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February 2016 Page 0
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8th LPG Trade Summit
Prepared for:
Gas Trading & Shipping Americas
Houston 2016
What impact will ethane and LPG
exports have on shipping?
HOUSTON NEW YORK LONDON ATHENS SINGAPORE GUANGZHOU PERTHWWW.POTEN.COM
February 22-24
MONTH 2009
© POTEN & PARTNERS 2009
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February 2016 Page 1
What impact will ethane and LPG
exports have on shipping?
Prepared for
Gas Trading & Shipping Americas
Houston 2016
By
Poten & Partners, Inc.
5847 San Felipe, Suite 800
Houston, TX 77057
USA
This material has been compiled by gathering market intelligence from various public and industry sources which is subject to limited
validation procedures and may include estimates or judgments. No representation or warranty, express or implied, is made as to the
fairness, accuracy, completeness or correctness of the information, opinions and conclusions contained in this presentation. To the
maximum extent permitted by law, Poten & Partners Inc., together with its affiliates and their respective officers, directors, employees and
agents disclaim any liability (including without limitation any liability arising from fault or negligence) for any loss arising from any use of
this presentation or its contents or otherwise arising in connection with this presentation. This presentation should not be distributed or
otherwise reproduced.
Poten & Partners, Inc. ©Copyright 2016
MONTH 2009
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February 2016 Page 2
Poten & Partners
Complimentary Businesses Across the Value Chain Poten & Partners Businesses • Global brokerage for petroleum products, LPG
and LNG
– Largest US tanker broker
– Largest LNG shipbroker
• Commercial advisory
• Capital markets solutions
• Research
- LNG
- LPG
- Tankers
- Petroleum
www.poten.com
NGL Consulting
NGL Retainer Services Available
NGL Customized
ReportsAvailable
Global Ethane Trade
DevelopmentsAvailable
NGL Publications Monthly and Forecast
Upstream DownstreamMarine InfrastructureMidstream
MONTH 2009
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Agenda
1. LPG Market
Market Overview
Global Supply/Demand Outlook
The Shipping Impact
2. Ethane Market
Market Overview
Global Supply/Demand Outlook
The Shipping Impact
3. Closing Thoughts
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Page 4
1 - LPG Market
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February 2016 Page 5
0
100
2010 2011 2012 2013 2014 2015*
mm
t L
PG
Americas
West & OtherAfrica
Med
NorthernEurope
Asia-Pacific
Middle East
US exports dominate LPG supply growth in 2015…
Global LPG Seaborne Supply
— Source, Poten & Partners
US LPG exports estimated to have increased about 50% yoy in 2015
Middle East exports grew moderately
Exports from other regions have remained relatively flat during the course of 2015
*Preliminary Data
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…with Asia pivotal in absorbing the new supplies
— Source, Poten & Partners
0
100
2010 2011 2012 2013 2014 2015*
mm
t L
PG
Americas
West & OtherAfrica
Med
NorthernEurope
Asia-Pacific
Middle East
Global LPG Seaborne Demand
Europe and L. America imports have increased in 2015…
…but Asia has been the main factor balancing the global trade
China and India combined imported about 6 mm t more LPG than in 2014
*Preliminary Data
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Shipping s/d dynamics kept freight at high levels
0
150
Jan-05 Jul-06 Jan-08 Jul-09 Jan-11 Jul-12 Jan-14 Jul-15
$/t
VLGC Baltic Freight Rate 2005-2015 ($/t)
Average Rate 2005-2013: $44/t
Average Rate 2014-2015: $92/t
50
200
2009 2011 2013 2015
Nu
mb
er o
f V
esse
ls
VLGC Ton-mile Supply/Demand Balance
Net Ship Supply
Net Ship Demand
— Source, Poten & Partners
Shipping demand
favors high freight rates
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February 2016 Page 8
0
120
2009 2011 2013 2015 2017 2019
mm
t
Middle East Asia/Pacific Europe Africa Americas
US remains the main LPG seaborne supply growth factor towards 2020
0
120
2009 2011 2013 2015 2017 2019
mm
t
Arabian Gulf Asia/Pacific NW Europe
Med/Africa Americas
Global Seaborne Export Forecast Global Seaborne Import Forecast
Global LPG trade volumes continue to grow
— Source, Poten & Partners*Base case scenario
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February 2016 Page 9
0
50
2011 2013 2015 2017 2019
US Exports - Poten Base Case US Export Terminal Capacity
mm
t
— Source, Poten & Partners
US exports will define global supply growth to 2020…
Additional LPG terminal capacity in 2016 (EPD Expansion, Marcus Hook Expansion, Oxy and P66 start-up)
Domestic LPG production trajectory challenging due to unfavorable shale economics
New PDH facilities, steam cracking demand, ethane supply/demand and retail market will play important role
Will there be a shift to greater percentage of butane in export volumes?
