© 2013 The Williams Companies, Inc. All rights reserved.
How Competitive Are PDH Projects
Compared To Conventional Sources?Global Propylene & Derivatives – American Business Conferences
Williams NGL & Petchem Services
January 29, 2014
Williams Ft. Beeler WV plant
© 2013 The Williams Companies, Inc. All rights reserved.2 Global Propylene & Derivatives 2014 01-29-2014
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© 2013 The Williams Companies, Inc. All rights reserved.3 Global Propylene & Derivatives 2014 01-29-2014
Forward-looking statements continued
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© 2013 The Williams Companies, Inc. All rights reserved.4 Global Propylene & Derivatives 2014 01-29-2014
Agenda
> PDH competitiveness compared to alternatives
– On-purpose vs. byproduct production
– How will the markets balance?
> Is there enough demand for the new PDH production?
– How does the new US production fit into the global supply/demand balance?
> Project Risks: What Could Go Wrong?
– Execution Issues: Capital costs, Labor, Permitting
– Economic shifts in Ethylene and Refining
> What is Williams doing to link supply and demand?
– Williams’ solutions: Canadian PDH, Jackrabbit Pipeline and PGP Hub
© 2013 The Williams Companies, Inc. All rights reserved.5 Global Propylene & Derivatives 2014 01-29-2014
Incremental propylene production is shifting from refinery
and cracker supplies to on-purpose sources
© 2013 The Williams Companies, Inc. All rights reserved.6 Global Propylene & Derivatives 2014 01-29-2014
Propylene Production Paths
> Refineries: Byproduct from “cat crackers” (FCC) for gasoline production
“Refinery Grade Propylene” (RGP): 70% propylene + 30% propane
> Crackers: Byproduct of ethylene production
Naphtha crackers produce 18X more PGP than ethane
crackers per pound of ethylene produced
> On-Purpose: Metathesis combines ethylene + butylenes = propylene
Propane Dehydrogenation (PDH) turns propane into propylene
© 2013 The Williams Companies, Inc. All rights reserved.7 Global Propylene & Derivatives 2014 01-29-2014
Byproduct vs. on-purpose economics
Propylene By Product Dynamics
> Cost Basis: Difficult to determine,
dependent upon allocation of
costs
> Supply/Demand Response: Not
responsive, price signals have to
be large to change operations
> Price Elasticity: Not always
logical, as higher prices may not
attract more supply
PDH On-Purpose Dynamics
> Cost Basis: Directly measured
due to highly selective process
(83% of propane converted to
propylene)
> Supply/Demand Response:
Responsive, as plants will adjust
rates based upon market
economics
> Price Elasticity: Prices will be
more responsive to market
conditions as PDH production
becomes a bigger portion of
supply
© 2013 The Williams Companies, Inc. All rights reserved.8 Global Propylene & Derivatives 2014 01-29-2014
Propylene “Cost Stack” is difficult to quantify
PDH Production:
High capital cost
Low operating cost
Feedstock correlates to crude
Cracker Production:
Propylene price has a minor
impact on feedstock decisions
Feedstock correlates to crude
Refinery Production:
Propylene price has a minor
impact on operating decisions
Feedstock correlates to crude
Refinery Produced C3=
Cracker Produced C3=
Metathesis
PDH Production
© 2013 The Williams Companies, Inc. All rights reserved.9 Global Propylene & Derivatives 2014 01-29-2014
Limited technology options available for PDH
UOP
Oleflex
1.16
Platinum on
Alumina
Loop Reactor /
Fluidized Bed
Lummus
CATOFIN
1.16
Chromium on
Alumina
Parallel Fixed
Beds
Uhde
STAR
1.19
Zinc on Calcium
Aluminate
Externally Heated
Tubular Reactor
Technology
Propane/
Propylene
Catalyst
Process
Description
Source: UOP, Lummus & Uhde public information
© 2013 The Williams Companies, Inc. All rights reserved.10 Global Propylene & Derivatives 2014 01-29-2014
PDH Competitiveness: What is the competition?
> North American propylene competition: decreasing supplies
– Refining: Gasoline demand is declining, propylene will follow
– Cracking: Ethane cracking does not produce much propylene, so little new production
> North American propane feedstock competition: increasing supplies
– New propane supplies need new propane demand
– PDH consumption + Exports = new demand
– Where is the exported propane used? Cracker Feed, PDH Feed, Commercial Uses
> Export Dynamics:
– Lowest cost export move is polypropylene pellets
– North American PDH economics will beat Far East PDH economics on US propane
– US could be an exporter of all points in the value chain: propane, propylene & PP
© 2013 The Williams Companies, Inc. All rights reserved.11 Global Propylene & Derivatives 2014 01-29-2014
If PDH is the answer, what is the question?
> Does the world need more propylene?
> Is the US the right place to produce it?
© 2013 The Williams Companies, Inc. All rights reserved.12 Global Propylene & Derivatives 2014 01-29-2014
World propylene supplies will grow to match GDP
Petrochemical Product Markets
Source: IHS Chemical
© 2013 The Williams Companies, Inc. All rights reserved.13 Global Propylene & Derivatives 2014 01-29-2014
North American propylene production growth from 2000
to 2020 = 0.8% average annual growth
Petrochemical Product Markets
It takes until 2018 to reach 2004 production level
Source: IHS Chemical
© 2013 The Williams Companies, Inc. All rights reserved.14 Global Propylene & Derivatives 2014 01-29-2014
If PDH is the answer, what is the question?
> Does the world need more propylene?
– Propylene demand growth will follow GDP growth globally
– Byproduct production will continue to grow globally with new refineries and new
naphtha cracker projects, but not at the rate required to balance propylene demand
– On purpose production is required to keep pace with global propylene demand
> Is the US the right place to produce it?
