha (crude oil) sourced ethane.
• Heat content in the natural gas stream.
• At this time, over one million BPD of U.S. ethane production is “rejected” at gas processing plants and sold as “natural gas.”
Badlands NGLS, LLC4
Bakken NGL & Ethane
Production Outlook - 2013
• Oil price ~ constant $100/bbl
(Fall 2013)
Williston Basin
• Gross Gas Production
• 2015 – 1.7 BCF/D
• 2020 – 2.5 BCF/D
• Ethane Production (11 GPM)
• 2015 – 175 MB/D
• 2020 – 260 MB/D
Badlands NGLS, LLC5
Source: Badlands Proprietary Bentek Energy Study
Bakken NGL & Ethane
Production Outlook - 2015
• RBN Energy forecasted 2020 Williston
Basin NGL & ethane production in July
of 2015 when oil was priced at ~$50/bbl
• Growth Case (WTI: $95/bbl by 2020)
• NGL Production – 500 MB/D
• Ethane Production – 250 MB/D
• Contraction Case (WTI: $65/bbl by 2020)
• NGL Production – 400 MB/D
• Ethane Production – 200 MB/D
Badlands NGLS, LLC6
Source: RBN Energy Drill-Down Report
Bakken NGL & Ethane
Production – July 2015
• July 2015 ND (includes Montana) Gas Production –
1.76 BCF vs. 1.7 BCF (2013)
• July 2015 Ethane Production – 250 MB/D vs. 175
MB/D (2013)
• Actual Bakken NGL and ethane production in the
summer of 2015 was greater than the amount
originally forecasted by Bentek in their 2013 study.
Badlands NGLS, LLC7
Source: North Dakota Industrial Commission
The Marcellus/Bakken
“Disparity”
• Marcellus producers have commitments to export 300 MB/D
of Marcellus ethane to Europe and India at take or pay pricing.
• These shipments will supply feedstock to approximately 25%
of European PE capacity.
• Who pays? - European and Indian PE manufacturers pay BTU
ethane price plus $0.35/gal. transportation costs.
• In contrast, the value of the ethane produced and sold for
North Dakota oil and gas producers bears no resemblance to
the market-plus-freight price realized by Marcellus oil and gas
producers.
Badlands NGLS, LLC8
The Marcellus/Bakken
“Disparity”
Badlands NGLS, LLC9
• In 2015, Bakken ethane sold via
Northern Border at Ventura BTU
value “nets back” to producers at
$0.13-$0.17/gal.
• Ethane sent to Conway, KS or the
Gulf Coast costs $0.19 -
$0.32/gal. for transportation and
processing.
• In 2015, Bakken ethane exported
from North Dakota “nets back”
to producers at ($0.10)/gal. to
($0.15)/gal.
Source: RBN Energy Drill-Down Report
• Canadian, Midwestern and Gulf Coast PE producers ethane purchases are being
subsidized by Bakken oil and gas producers and North Dakota Mineral Rights
holders.
(Transportation cost only)
The Marcellus/Bakken
“Disparity”
• Marcellus Producers - get paid for both rejected ethane and PE feedstock ethane. Bakken
Producers - get paid for rejected ethane and subsidize PE producers and Bakken midstream
service providers for any and all non-rejected ethane.
• Assume oil price of only $60/BBL in 2020 and 100% of all Bakken ethane is transported
to the Gulf Coast and sold at today’s ethane market price, netback loss to Bakken
producers would be $8 billion annually.
• While it is possible to understand how Bakken oil and gas producers were less concerned
about their midstream business relationships when crude oil was priced at or above
$100/BBL, at this time, this level of losses constitute an unsustainable burden on the
Bakken E&P industry. Midstream/producer business models that are win/lose are
unsustainable at any WTI price level.
• The bottom line is that undervalued and stranded NGLs should not be subjected to
molecular tourism and transported by pipeline to distant markets solely for generating
tolling fees.
Badlands NGLS, LLC10
Current Bakken
NGL Distribution
• July 2015 NGL Production (less flaring, 517 MBPD gross) – 388
MBPD (exclude Palermo and Tioga)
• ONEOK – 111 MBPD
• Vantage – 20 MBPD
• Tioga Lateral – 3 MBPD
• WBI – 5 MBPD
• Northern Border – 100 MBPD
• Local Consumption and Rail/Truck Transportation – 135 MBPD.
