An Emerging Appalachian Energy Hub: The Prize, the Progress, the Perils

Transcription

1 An Emerging Appalachian Energy Hub: The Prize, the Progress, the Perils DUG MUM Conference, Pittsburgh, PA Wednesday 01/31/2018 Greg Haas, Director of Integrated Energy, Stratas Advisors Houston, Texas UPSTREAM MIDSTREAM DOWNSTREAM FUEL & TRANSPORT

2 DISCLAIMER This Presentation contains forward-looking statements, including, but not limited to, statements regarding the value and effectiveness of Stratas Advisors services, that involve risks, uncertainties, assumptions and other factors which, if they do not materialize or prove correct, could cause Stratas Advisors results to differ materially from those expressed or implied by such forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including statements containing the words "predicts," "plan," "expects," "anticipates," "believes," "goal," "target," "estimate," "potential," "may," "will," "might," "could" and similar words. Stratas Advisors intends all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of Actual results may differ materially from those projected in such statements due to various factors, including but not limited to: risks and uncertainties inherent in our business; our ability to attract new customers and retain existing customers; our ability to effectively sell, service and support our products; our ability to manage our international operations; our ability to compete effectively; our ability to develop and introduce new products and services or enhancements to existing products; our ability to continue to promote and maintain our brand in a cost-effective manner; our ability to manage growth; our ability to attract and retain key personnel; the scope and validity of intellectual property rights applicable to our products; adverse economic conditions in general and adverse economic conditions specifically affecting the markets in which we operate. Past performance is not necessarily indicative of future results. The forward-looking statements included in this presentation represent Stratas Advisors views as of the date of this presentation. Stratas Advisors anticipates that subsequent events and developments will cause its views to change. Stratas Advisors undertakes no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements should not be relied upon as representing Stratas Advisors views as of any date subsequent to the date of this presentation Stratas Advisors. All rights reserved. Stratas Advisors is a trademark or registered trademark of Hart Energy Publications, LLLP in the U.S. and other countries. Other company names, product names and company logos mentioned herein are the trademarks, or registered trademarks of their owners. This material may not be published, broadcast or distributed in whole or part without express written permission of Stratas Advisors. Stratas Advisors. All rights reserved. 2

3 Introduction to Stratas Advisors Global strategic insights, energy research and advisory consulting from well to wheels

4 Who We Are Global consulting and advisory firm forecasting & analyzing the world s fullstream well-to-wheels energy industry Helping clients reach decisions and achieve tangible results in the operations, development, financing and regulatory spheres Subscription services, bespoke consulting projects, and ongoing support via advisory retainer engagements Clients include a wide roster of the world s IOCs, NOCs, independents operator, service firms, energy consumers, financial entities and policy-makers Research and consulting staff comprises professionals located in key global energy centers including Houston, New York, Brussels, &Singapore Our team brings 300 years of energy industry expertise, including: Petroleum Engineers, -- Geologists -- GIS & Data Scientists Process Engineers -- Financial Analysts -- Policy Experts Stratas Advisors. All rights reserved. 4

5 An Emerging Appalachian Energy Hub

6 Agenda An Emerging Appalachian Energy Hub The Prize The Progress The Perils Stratas Advisors. All rights reserved. 6

7 An Emerging Appalachian Energy Hub The Prize Stratas Advisors. All rights reserved. 7

8 A World-Class Energy Hub: Opportunities Across the Fullstream Oil Gas/NGL Supply Side Upstream Production Wet Rich Gas Midstream Processing & Fractionation Purity & mixed NGL feedstocks Dry or drier natural gas for fuel gas in industrial, residential, commercial & power sectors Demand Side Downstream Petrochemical manufacture of Ethylene, Propylene, & Butadiene ( Olefins ) Other uses for Industry, Heat, Agriculture, Transport, & Diluent Supply Side Upstream Production Crude Oil & Field Condensate Midstream Processing Condensate Splitters & Stabilizers Demand Side Downstream Gasoline, diesel, fuels Diluent & industry uses Naphtha & fuel oil used as petrochem feedstock for Ethylene, Propylene, & Butadiene Olefins Source: Stratas Advisors Advisory Services Stratas Advisors. All rights reserved. 8