US LPG Terminal Capacity vs Estimated Export Volumes
*Base case scenario
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— Source, Poten & Partners
…while most other regions will grow moderately
0
50
2012 2015 2020
Asia/Pacific
mm
tm
mt
mm
tm
mt
0
50
2012 2015 2020
N. America
mm
t
0
50
2012 2015 2020
L. America
mm
tm
mt
mm
tm
mt
0
50
2012 2015 2020
Europe
mm
tm
mt
mm
tm
mt
0
50
2012 2015 2020
Africa
mm
tm
mt
mm
tm
mt
0
50
2012 2015 2020
Middle East
mm
t
*Base case scenario
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0
120
Supply Retail Large Bulk Supply Retail Large Bulk Supply Retail Large Bulk
2012 2015 2020
mm
t LP
G
LPG Export Supply and Import Demand
Supply Retail - East Retail - West Large Bulk - Fixed Feed Large Bulk - Flexible Feed
Greater market length may challenge
petchem balancing ability
Balancing global LPG trade could prove challenging…
*Base case scenario
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— Source, Poten & Partners
…with Asia destined to be the “marginal” LPG
consumer
0
80
2012 2015 2020
Asia/Pacific
mm
tm
mt
mm
tm
mt
0
80
2012 2015 2020
L. America
mm
tm
mt
mm
tm
mt
0
80
2012 2015 2020
Europe
mm
tm
mt
mm
tm
mt
0
80
2012 2015 2020
Africa
mm
tm
mt
mm
tm
mt
Petchem demand and economics
in Asia and Europe is expected to
be largely the balancing
mechanism of the LPG market
China is estimated to be the major
demand pull of the LPG market
towards 2020.
Main factors
• PDH demand and economics
• The potential of butane demand in
gasoline components/petchems
India’s retail demand growth another
important determinant
Main factors
• Further retail demand growth
• The impact of subsidies
• Import infrastructure constraints*Base case scenario
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US LPG volume destinations will define shipping demand/ton-miles
*Base: Represents our base case scenario of volumes exported from US to other regions
US
LPG Balance – Short
LPG Balance – Long
2015Base: 7-8 mm t
2020Base:15-17 mm t
— Source, Poten & Partners
2015 Base: 8-9 mm t
2020 Base: 9-10 mm t
2015 Base: 4-5 mm t
2020 Base:4-5 mm t
-60
0
2012 2015 2020
Asia/Pacific
mm
tm
mt
mm
tm
mt
0
60
2012 2015 2020
N.A Exports
mm
t
-60
0
2012 2015 2020
L. America
mm
tm
mt
mm
tm
mt
0
60
2012 2015 2020
WAF
mm
t
0
60
2012 2015 2020
Middle East
mm
t
-60
0
2012 2015 2020
Europe/Med
mm
tm
mt
mm
tm
mt
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Heavy VLGC N/B delivery schedule expected…
0
60
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019
Nu
mb
er o
f sh
ips
The VLGC Fleet - Feb 2016
Unconfirmed Options Confirmed N/B Current fleet
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50
250
2009 2011 2013 2015 2017 2019
Nu
mb
er o
f V
esse
ls… which will put downward pressure to freight levels
Net Ship Supply + Options + Unconfirmed new orders
VLGC Ton-mile Supply/Demand Balance
Net Ship Supply
Panama Canal Extension Opening
— Source, Poten & Partners
Net Ship Demand
Base Case
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2 - Ethane Market
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Mont Belvieu Ethane vs NW Europe Naphtha Prices
The phases & creation of the ethane seaborne market
Pre-2013 Crackers sourcing local ethane transporting finished product
2013-14The
transition
2014Project
conception
2014-15The Crude oil price effect
Future Will be defined
by
ethane availability in US
&
US ethane prices vs global naphtha
prices
?0
500
1000
1500
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
$/t
on
Naphtha/Ethane Spread Naphtha NW Europe Belvieu Ethane
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Current market snapshot
USEC – North Sea: 7 vessels
USGC – North Sea: 3 vessels
Estimated ethane contracts: 60-70 kb/d
USGC – India: 6 vessels
USGC – Far East: 5 vessels*
Estimated ethane contracts: 45-50 kb/d
1
2
INEOS Rafnes
New terminal/new
storage/additional furnace
Borealis Stenungsund
New storage/cracker mods
INEOS Grangemouth
New terminal/cracker mods
Sabic Wilton
New terminal/new
storage/cracker mods
Versalis Dunkerque
New storage/minor cracker
mods – currently on hold
1
Reliance
New terminal/new storage/
new pipeline/cracker mods
2
*Vessels reportedly ordered, but as of Jan 16 no US supply contract was confirmed
— Source, Poten & Partners