Badlands NGLS, LLC11
Non-Pipeline NGL
Take Away
• Rail/Truck Transportation in excess of 100 MBPD.
• Based upon Williston Basin gas processing plant
capabilities, the 100 MBPD probably contains not
less than 25 MBPD, or 25% ethane.
• Ethane content of 25% is problematic for either rail
or truck transport.
Badlands NGLS, LLC12
By 2020 Physically Stranded
Bakken NGLs – Northern Border
• NB is the sole WB natural gas pipeline outlet.
• The pipeline's Ventura gas marketing limits heat
content of the gas stream to 1067 Btu/cu.ft.
• By 2020, assuming no change in NB Canadian ethane
content, WB ethane could result in NB exceeding
Ventura gas BTU limits.
Badlands NGLS, LLC13
By 2020 Physically Stranded
Bakken NGLs – Y Grade
• ONEOK increased their ethane recovery since June 2015; however, it does not help reduce the BTU value in Northern Border….why?…the Tsunami!
• Assuming 100% capacity utilization for ethane export to Canada, Illinois and Texas, ONEOK's NGL take-away capacity will need to almost double from 165 Mb/d to 240 Mb/d, which may not be possible at very low NGL prices.
Badlands NGLS, LLC14
Source: EIA
Midstream Dilemma
• Midstream MLPs need to distribute the majority of their cash flows to investors instead of retaining a significant amount of their earnings for reinvestment.
• To build/expand pipelines to increase the capacity, pipeline operators and midstream operators need to either
• Issue bonds
• Sell stocks
• At current oil prices,
• Financing is extremely difficult, if not impossible, for MLPs
• It is difficult for MLPs to generate appropriate distributions
Badlands NGLS, LLC15
Here Comes the Tsunami
Badlands NGLS, LLC16
THE TSUNAMI – Canadian
Supply Increasing
Badlands NGLS, LLC17
THE TSUNAMI – Canadian
Supply Increasing
Badlands NGLS, LLC18
Northern
BorderAlliance
Western Canadian Resources
Montney & Duverney
• Montney
• Conservative - Reserves 449 Tcf of natural gas, 14.9 billion bbl of NGLs and 1.1 billion bbl of oil.
• High Case - Reserves 645 Tcf of natural gas, 21 billion bbl of NGLs and 2.4 billion bbl of oil.
• Duverney
• The Duverney Shale is thought to contain 443 Tcf of natural gas, 11.3 billion bbls of NGLs, and 61.7 billion bbls of oil.
• Liquids production in the Duverney would grow from 27,000 b/d in 2015 to more than 320,000 b/d in 2025.
Badlands NGLS, LLC19
Source: Alberta Geological Survey, Wood Mackenzie Ltd., AER
Montney & Duverney
Badlands NGLS, LLC20
• The Montney formation contains significant amounts
of NGL liquids and the Duverney formation contains
high concentrations of condensate and NGL liquids.
• The Duverney produces significant amounts of
condensate. Condensate is priced at a premium to the
WTI oil price. The price realized for NGLs is
secondary to the pricing received from the condensate
sales.
Canadian Ethane Availability
Outlook – 50% Recovery
Badlands NGLS, LLC21
Source: CERI Report August 2015
263
255
236
251
263
276
303
268
231
214
254
298
281
265
275
266
321
321 406 3
72
377
378
400
412
428
453
468
486
504
530 530 530 541 561 565 559
524 490 484
508
556 568 595 607
627
685 684
767
825 826 829 841 850 867 894
915 935
956
0%
10%
20%
30%
40%
50%
60%
70%
-
200
400
600
800
1,000
1,200
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
HISTORICAL/ACTUAL OUTLOOK
%
kb
/d
Total Ethane Recovered Potential Ethane Left in Gas/Extracted in Other Markets
Total Ethane Avaialble to Western Canada % of Ethane Recovered
Canadian Ethane Availability
Outlook – 70% Recovery
Badlands NGLS, LLC22
Source: CERI Report August 2015
263
255
236
251
263
276
303
268
231
214
254
298
281
265
276
268 282
297
300 303
305
307
309
311
312
313
313
314
315
530 530 530 541 561 565 559
524 490 484
508
556 568 595 607
627
685 684
767
825 826 829 841 850 867 894
915 935
956
0%
10%
20%
30%
40%
50%
60%
70%
80%
-
200
400
600
800
1,000
1,200
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
HISTORICAL/ACTUAL OUTLOOK
%
kb
/d
Total Ethane Recovered Potential Ethane Left in Gas/Extracted in Other Markets
Total Ethane Avaialble to Western Canada % of Ethane Recovered
Supply/Demand Imbalance
• Ethane Recovery
• 2014 - 287 MBPD at 50% recovery
• 2021 - 522 MBPD at 70% recovery
• Incremental production - 235 MBPD
• Incremental world scale ethane cracker supply - 2.5
new crackers.
