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Copyright 2013 • Company Confidential

Market Implications of Shale Development –US & International Perspective

October 2014Chuck Whisman, PEVP, US Oil & Gas Operations Manager


Upstream Oil & Gas Impact in the US

• Upstream

• Midstream

• Compression & Processing

• Railroads

• Utility & Power

• Petrochemicals & Refining

• Exporting & Shipping


US Natural Gas Production, Imports, & Use


US Crude Production & Use – More Stability Instead of Disruptions


US Crude Production & Use – More Stability Instead of Disruptions

US crude production has counterbalanced global supply disruptions, decreasing the volatility in global crude price.

Over the past 13 months, the monthly average Brent price has moved within a narrow $5/barrel ($107-$112/barrel). The prior 13-month period (June 2012-June 2013) saw a $21/barrel fluctuation.

The current level of supply disruptions is the highest since the Iraq-Kuwait War (1990-91), when supply disruptions peaked at 4.3 million bbl/d.

Data from eia


US & Canada – Leading the non-OPEC Crude Production Movement


North American Crude – Fueling the Rail & Refining Business


US Crude Helping US Refineries & the Rail Industry!

Crude oil by rail represents only 2 percent of overall industry volume. However, in the landlocked Bakken shale formation, nearly three quarters of crude is transported by rail and only 20% is shipped by pipeline.


Impacts on the Rail IndustryRailroads remain busy transporting not just crude and NGLs, but also frac sand, pipe, chemicals, and other commodities required for shale exploration and drilling.

> Tank car orders totaled 10,628 in Q2 2014, more than double the first quarter's total of 4,769 tank cars, reflecting a burst in demand for new tank cars.

> 750,000 barrels of crude oil per day were moving out of North Dakota by rail as of mid-2014.

> According to U.S. government data, moving crude oil was only a $25.8-million business in 2008. But last year, revenue reached $2.15 billion.

> In 2014, rail companies will provide shipment for 25% of the sand sent to oil and gas companies(only 5% last year). Union Pacific hauled almost 200,000 railcar loads of frac sand in 2013.


Canadian CrudeCanadian Pacific Railroad indicated that they will transport 200,000 railcars filled with oil in 2015, versus 120,000 carloads in 2014 (approx. 60% from Alberta’s heavy crude fields; 40% from Bakken).

US Refiners see Canada as a stable source of low-cost heavy crude.

The U.S. Midwest is the top initial destination for Canadian crude (home to the U.S. crude futures and storage hub in Cushing, Oklahoma). In June 2014, more than 70 per cent of the 2.8 million barrels per day of Canadian oil exported to the United States reached the Midwest, while about 5 per cent headed for Gulf Coast refiners.

Seven new or expanded pipeline projects aimed at moving Canadian crude to the Gulf Coast are slated to start up by 2016, adding combined capacity of 2.5 million bpd.

More than a dozen rail or rail-to-barge projects along the Gulf Coast and Mississippi River can receive a total of 1.2 million bpd.


US Imports Down and Export Up!


Plans for the Future: U.S. Exporting ProjectsUS propane exports are set to match those of Saudi Arabia, the third largest liquefied petroleum gas exporter, by the end of this year. Countries are backing out of European product to pursue U.S. propane exports (being sent to Mexico, Brazil and South America, and the Netherlands).

Dominion Resources secured buyers in India and Japan for essentially the entire capacity of the proposed plant at Cove Point, Md., (tied directly by pipeline to PA Marcellus Shale gas field). Construction planned in 2014-2015 and ship LNG in 2017.

>17 additional shale-NGL export projects are looking to source U.S. shale.

Worldwide, LNG trade will rise by 40 percent to 450 billion cubic meters by 2019 (EIAJune 2014 report). U.S. LNG exports will probably climb to about 8.5 billion cubic feet a day of gas in 2020.

The Dominion Resources gas facility in Lusby, Md., which is tied to Pa.'s Marcellus Shale gas field. (AP, File)

Source: U.S. Shale Boom Redraws Liquefied Petroleum Gas Market Map, Money News, 2013


To understand the need for LNG exporting, look at electricity costs!


What’s driving interest in wet gas?Understanding NGLs


The composition of wet gas

NGLs and Condensate25.3%

Methane74.2%

GAS STREAM

Ethane - 15.6%

Propane - 5.5%

Iso Butane - 0.7%

Normal Butane - 1.4%

Iso Pentane - 0.5%

Normal Pentane - 0.5%

Hexanes+ - 1.1%Source: Pace Global; NiSource Gas Transmission and Storage Presentation to WVONGA Spring Meeting May 6, 2010 p.5


From Ethane to Ethylene


Ethylene is used to create petrochemical intermediates, which are subsequently used in the production of an array of industrial and consumer goods, including:

> Packaging, shopping bags, beverage bottles, and housewares

> Detergents and surfactants

> Antifreeze

> Building materials, synthetic rubber, and wire insulation

> PVC and solvents such as PCEand TCE

NGL Markets: Ethane/Ethylene

Ethylene is widely used in chemical industry, and its worldwide production exceeds that of any other organic compound.