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-500
1500
4-Jan-13 3-May-13 30-Aug-13 27-Dec-13 25-Apr-14 22-Aug-14 19-Dec-14 17-Apr-15 14-Aug-15 11-Dec-15
$/t
on
Naphtha Butanes BD extrn Propane Ethane
Cracking MB-priced US ethane in Europe no longer so attractive
NW Europe Cracker Margins by Feedstock
— Source, Poten & Partners*Ethane delivered price: MB + terminal fees + shipping + import costs
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… the result is to ‘shake up the market’
Existing US ethane export projects look less attractive
US NGL supply projections start to be lowered
Global ethane economics based on US exports do not look promising
Potential buyers delay or cancel projects
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High ethane export (either domestic or
seaborne) availability
Higher ethane domestic demand –
steam cracking
Note: Economics/export potential differ between USGC
& USEC NW Europe Ethylene Plant Incremental Margins
0
1400
Jan-14 Mar-14 Jun-14 Aug-14 Nov-14 Jan-15 Apr-15 Jun-15 Sep-15 Nov-15
$/t
on
Imported ethane, USGC ethane basis
Imported ethane, naphtha minus 100 basis
Imported ethane, Marcus Hook MB & pipeline basis
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-200
500
2015 2016 2017 2018 2020
mb
/d
US Exports to Europe (confirmed) US Exports to Asia (confirmed)
Global Potential US Ethane Seaborne Availability (Base)
US Ethane Seaborne Availability (Low) US Ethane Seaborne Availability (High)
Ethane availability sufficient for current projects
US ethane seaborne export availability scenarios
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-200
500
2015 2016 2017 2018 2020
mb
/d
US Exports to Europe (confirmed) US Exports to Asia (confirmed)
Global Potential - As of Nov14 US Ethane Seaborne Availability (Base)
US Ethane Seaborne Availability (Low) US Ethane Seaborne Availability (High)
Earlier export estimations theoretically viable:It all comes down to crude projections and drilling economics
US ethane seaborne export availability scenarios
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-200
900
2015 2016 2017 2018 2020
mb
/d
US Exports to Europe (confirmed) US Exports to Asia (confirmed)
Global Potential - As of Nov14 US Ethane Seaborne Availability (Base)
US Ethane Seaborne Availability (Low) US Ethane Seaborne Availability (High)
Ethane High Potential Supply (Public Sources)
An alternative scenario: Unlocking the export door
US ethane seaborne export availability scenarios
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0
50
2014 2015 2016 2017 2018 2019 2020
Nu
mb
er o
f V
esse
ls
Ethane Shipping Supply/Demand Balance
Confirmed Ethane Seaborne Demand
Potential Ethane
Seaborne Demand
High Case
Ethane shipping already in place for current contracts
Net Ship Supply
Net Ship Supply –Without Dragon series vessels
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Page 26
3 - Closing Thoughts
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Closing thoughts
LPG
• Global LPG seaborne export availability increases, especially out of US
• Western markets are fundamentally long and the excess supply will need to move towards the retail and petchem markets of Asia
• Shipping rates have already started to weaken and will remain weak toward 2018-19
Ethane
• Ethane seaborne market economics challenging at the moment
• Local Naphtha prices vs US ethane prices & US ethane export availability will largely define the future of the ethane seaborne market
• If both factors coincide, then ethane import demand could be created in Europe, Asia and L. America
Expect VolatilityExpect Uncertainty
Identify key short-term/long-term drivers
MONTH 2009
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LNG & NATURAL GAS CONSULTING CONTACTS:
AMERICAS
Contact: Jim Briggs
Email: [email protected]
Tel: +1 212 230 2000
EUROPE, MIDDLE EAST, AFRICA
Contact: Graham Hartnell
Email: [email protected]
Tel: +44 207 493 7272
ASIA PACIFIC
Contact: Stephen Thompson
Email: [email protected]
Tel: +61 8 6468 7942
LPG CONSULTING CONTACTS:
Michael Panas
Email: [email protected]
Cell: +1 415 606 0847
Poten & Partners, Inc.
5847 San Felipe, Suite 800
Houston, TX 77057
Tel: +1 713 344 2370
Fax: +1 713 470 6960
E-mail: [email protected]