9 January February March April May June July August September October November December Supply Abundance Above U.S. Demand Has Created a Net Exporter In Natural Gas, C2, C3, C4, C5+, Refined Products, Coal, Even for Lightest Grades of Crude Oil Crude Exports, Mbbl/d 2017 U.S. Crude Oil Export Destinations 0 tratas Advisors with EIA data Max-Min 5-Yr Ave Sources: Stratas Advisors North American Oil Service, EIA data U.S. export capacity up, costs down with Very Large Crude Carriers (VLCC) & Gas Carriers (VLGC) A reconfiguration+reversal at Louisiana Offshore Oil Port (LOOP), OXY initiatives in Texas to up crude outflows NGL logistics and flows into existing East and Gulf Coast marine export terminals to ramp NGL outflows Cross-border gas pipelines to both the North & South and coastal LNG terminals ramp natural gas outflows Stratas Advisors. All rights reserved. 9

10 Plentiful NGL Supplies to Satisfy Northeast, Export Projects PADD 1 PADD 2 10-yr Growth, U.S. Field NGL Production (2.9 MMbbl/d estimated) Mbbl/d 801 Mbbl/d 770 Mbbl/d 1,552 Mbbl/d PADD 3 1,952 Mbbl/d 3,180 Mbbl/d PADD Mbbl/d 753 Mbbl/d PADD 5 70 Mbbl/d 175 Mbbl/d 3, ,461.8 PADD 3, 1,228 Mbbl/d, 43% PADD 4, 386 Mbbl/d, 13% PADD 5, 105 Mbbl/d, 4% Source: Stratas Advisors North American NGL Service, 4Q17 PADD 1, 365 Mbbl/d, 13% PADD 2, 782 Mbbl/d, 27% By middle of next decade, we see new supply creating a need and/or opportunity to underpin Appalachian expansion of: + Processing (+3 bcf/d) + Fractionation (+300 Mbbl/d) + Storage (up to +10 MMbbl) + Pipelines (ME II+, UMTP) + Petchem (+5 Mmtpa C2=, C3= with plastics compounders,derivatives) Stratas Advisors. All rights reserved. 10

11 Establishing an Energy Hub May Underpin ~$100 Billion Capex $50,000,000 $45,000,000 $40,000,000 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 Forecast Appalachian Regional Capex by Sector, (Thousands of dollars) Power Manufacturing Petrochemicals Midstream Upstream We see midstream capex peaking and settling lower Repowering the region should occur within 1 decade In contrast, we see capex associated with upstream, petrochemical & manufacturing increasing over time Source: Stratas Advisors Advisory Services Stratas Advisors. All rights reserved. 11

12 Modern Society Needs Petrochemicals and Plastics Olefins like Ethylene & Propylene are the world s number one highest volume traded chemical 2015 Demand for Ethylene/Propylene: 204 Mmtpa Russia & CIS 6% Africa 1% North America 19% Middle East 10% Asia 48% Latin America 3% Europe 13% Source: Stratas Advisors North American NGL Service 4Q17 Stratas Advisors. All rights reserved. 12

13 Tonnes per Year Our Global Ethylene and Propylene Outlook Strong growth expected as global living standards rise, but future growth is slower than before 350, , , , , ,000 50,000 Ethylene Propylene Ethylene and propylene represent the fastest growing part of the end-use NGL barrel Living standard improvements in non-oecd markets (BRIC especially) have driven growth in recent past We expect living standards to rise less rapidly versus the gains realized in last 25 years Source: Stratas Advisors, Advisory Services Stratas Advisors. All rights reserved. 13

