Influence of PDH Capacity Additions on North American Propylene Price

Transcription

1 Influence of PDH Capacity Additions on North American Propylene Price Global Propylene & Derivatives American Business Conferences Williams NGL & Petchem Services Jake Herzig

2 Forward-looking statements The reports, filings, and other public announcements of The Williams Companies, Inc. (Williams) and Williams Partners L.P. (WPZ) may contain or incorporate by reference statements that do not directly or exclusively relate to historical facts. Such statements are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We make these forward looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of You typically can identify forward-looking statements by various forms of words such as anticipates, believes, seeks, could, may, should, continues, estimates, expects, assumes, forecasts, intends, might, goals, objectives, targets, planned, potential, projects, scheduled, will, guidance, outlook, in service date or other similar expressions. These forward-looking statements are based on management's beliefs and assumptions and on information currently available to management and include, among others, statements regarding: > Amounts and nature of future capital expenditures; > Expansion and growth of our business and operations; > Financial condition and liquidity; > Business strategy; > Cash flow from operations or results of operations; > The levels of dividends to Williams stockholders and of cash distributions to WPZ unitholders; > Seasonality of certain business components; > Natural gas, natural gas liquids, and olefins prices, supply, and demand; and > Demand for our services Forward-looking statements are based on numerous assumptions, uncertainties and risks that could cause future events or results to be materially different from those stated or implied in this presentation. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors that could cause actual results to differ from results contemplated by the forward-looking statements include, among others, the following: > Whether Williams has sufficient cash to enable it to pay current and expected levels of dividends; > Whether WPZ has sufficient cash from operations to enable it to pay current and expected levels of cash distributions, if any, following establishment of cash reserves and payment of fees and expenses, including payments to WPZ s general partner; > Availability of supplies, market demand, and volatility of prices; > Inflation, interest rates, and, in the case of Williams, fluctuation in foreign exchange and general economic conditions (including future disruptions and volatility in the global credit markets and the impact of these events on our customers and suppliers); > The strength and financial resources of our competitors and the effects of competition; 2 Global Propylene & Derivatives 2014

3 Forward-looking statements continued > Ability to acquire new businesses and assets and integrate those operations and assets into our existing businesses, as well as successfully expand our facilities; > Development of alternative energy sources; > The impact of operational and development hazards and unforeseen interruptions; > Costs of, changes in, or the results of laws, government regulations (including safety and environmental regulations), environmental liabilities, litigation, and rate proceedings; > Williams costs and funding obligations for defined benefit pension plans and other postretirement benefit plans sponsored by its affiliates; > WPZ s allocated costs for defined benefit pension plans and other post retirement benefit plans sponsored by its affiliates; > Changes in maintenance and construction costs; > Changes in the current geopolitical situation; > Our exposure to the credit risk of our customers and counterparties; > Risks related to strategy and financing, including restrictions stemming from our debt agreements, future changes in our credit ratings and the availability and cost of capital; > The amount of cash distributions from and capital requirements of our investments and joint ventures in which we participate. > Risks associated with weather and natural phenomena, including climate conditions; > Acts of terrorism, including cybersecurity threats and related disruptions; and > Additional risks described in our filings with the Securities and Exchange Commission (SEC). Given the uncertainties and risk factors that could cause our actual results to differ materially from those contained in any forward-looking statement, we caution investors not to unduly rely on our forward-looking statements. We disclaim any obligations to and do not intend to update the above list or to announce publicly the result of any revisions to any of the forward-looking statements to reflect future events or developments. In addition to causing our actual results to differ, the factors listed above may cause our intentions to change from those statements of intention set forth in this announcement. Such changes in our intentions may also cause our results to differ. We may change our intentions, at any time and without notice, based upon changes in such factors, our assumptions, or otherwise. With respect to WPZ, limited partner interests are inherently different from the capital stock of a corporation, although many of the business risks to which we are subject are similar to those that would be faced by a corporation engaged in a similar business. Investors are urged to closely consider the disclosures and risk factors in Williams and WPZ s annual reports on Form 10-K filed with the SEC on Feb. 27, 2013, and each of our quarterly reports on Form 10-Q available from our offices or from our websites at and 3 Global Propylene & Derivatives 2014

4 Agenda > Impacts to propylene prices through: Co-Product production NGL Production & PDH Builds Derivative Demand 4 Global Propylene & Derivatives 2014

5 By-product vs on-purpose supply drivers > By-Product: Propylene By-product of ethylene production and crude oil refining Price set by supply at level required to make it disappear Large balance swings; long or short > On-Purpose - Ethylene Drives the production decision Price set by the market Production levels set by S/D to generate positive economic returns 5 Global Propylene & Derivatives 2014

6 Cents Per Pound Increasing PGP price volatility A challenge for consumers NAM PGP Contract Price NAM PGP Contract Price 25 CPP CPP CPP Global Propylene & Derivatives 2014 Source: IHS

