Is there going to be enough ethane to support capacity ... · Is there going to be enough ethane to...

© 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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Forward-looking statements continued

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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?



NGL Production: How big is BIG?



The United States has become the largest oil & gas producer in the world


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).


Major swing from gas drilling to crude oil drilling



Will the US maintain the gas-based advantage as crude oil experiences similar development growth?

Ethane to Ethylene Derivatives 2013


US NGL supply doubles over the next decade


-‐

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


NGL “export” volumes have potential for development of advantaged petchem assets


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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



Additional ethane available after 2018


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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



The NE ethane drives the incremental growth opportunities


-‐

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

1990

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2028

2029

2030

US Ethane Supply from Natural Gas by Region(barrels per day)

Gulf Coast Midwest Rockies West Coast Northeast



Ethane margin is gone & may not return until 2017+



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



NGL Infrastructure: The challenge of linking supply with demand



Balancing NGL supply & petchem demand will result in price volatility over the next decade


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


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


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


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


Supply > Demand: NE Nat Gas & NGLs


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.


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


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


Globalization: Will exports change our economic outlook?



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


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


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


Williams NGL & Petchem growth strategy is focused on linking new supplies with markets

Canada Petchem

Petrochemical Product Markets

Redwater PDH


Alternatives: Are there “new uses” that could change the conventional wisdom?



How do we bring manufacturing back to the US?




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


MBbls/day

New market

outlets needed

quickly to sustain development



Additional ethylene expansions will be needed to keep pace with production growth

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1,000

1,500

2,000

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3,000 20

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MB

PD

Estimated US Ethane Supply

Natural Gas Refinery

Estimated US ethane supply

Source: Williams research

Current Announced

Projects

Additional 6 + Crackers Needed


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


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