The Ethane Cracker Decision Process

Key decision challenges (from a recent Platt’s survey – April 19th, 2013):

Cost

Timing

Permitting

Skilled Work-Force Availability

Overbuilding – can US demand and export projects keep up?

Already, 8-10 companies have announced plans to build steam crackers in the US by 2017 (not all expected to happen). Most call for world-scale crackers to go with derivatives plants, and most would be located in the US Gulf Coast region.


The Impact on the US Petrochemical Industry!

Low natural gas prices will reduce the price of ethylene, which is expected to reduce from around ~$980/ton to near $300/ton.

This will likely provide 30+ years of stable and low cost petrochemical feedstock in the US. Stable polyethylene costs will resonate throughout the plastics industry.

Example: the blow molding industry uses more HDPE in North America than any other group, ~ 5 billion lbs of plastic per year is blow molded into finished goods.


Impact of U.S. shale gas on manufacturing and petrochemical industries• Low prices are sparking the construction of new chemical

plants.

> Dow Chemical plans to spend $4 billion to expand its U.S. chemicals production, including a new plant in Freeport, Texas that will focus on making ethylene from ethane.

> The South African company Sasol plans to build a huge $14 billion plant in Louisiana to convert natural gas to diesel.

> Both Shell and ExxonMobil Chemical Co. are anticipating building or expanding chemical facilities for new cracker projects.

> CF Industries is spending $2.1 billion to expand its nitrogen fertilizer manufacturing complex.


Philadelphia Refinery Project• The Philadelphia refinery produced ~330,000 barrels a day, but it was about to

shut it down because of their $800 million losses over three years.

• The Carlyle Group has helped save the former refinery and reconstruct it due to U.S. shale oil & gas.- operating as Philadelphia Energy Solutions

> Building a high-speed railroad terminal to unload shale oil and a power plant that would run on shale gas.

> With these changes, they hope to attract new industrial companies to contribute to development of the area.

Source: Carlyle Group, Sunoco, and politician’s joint venture to rescue Philadelphia refinery, The Washington Post, 2012


Sunoco’s former refinery in Marcus Hook, PA is being re-built around Marcellus Shale natural-gas products

> Braskem America purchased a portion of the Marcus Hook refinery to produce polypropylene, a form of plastic used in water bottles and credit cards.

> Other parts of the facility will focus primarily on propane and ethane.

> Marcus Hook will be fueling new construction and traffic through the Delaware River port.

> From Marcus Hook, materials from Western PA will be shipped to global markets.

> Mariner East pipelines will deliver propane and ethane from Marcellus Shale to the Sunoco terminal in Marcus Hook. INEOS Europe has entered into a 15-year shipping agreement with Evergas to transport Marcellus Shale ethane to Rafnes, Norway from Marcus Hook. From Norway, the gas will be supplied to other parts of Europe.

Source: Former Sunoco Refinery in Marcus Hook will process Marcellus Shale products, Philly.com, 2012

Former Marcus Hook, PA Refinery

Source: INEOS Europe, Evergas enter into long-term shipping agreements, Platts, 2013

Copyright 2013 • Company Confidential23

NGL Separation Processing

MarkWest Liberty Rich Gas Infrastructure

Volumes from natural gas separation plants are expected to increase more than 40% over the next five years alone according to PricewaterhouseCoopers report.


Appalachian Region• The EIA's most recent report on U.S. Crude Oil and

Natural Gas Proved Reserves (dated 4/10/14) noted that the proved natural gas reserves in the Marcellus Shale gas play in Pennsylvania and West Virginia surpassed those in the Barnett Shale play of Texas to become the largest shale gas play in the United States, with proved reserves totaling nearly 43 Tcf.

• According to U.S. EIA’s May 2014 drilling productivity report, Marcellus Shale production grew by 254 million cubic feet/day month over month.


Utica Shale


What do we need?• Approvals for pipeline, exporting, and other infrastructure projects.

• Increased delivery and demand from new or expanded:> Gas processing/fractionation plants

> Pipelines, compression stations, and storage facilities

> Ethane cracking and petrochemical plants

> Utility & power projects

> Gas-to-liquids facilities

> LNG facilities

> Rail projects, inc. high-speed loading/off-loading

> Exporting and shipping

> …


THANK YOU!

Any Questions?

Check out “US Shale & the Petrochemical Industry” on LinkedIn

October 2014Chuck Whisman, PEVP, US Oil & Gas Operations Manager

[email protected]

Market Implications of Shale Development –US & International Perspective

market implications of shale development – us ... · title: microsoft powerpoint - 05 whisman -...

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