• Number of new Western Canadian crackers
announced/planned - ZERO.
Badlands NGLS, LLC23
Western Canada
Ethane Market
• Ethane availability is not the issue, end-use infrastructure is.
• In 2013 about half of the available ethane is left in the gas stream. Badlands believes that percentage of recovery must increase to 70% by 2020.
• BTU content in Northern Border will reach capacity.
• More ethane crackers need to be constructed in Western North America
• To date, sole new Western North America cracker/PE licenses announced – Badlands ND/Badlands Shangri-La
Badlands NGLS, LLC24
Solution - Badlands
• The best solution for all Western North American oil and gas producers - value added polyolefins as close to the wellhead as possible
• Badlands intends to purchase C1 through C4.
• Crack C2 and produce polyethylene.
• Sell purity C3 and I-C4.
• Isomerize N-C4 and sell I-C4.
• Return “lean gas” to the pipelines, thereby reduce BTU content.
• Producers/Badlands polyolefins business plan – Win/Win
Badlands NGLS, LLC25
Badlands Plans
• Two World Scale PE facilities- 1.5+ million MT of
ethane feedstock ethylene and corresponding PE assets
• Two locations- North Dakota and “Shangri-La”
• First- Shangri-La- “on the water,” existing 1.5 million
MT cracker design, modular construction, 36 months
to hydrocarbons
• Second- North Dakota- not “on the water”- 1.5 million
MT cracker
Badlands NGLS, LLC26
Badlands Plans - Technology
• Cracker technology - Technip – currently market leader and
building three plants in the U.S. for Sasol, CP Chem and Dow.
• PE technology - Univation – market leader in PE products
owned by Dow.
• Captive Co-Monomer Manufacture – “Name Brand”
• Product Off-Take - “Name Brand”
Badlands NGLS, LLC27
Badlands Plans - Agreements
• Feedstock Agreement(s) in advanced discussion in both
locations
• EPC - Agreement in principal, lump sum turn key
• Financing - advanced stage
• Site Selection - Advanced stage, Shangri-La site close to
selection, North Dakota close to selection
Badlands NGLS, LLC28
Shangri-La Facility Cracker
• Technip cracker- 1.53 million MT…same design being built for
SASOL and Chevron Phillips
• 94 Modules fabricated in Mexico- delivered “on the water” to
Gulf Coast
• SASOL most advanced- Firm module delivered price and =/-
10% cracker installed cost
• Shangri-La Transportation Study confirms “on the water”
delivery of 94 modules….2000 construction headcount versus
9000 stick built headcount….time and money savings
Badlands NGLS, LLC29
Shangri-La Facility PE and
Related Assets
• Two Univation 600 KT gas phase PE reactors- up to 24
different PE products (HDPE, bimodal HDPE, butene
LLDPE, hexene LLDPE, metallocene LLDPE)
• According to Univation (formerly Union Carbide) Badlands will
produce the most diverse product line of any Univation licensee
• Co-monomer facility will reduce PE production costs by
$0.11/lb.
Badlands NGLS, LLC30
North Dakota PE And Related
Assets
• Identical Univation reactors and capacity- Duplicate
Shangri-La facility but assign different catalyst families to
each reactor
• “Name Brand” co-monomers for Univation products
• Own electrical generation assets
• Over 500 permanent and high paying North Dakota jobs
Badlands NGLS, LLC31
Sponsor Questions
• Does ND polyolefin plant improve or eliminate the
Western Canadian/ND gas heat content?
• How long will it take to build and how much will it cost?
• Engineering/Technology issues
• Site Selection
• Infrastructure
• End markets
Badlands NGLS, LLC32