14 An Emerging Appalachian Energy Hub The Progress Stratas Advisors. All rights reserved. 14

15 Shell is becoming the First in Appalachia Who will be first to be second? Actual & Announced Presslog of NGL Marine Terminals ~2.4 MMbbl/d Marine Terminal Capacity Using our estimate of ~100 Mbbl/d ethane, we believe Appalachia has room for at least 3x more. Global petchem competitors like PTT know it too. Source: Base image by Shell. Further annotations by Stratas Advisors Stratas Advisors. All rights reserved. 15

16 Jan 30, 2018: PTT Cracker FEED Partnership in Formation PTT and Daelim announce plans for Front End Engineering Design Partnership Source: PTT 1/30/18 Stratas Advisors. All rights reserved. 16

17 Investing, Progressing Toward Cross-Border Export Takeaway Source: Midstream Business, Hart Energy Stratas Advisors. All rights reserved. 17

18 China MOU on Deploying $83 Billion in the Area Signals fullstream energy & manufacturing investment in Appalachia over 20 years Source: Midstream Business, Hart Energy Stratas Advisors. All rights reserved. 18

19 Mountaineer NGL Storage Proceeding Area to see high capacity underground purity & mixed storage capacity Source: Energy Storage Ventures Media, The Mountaineer NGL Storage Project plans to offer up to 2 million barrels of initial storage capacity with more than 40,000 bbl/d of load-in and load-out for purity and mixed NGLs in salt-mined underground caverns Media reports now suggest early 2019 in service date as a result of slow permitting Stratas Advisors. All rights reserved. 19

20 Mariner East II + IIx Next Big NGL Takeaway Pipelines Expansion halted by state judge but project sponsors still commit to 2018 startup 1 2 Adamana Bumstead Bumstead Source: Stratas Advisors Advisory Services A majority of the new U.S. NGL pipelines move unfractionated NGL mix to the Gulf Coast or Conway. This includes a potential reboot of the UMTP project (13) offering batched takeaway to USGC from Appalachian NGL The ME II and IIX (10,11) may add nearly 400 Mbbl/d of takeaway to Marcus Hook export, storage and fractionation/petchem center Stratas Advisors. All rights reserved. 20

21 An Emerging Appalachian Energy Hub The Perils Stratas Advisors. All rights reserved. 21

22 Other Supply Areas are Growing Too Which basins will capture the most investment in upstream? Midstream? Fullstream? Regional Gains in NGL Supply (Growing to 6.4 Mbbl/d from 3.6 Mbbl/d) 3,500 3,000 2, ,000 1,500 1, PADD 1 PADD 2 PADD 3 PADD 4 PADD 5 Source: Stratas Advisors North American NGL Service 4Q17 Stratas Advisors. All rights reserved. 22

23 Exxon Deploying Big Money In PADD 3 Across Fullstream $50 billion in upstream, logistics, and petrochemicals with more potentially coming Source: Midstream Business, Hart Energy Stratas Advisors. All rights reserved. 23

24 North America Has Sizable Ethylene Cracker Fleet Already Alberta serves N. Am West Il & KY serves midcon USGC serves continental US & offshore markets 95% of N. Am. supply manufactured here Source: U.S. Energy Information Administration, Notations by Stratas Advisors Sarnia & Quebec serves E. Can. Appalachia to Serve E. N. Am, Atlantic Basin Appalachia hub could become 2 nd largest N. Am. petchem hub after USGC with added commitment, construction, investment The U.S. 36 Mmtpa petchem industry has16 independent manufacturers or integrated oil/gas/petchem firms and is Largely centered in USGC Canada s 7.1 Mmtpa petchem industry consists of 1 integrated, 2 independent makers. Alberta ~65% of capacity. Stratas Advisors. All rights reserved. 24

