Revealing Global Trade

Flows For Propane And

Implications For Supply-Future export markets for North

American propane and what this

means for PDH feedstock security

Al Garcia

Business Manager-Americas

C4U Trade USA, Inc.

Content

2

1. C4U Trade: specialized logistics & physical trading services firm

2. Global propane arbitrage: driving investment in NGLs

3. On-purpose propylene projects outside U.S: Their effect on U.S. propane pricing and on availability of supply

4. Fuel market dynamics in developing economies, a growing destination for North American NGL exports

5. The effect of exports on domestic pricing and their impact on the business case for PDH production in North America

THE KEY QUESTION: Is there enough C3 for everybody?C4U TRADE

1. C4U Trade

Multi-modal, specialized logistics services

3

• C4U Trade: A logistics and trading services provider (ship, barge, train)

• Our logistics-first approach aims to create long term, value- added

relationships

• We increase market efficiency and lower costs by facilitating

transactions and leveraging industry partnerships

C4U TRADE

• Shale gas discoveries changed global propane market dynamics – Shale gas revolution to have long term effect: wells have high depletion

rates but very long tails (Adam Sieminsky, EIA Administrator, December 2013)

• Fractionation capacity at Mont Belvieu increased– ONEOK Partners, Lonestar NGL, ETP, and Targa projects will result in a

total of 1.7 million barrels of fractionation capacity online by end of 2014

• Continuous terminal development led to an increase in propane exports: – The quiet (until now) energy export revolution. Upstream, midstream

and trading players linking U.S. energy markets to the rest of the world

2. Capturing the arb

4C4U TRADE

U.S. Propane Export Capacity

Source: ICIS, Companies C4U TRADE 5

Existing and Proposed U.S. LPG Terminals

Company Capacity (MM tons/year) Location

Enterprise 7.5 Houston Ship Channel (HSC)

Targa 3.5 HSC

Sunoco 0.3 Marcus Hook

Enterprise 1.5 HSC. Starting Q1 2015

Enterprise 6.0 HSC. Starting Q4 2015

Targa 2.0 HSC. Starting Q3 2014

Sunoco/Lonestar 6.0 Nederland, TX. Starting Q4 2015

Williams/Boardwalk N/A Lake Charles, LA. 2016?

Phillips 66 4.4 Freeport, TX. 2016

TOTAL 31.2

Source: EIA C4U TRADE 6

0

50

100

150

200

250

300

350

400

450

U.S. Average Daily Exports-Propane and

Propylene (Thousand Barrels per Day)

Propane spreads as indicators

C4U TRADE 7

-350

-300

-250

-200

-150

-100

-50

0

Ja

n-1

4

Fe

b-1

4

Ma

r-14

Apr-

14

Ma

y-1

4

Ju

n-1

4

Ju

l-1

4

Aug

-14

Sep

-14

Oct-

14

No

v-1

4

De

c-1

4

Ja

n-1

5

Fe

b-1

5

Ma

r-15

Mont Belvieu/Far East Spread in (USD/Ton)

-220-200-180-160-140-120-100

-80-60-40-20

0

Ja

n-1

4

Fe

b-1

4

Ma

r-14

Apr-

14

Ma

y-1

4

Ju

n-1

4

Ju

l-1

4

Aug

-14

Sep

-14

Oct-

14

Nov-1

4

Dec-1

4

Ja

n-1

5

Fe

b-1

5

Ma

r-15

Mont Belvieu/NWE Spread (USD/Ton)

The current forward curve, with a widening spread after the heating

season, would seem to indicate that for the time being the propane

market is not ready to be bullish Winter 2014-2015. Why?I. Unwillingness to reverse a long-term bearish trend. The “outlier” view

II. NGL supply in Marcellus/Utica still to be unlocked sends bearish signal

III. Lower market liquidity twelve months out

3. On-Purpose propylene projects outside

U.S. and their effect on U.S. Prices

8

• Shale production of NGLs in the U.S. will continue to make U.S. propane an attractive feedstock in the global market