– The US is the largest consumer in the world, representing 25% of global GDP
– Propane is expected to be exported to be used as feedstock for crackers and PDHs
– The lowest cost method to transport propane is as a pellet (PP) or liquid
© 2013 The Williams Companies, Inc. All rights reserved.15 Global Propylene & Derivatives 2014 01-29-2014
Once built, North American PDH plants will operate at
high rates
Source: IHS Chemical
© 2013 The Williams Companies, Inc. All rights reserved.16 Global Propylene & Derivatives 2014 01-29-2014
Propane growth in 2013 has moved into the export market,
PDH demand will consume growth in 2015+
© 2013 The Williams Companies, Inc. All rights reserved.17 Global Propylene & Derivatives 2014 01-29-2014
US propane surplus has resulted in a long-term
advantage for US propane in the global market
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
2008 2009 2010 2011 2012 2013 2014
Cen
ts p
er
gallo
n
Propane: Mont Belvieu Spot vs. International Benchmarks
Belvieu
Saudi CP
Algeria
North Sea
NW Europe
Japan
Source: Petral
© 2013 The Williams Companies, Inc. All rights reserved.18 Global Propylene & Derivatives 2014 01-29-2014
What could go wrong for North American PDH projects?
> Engineering & Construction Cost Escalation
– Strong construction market – higher wages, fewer skilled workers impacting productivity
– Location specific – shortages in some regions and surpluses in others
> Political & Regulatory Risk
– Permitting process is a key timing risk in PDH projects
– Bans or limitations on fracking result in less propane
> International Shale Plays Reduce North American Advantage
– North America has a significant lead on the rest of the world developing shale gas
– Existing North American infrastructure provides a big advantage over the rest of the world
© 2013 The Williams Companies, Inc. All rights reserved.19 Global Propylene & Derivatives 2014 01-29-2014
Shale plays are not exclusive to the US
© 2013 The Williams Companies, Inc. All rights reserved.20 Global Propylene & Derivatives 2014 01-29-2014
Williams growth strategy is focused on linking
new NGL supplies with growing petchem markets
Redwater
PDH
© 2013 The Williams Companies, Inc. All rights reserved.21 Global Propylene & Derivatives 2014 01-29-2014
Capitalizing on opportunity
> Existing assets:
− Ft. McMurray Cryo at Suncor
16 Mbpd
− Boreal Pipeline 43 Mbpd
(expandable to 125 Mbpd)
− Redwater processing complex
> Top value drivers:
− Aggregating more liquids from the
oil sands
− Increasing Boreal Pipeline
utilization
− Recovering ethane and ethylene
− Converting propane to propylene
Williams Canada – investing in multiple Alberta advantages
Redwater
PDH
© 2013 The Williams Companies, Inc. All rights reserved.22 Global Propylene & Derivatives 2014 01-29-2014
Williams Alberta PDH project – different from the other
PDH projects
Alberta Propane Dehydrogenation
> First facility of its kind in Canada
> Will produce 1.1 billion pounds of polymer grade propylene annually
> Exploring opportunities that would see a propylene derivative plant built in close proximity to the PDH
– PGP would be sold under a long term fee-type arrangement to reduce risk profile of PDH project
– Relaxed construction schedule supports capital cost control
– Potential to match PDH execution schedule and start-up date with derivative plant
© 2013 The Williams Companies, Inc. All rights reserved.23 Global Propylene & Derivatives 2014 01-29-2014
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
© 2013 The Williams Companies, Inc. All rights reserved.24 Global Propylene & Derivatives 2014 01-29-2014
Jackrabbit Pipeline: Positioned to support propylene
growth
> Open access pipeline and storage for Polymer Grade Propylene
– Reduces infrastructure costs for PDH and propylene derivative investments
– Provides an efficient hub for spot transactions, expanding liquidity and price
transparency
> Redeployment of idle pipelines to a growing petchem market
– Results in a lower cost structure for the industry
– Reduces the development time
> Expected startup by Q3 2015
– North Section (South Houston to Mont Belvieu) consists of 41 miles of pipe: 36 miles of
existing pipe and 5 miles of new build pipe
– South Section (South Houston to Corpus Christi) consists of 136 miles of pipe: 53
miles of existing pipe and 83 miles of new build pipe
© 2013 The Williams Companies, Inc. All rights reserved.25 Global Propylene & Derivatives 2014 01-29-2014
Jackrabbit Pipeline: Polymer Grade Propylene
Infrastructure to support PDH growth
© 2013 The Williams Companies, Inc. All rights reserved.26 Global Propylene & Derivatives 2014 01-29-2014
Conclusions> North American PDH competitiveness will be measured by competition for
propane in a global market, not in competition with byproduct propylene
– As North America becomes a major exporter of propane, the higher valued use for
propane will be as domestic PDH feedstock over the export market
– North American propylene supply/demand will be balanced by export markets for propane,
propylene and polypropylene, resulting in complex interactions
> The North American PDH projects are not a major portion of global
propylene growth
– From 2000 to 2020, the US propylene market share will decrease from 28% to 15%
– The announced PDH projects only maintain the US market share position through 2018
– Timing and execution of announced PDH projects in China will impact US market
conditions
> Williams intends to develop solutions to support petrochemical growth in
North America
– Link new NGL supplies to new petchem demands
– Provide petchem consumers a competitive platform for growth in North America
© 2013 The Williams Companies, Inc. All rights reserved.27 Global Propylene & Derivatives 2014 01-29-2014
Questions?
> For additional WMS Jackrabbit information please contact:
– Jake Herzig
• (713)215-4462
> For additional WMS PDH information please contact:
– Gord Dawson
• (403) 444-4537