25 N. Am Capacity Must Capture Share From Weak Global Makers Could the shale oil and gas glut flow downstream all the way to petrochemicals? Middle East 12% 2030 Demand for Ethylene/Propylene: 253 Mmtpa Latin America 3% Europe 9% Russia & CIS 6% North America 18% Africa 1% Source: Stratas Advisors North American NGL Service Asia 51% 12.4 Mmtpa of new ethylene capacity in 1 st wave by Mmtpa in 2 nd wave announced and possible by 2025 N. Am. petchem manufacturers must capture share since they are likely to expand well beyond our N. Am. petchem demand growth forecast of 7.3 Mmtpa or 19% up by 2030 (representing a 1.1% CAGR from 2015) If all announced/possible 1 st and 2 nd wave plants are built, these will represent 41% of our conservative global growth forecast of 49 Mmtpa over the next 15 years (1.4% CAGR from 2015). Stratas Advisors. All rights reserved. 25

26 Oil to Gas Ratio Cents/lb Oil to Gas Ratio US Ethane vs. Asian Naphtha Very Good but Was Better 2018 vs. 2017: US Ethane In Prime Position, But Asian Near-term Strength Has Arisen on Low Oil MUM 2017 U.S. Ethane Cracking Margins vs Oil/Gas Ratio MUM 2018 U.S. Ethane Cracking Margins vs Oil/Gas Ratio S Ethan Asia Naphtha US Oil/Gas Ratio Source: Stratas Advisors North American NGL Service, 4Q tas Advisors 1Q16 Base Scenario Price Deck US Ethane Asia Naphtha US Oil/Gas Ratio Low cost ethane and fuel as a result of shale oil and gas resources enables N. Am. ethylene producers to have significant and enduring competitive advantage versus global competitors Stratas Advisors. All rights reserved. 26 Source: Stratas Advisors 4Q17 Long Term Base Scenario Price Deck

27 Brent Spot Price, as % of Pre-Downturn Price The Decline and Rise of Oil Prices Can Industry Shift into high gear before others if stagnation gives way to rapid recovery? Cyclical Oil Price Recovery Time Counted in Years 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% -50.0% -60.0% -70.0% -80.0% -90.0% ,000 1,250 1,500 Days Since Beginning of Downturn 1986 Crash Asian Monetary Crisis 2008 Great Recession Series4 Current downturn begun 2014 This oil price downturn has lasted longer than prior downturns Industry must be ready ASAP to not miss recovery, which if like prior events, can occur rapidly Is Appalachia ready & willing? Source: Stratas Advisors Advisory Services Stratas Advisors. All rights reserved. 27

28 Key Points

29 Appalachian Energy Hub Attractiveness & Development Competitive Scale & Anchor Tenants Assessment Framework Fuel & Energy Costs Sustainable Demand &Supply Regulatory Climate Chain of Value Chains Logistics Movements & Storage Workforce Viable Energy Hub Status Source: Stratas Advisors - Advisory Services Trading Volume & Price Transparency Stratas Advisors. All rights reserved. 29 Key Summary Points: 1. Multi-commodity energy hubs are made over decades, not born overnight 2. Billions in capex required, billions of returns and impacts at stake 3. Appalachia should strive for a Chain-of- Chains hub serving supply thru demand segments of gas, NGL, petchem, fuels, etc. 4. Appalachian supply-side resources are world class, while demand-side has a solid start on anchoring demand-side tenants and industries 5. But other world-class resource & hub areas also compete for capital, export share in a world with uncertain pricing, growth 6. Delays in permitting, construction, startups, and FID decision making weigh on Appalachia hub development 7. Local infrastructure and demand must grow to establish trading volume and price transparency

30 Thank you for your attention Greg Haas, Director, Integrated Energy, A Hart Energy Company UPSTREAM MIDSTREAM DOWNSTREAM FUEL & TRANSPORT Strategic Services, Consulting & Advisory Engagements to the Global Fullstream Energy Value Chain 1616 S. Voss Road Suite 675 Houston, TX Houston New York Brussels Singapore Stratas Advisors. All rights reserved.