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NGL Infrastructure Back to the Future PFAA – 18th Annual Conference
Bill Waldheim Business Unit President November 3, 2011
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NGL Infrastructure 1985 1955
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NGL Infrastructure Doc Brown Flux Capacitor Einstein
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NGL Infrastructure DeLorean 1981
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What musician or band wrote the soundtrack for the original movie?
NGL Infrastructure What musician or band wrote the soundtrack for the original movie? Huey Lewis and the News!
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Back in Time – 1990’s-2000’s Industry Dynamics
Rockies 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 Mid-Continent Permian Gulf Coast GOM A period of declining domestic crude oil production and uncertain gas production
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Gas Evolution Timeline
1990 Infrastructure Build 2010 Supply Build Demand Build Overbuild Deregulate natural gas industry Conventional / Tight Sands Drilling Rising natural gas prices NGPA pricing incentives 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 Yellow boxes indicate no expore More than 20,000 miles of natural gas transmission pipelines were placed in service in the US over the past 10 years
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Historical Gas Infrastructure Constraints
West to East Flows Market Market Production Growth Areas Move East Capacity Constraints High gas production with capacity bottlenecks to move gas to market
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Gas Infrastructure West to East Bottleneck
Gas Infrastructure proposals to alleviate capacity constraints
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Natural Gas basis spreads narrowed with Gas infrastructure build out
Yellow boxes indicate no expore Natural Gas basis spreads narrowed with Gas infrastructure build out
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Drilling shifts to liquids rich areas, driving growth in NGL supply
2000’s forward 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. Drilling shifts to liquids rich areas, driving growth in NGL supply
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New rich shale gas driving the need for additional NGL Infrastructure
Increased NGL Supply Emerging Shale Plays Focus shift from natural gas to NGL’s and crude oil Increase in production of NGL’s 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 Bottleneck New rich shale gas driving the need for additional NGL Infrastructure
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NGL Infrastructure Constraints
Market Wet Gas Fairway Capacity Constraints Market NGL evolution is beginning similar to Gas. High NGL production with capacity constraints to move to market
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Proposed NGL Infrastructure
Proposed NGL P/L’s 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
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DCP Midstream’s 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 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 Q to accommodate growing Eagle Ford liquids volumes Service to Permian expected to be available mid-2013 Providing customers with NGL transportation services
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Basis Spreads ?? 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 ?? Yellow boxes indicate no expore Expect basis spreads to narrow with additional pipeline infrastructure build
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NGL Evolution Timeline
2000 Forward Infrastructure Build Supply Build Demand Build Overbuild Emerging Shale pays New horizontal drilling technology Gas to crude ratios 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 What’s next? Narrow basis spreads Operational improvements Extra capacity to handle outages and turnarounds Reverse flow on NGL Lines Repurposing Yellow boxes indicate no expore Infrastructure needed to meet production and demand growth
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Evolution Timeline Yellow boxes indicate no expore The NGL market development cycle is evolving similar to gas, just later in time.
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Summary ? Question for the Group?
Where does the Conway / Belvieu basis settle out in the year ? A. At or greater than the transportation cost B. Less than the transportation cost C. No opinion because you don’t 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 Yellow boxes indicate no expore ?
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