• China-PDH units as a new market for U.S. propane– A total of 17 PDH projects approved=12 MM tons of propane/yr

– Tianjin Bojai=600,000 tons/year Operational

– Shaoxing Sanyuan Petrochemical=450,000 tons/year H1 2014

– Zhejiang Satellite Energy=450,000 tons/year H1 2014

– Ningbo Haiyue New Materials=600,000 tons/year H1 2014

– Yantai Wanhua Group=600,000 tons/year H2 2014

– 5 more coming online 2015-2017=2.3 M tons/year

• Korea and SE Asia-PDH projects would add to demand

• The Middle East will be competing with U.S. to supply Asian PDH projects

Source: ICIS, Sanford C.

BernsteinC4U TRADE

4. U.S. propane as fuel in developing

countries

C4U TRADE 9

• Asia-Propane used for heating in NW Asia creates

seasonal price volatility. Panama Canal expansion next

year will create new opportunities for exports to Asia.

Significant effect on U.S.

• Transportation fuel in many Asian countries. India and SE

Asia attractive as growing markets

• Latin American imports I. Mexico using less propane for cooking. If supported, car

market would have good potential

II. Brazil-Demand outstripping supply, for now

III. No sign of further growth potential

• African countries offer long term potential for propane as

substitute for biomass

Mexico LPG demand-gradual decline

Source: PEMEXC4U TRADE 10

0102030405060708090

100110120130140150

Mexico: PEMEX LPG Monthly Average Imports (Thousands of barrels/day)

SUPPLY SIDE

• The shale revolution is just getting started; C3 resources plentiful; legal and regulatory environment is favorable in the U.S.

• Technology improvements already leading to higher well productivity

• Other propane sources (UK, Poland, Argentina, etc) will eventually offer alternatives to U.S. sources; PDH projects create stable demand

• Gulf Coast offers existing infrastructure and proximity of supply

DEMAND SIDE

• U.S. economy strongest of major economies, consumer spending rising and stimulating demand

• PDH-produced propylene will help meet rising demand and fill the supply drop caused by lighter feedstock cracking

• American industrial production expected to continue to recover, generating demand for polypropylene

5. The business case for PDH projects in the

U.S. and the effect of propane exports on

domestic pricing

11C4U TRADE

U.S. PDH Projects

Source: ICIS and IHS C4U TRADE 12

NORTH AMERICA PDH PROJECTS (TONNES/YEAR)

Company Capacity Location Projected start-up

C3 Petrochemicals c. 600,000 Alvin, Texas, US Q4-2015

Enterprise Products 750,000 Texas, US Q3-2015

Dow Chemical 750,000 Freeport, Texas, US 2015

Formosa Plastics 600,000 Point Comfort, Texas, US 2016

Williams 500,000 Alberta, Canada Q2 2016

Dow Chemical II 750,000 N/A 2018

Petrologistics 660,000 Houston, Texas, US Operating

Enterprise Products II 750,000 Texas, US N/A

Source: EIA C4U TRADE 13

Winter 2013-2014: Testing a Tight MarketU.S. Stocks of Propane/Propylene

(in Thousands of Barrels)

0250050007500

1000012500150001750020000225002500027500300003250035000375004000042500450004750050000525005500057500600006250065000675007000072500750007750080000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

5 Year Min 5 year Max

2013 2014

Week

• Supply and demand factors currently support the

long term investment being made in U.S. PDH units

• Exports likely to add volatility to U.S. propane prices

as we are affected by demand signals elsewhere.

Especially true after Panama Canal expansion in

2015

• With the recent S/D imbalance gone, propane could

command a higher winter risk premium. This will

place increased emphasis on risk management,

logistical flexibility and transportation assets, all of

which will be key to manage a more complex market

Conclusions

14C4U TRADE