NGL Infrastructure 5 What musician or band wrote the soundtrack for the original movie? Huey Lewis and the News!
Back in Time – 1990s-2000s A period of declining domestic crude oil production and uncertain gas production 6 Mid- Continent Rockies Permian Gulf Coast GOM Industry Dynamics Basin centered conventional drilling NGPA drilling incentives for gas Crude/Gas relationships remained fairly constant Shift in power generation and industrial loads to natural gas Petrochemical companies balanced light and heavy feeds and valued feedstock flexibilty Consistent growth for plastics and packaging materials following GDP 1986-2000 2000-2010
Gas Evolution Timeline 7 More than 20,000 miles of natural gas transmission pipelines were placed in service in the US over the past 10 years 1990 Deregulate natural gas industry Conventional / Tight Sands Drilling Rising natural gas prices NGPA pricing incentives 2010 Shift in power generation & industrial loads to gas PetChem industry relied on heavier (Naptha) feeds Rising demand for plastic & packaging materials Viewed as environmentally friendly energy source REX - Rockies & MidCont to East Coast Gulf Stream - Gulf Coast to Florida Expanding of Transwestern, El Paso & Questar Maritimes Portland Natural Gas Pipeline Expansion of Texas Intrastate Pipeline infrastructure More capacity than needed Repurpose lines Marcellus displacement Supply BuildDemand Build Infrastructure Build Overbuild
Historical Gas Infrastructure Constraints High gas production with capacity bottlenecks to move gas to market 8 Capacity Constraints Move East Market Production Growth Areas West to East Flows
Gas Infrastructure Gas Infrastructure proposals to alleviate capacity constraints 9 West to East Bottleneck
Gas Basis Spreads 10 Natural Gas basis spreads narrowed with Gas infrastructure build out
2000s forward Drilling shifts to liquids rich areas, driving growth in NGL supply 11 Industry Dynamics Crude/Gas ratios widen Elevated NGL pricing creates incentive to explore liquids rich targets Increase in NGL supply due to emerging wet gas shale plays High NGL content of shale plays makes drilling economical for producers despite low natural gas pricing Incentives for Petrochemical companies to convert to lighter feed stocks Increased domestic ethylene production for U.S and export markets.
Increased NGL Supply Emerging Shale Plays Focus shift from natural gas to NGLs and crude oil Increase in production of NGLs E&P activity outpacing resources Insufficient local markets Ethane moves to lowest cost feed for PetChem industry Constraints on current infrastructure to handle new production Race to Keep Pace with drilling/production Storage New rich shale gas driving the need for additional NGL Infrastructure 12 Bottleneck
NGL Infrastructure Constraints NGL evolution is beginning similar to Gas. High NGL production with capacity constraints to move to market 13 Market Wet Gas Fairway Market Capacity Constraints
Proposed NGL Infrastructure Proposed NGL P/Ls Increased E&P activity Current infrastructure is inadequate to handle new NGL production forecasts New processing, fractionation and pipeline investment is necessary to meet current growth Opportunities exist to connect resources to markets Additional access to Mt. Belvieu expected to drive a tightening in Conway/Belvieu basis spreads 14
DCP Midstreams NGL Projects Southern Hills Pipeline ~150,000 Bbl/d of NGL capacity NGL transport service from Conway, Western Oklahoma and Granite Wash areas to Mont Belvieu in 2013 Synergistic with growing Rockies and Mid- Continent NGL production Provides enhanced connectivity to premium Gulf Coast NGL markets for growing NGL volumes Providing customers with NGL transportation services 15 Sand Hills Pipeline 720 miles, common carrier pipeline Expected total capacity of 350,000 Bbl/d into Mont Belvieu Synergistic with growing Rockies and Mid- Continent NGL production 1st phase expected completion Q3 2012 to accommodate growing Eagle Ford liquids volumes Service to Permian expected to be available mid-2013
Basis Spreads 16 Expect basis spreads to narrow with additional pipeline infrastructure build Ethane Basis Spreads Historically fractionators at or near Conway and Mt. Belvieu processed locally available raw mix NGL Demand has grown primarily due to growth in the Petrochemical demand for ethane NGL transportation segment is experiencing dwindling available capacity with increasing rates and basis differentials Added NGL Infrastructure providing additional access to Mt. Belvieu in the future ??
NGL Evolution Timeline 17 2000 Emerging Shale pays New horizontal drilling technology Gas to crude ratios Forward Shift from to gas fired power generation Petrochemical companies incentives to convert to lighter feed stocks Increased consumer demand for plastics and packaging materials Mapco Seminole Chevron Oneok - OPPL Southern Hills Oneok - Sterling Sand Hills MEPS Vantage Pipeline Lone Star West Texas Pipeline Texas Express Pipeline Whats next? Narrow basis spreads Operational improvements Extra capacity to handle outages and turnarounds Reverse flow on NGL Lines Repurposing Supply BuildDemand Build Infrastructure Build Overbuild Infrastructure needed to meet production and demand growth
Evolution Timeline 18 The NGL market development cycle is evolving similar to gas, just later in time.
Summary 19 Question for the Group? Where does the Conway / Belvieu basis settle out in the year 2015? A. At or greater than the transportation cost B. Less than the transportation cost C. No opinion because you dont care or know Will the gas / crude spread which is driving the push to liquids rich E&P plays continue A. Yes, the spread stays wide B. No, market forces pull the spread back to historical levels C. No opinion because you dont care or know ?