7 Propylene price increasing relative to ethylene Results in lost competiveness 1.8 PGP Contract Price/Ethylene NTP PGP Contract Price/Ethylene NTP Linear (PGP Contract Price/Ethylene NTP) Global Propylene & Derivatives 2014 Source: IHS

8 Propylene price increasing relative to Asia Results in lost export competiveness 1.2 US to Asia Price Ratio US to Asia Price Ratio Linear (US to Asia Price Ratio) Global Propylene & Derivatives 2014 Source: IHS

9 M Metric Tons High NAM price to Asia Loss in export competiveness 5, ,500 4, ,500 US PG/CG NEE 3,000 2, Ratio NAM Contract/SEA Spot 2, Global Propylene & Derivatives 2014 Source: IHS

10 The price trend was grim Increasing Volatility Loss of Domestic Competitiveness Loss of Export Competiveness 10 Global Propylene & Derivatives 2014

11 The move to ethane cracking resulted in permanent decline of propylene production Index 1.0 = NAM Olefin Production From Steam Crackers in NAM Ethylene Production NAM Propylene Production North American ethylene production can grow without propylene growth Global Propylene & Derivatives 2014 Source: IHS

12 MBPD of US Feedstock Throughput US FCC propylene supply unlikely to off-set cracker supply 6000 FCC propylene supply trends downward due to lower gasoline demand Global Propylene & Derivatives 2014 Source: EIA

13 So, where are we? Two major problems: > Declining Production > Price Problems 13 Global Propylene & Derivatives 2014

14 The price is high, volatile & uncompetitive What can rescue propylene? > The US needs more supply On-purpose propylene production is the key > What do you need to support on-purpose production? Abundant feedstocks > Where will the feedstocks come from? SHALE GAS Global Propylene & Derivatives 2014

15 MBPD The feedstock is here On-purpose production, here we come! US NGL Supplies from gas plants and refineries 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Natural Gas Refinery 15 Global Propylene & Derivatives 2014 Source: Williams research

16 Announced NAM PDH Units Step right up! Companies Propylene Capacity K MT/yr Propylene Capacity MM lb/yr Startup Date PetroLogistics Houston, TX 650 1,430 Operating Dow Chemical Freeport, TX 750 1, Enterprise Mont Belvieu, TX 750 1, REXPro Odessa, TX Williams #1 Redwater, Alberta 500 1, Ascend (2 plants) Chocolate Bayou, TX 1,000 2, Formosa Point Comfort, TX Williams #2 Redwater, Alberta 500 1,100 TBD Dow Chemical #2 Freeport, TX 750 1,650 TBD Total 5,800 12, Global Propylene & Derivatives 2014 Source: Williams research

17 PDH Margin Opportunities abound PDH Spot Margin (10.00) 17 Global Propylene & Derivatives 2014 Source: Wood Mackenzie

18 Who builds a PDH in North America? There are two different groups > Internal Consumers Dow REXpro Ascend Formosa Dow #2 > Merchant Sellers Petro EPD WMS WMS #2 Petro #2 > Motivation Reduced Propylene Price Volatility Opportunity to expand Increased Propylene Supply Advantaged Feedstock - Make vs Buy Decision > Motivation Production Portfolio Affect Opportunity to expand MLP Support Merchant Market Growth 18 Global Propylene & Derivatives 2014

19 Two major propylene growth projects Expectations for Jackrabbit Pipeline: Positioned for propylene growth Open-Access pipeline and storage for Polymer Grade Propylene Redeployment of idle pipelines to a growing petchem market Progress continuing on schedule 19 Global Propylene & Derivatives 2014

20 Williams Alberta PDH project Different from all the rest Alberta Propane Dehydrogenation First facility of its kind in Canada Capacity of 500 KTA Expect lowest cost propane in NA Opportunity for co-located derivative unit PGP would be sold under a long term fee-type arrangement to reduce risk profile of PDH project Expected in-service 2Q 2017 Striving to match PDH execution schedule with derivative plant start-up Alberta PDH #2 RFP Stage 20 Global Propylene & Derivatives 2014

21 Thousand Metric Ton What does the future look like? Tremendous opportunity for derivative investment 25,000 US Capacity & Production Growth 22,500 20,000 17,500 15,000 12,500 PGP/CGP Capacity Derivative Capacity Production with new 10, Global Propylene & Derivatives 2014 Source: IHS

22 Conclusion Bring your sunglasses! > Combination of production sources Production base will expand to include significant on purpose production capacity Coproduct production & on-purpose > Price moderation likely to support domestic and export competitiveness Decreased volatility is also likely > Opportunity for derivative growth Advantaged feedstocks Investments made to produce more propylene derivatives Margin share between producers and consumers is possible 22 Global Propylene & Derivatives 2014

23 Questions? > For additional WMS Jackrabbit information please contact: Jake Herzig (713) > For additional WMS PDH information please contact: Gord Dawson (403) Global Propylene & Derivatives 2014