5What musician or band wrote the soundtrack for the original movie? NGL InfrastructureWhat musician or band wrote the soundtrack for the original movie?Huey Lewis and the News!
6Back in Time – 1990’s-2000’s Industry Dynamics RockiesIndustry DynamicsBasin centered conventional drillingNGPA drilling incentives for gasCrude/Gas relationships remained fairly constantShift in power generation and industrial loads to natural gasPetrochemical companies balanced light and heavy feeds and valued feedstock flexibiltyConsistent growth for plastics and packaging materials following GDPMid-ContinentPermianGulf CoastGOMA period of declining domestic crude oil production and uncertain gas production
7Gas Evolution Timeline 1990Infrastructure Build2010Supply BuildDemand BuildOverbuildDeregulate natural gas industryConventional / Tight Sands DrillingRising natural gas pricesNGPA pricing incentivesShift in power generation & industrial loads to gasPetChem industry relied on heavier (Naptha) feedsRising demand for plastic & packaging materialsViewed as environmentally friendly energy sourceREX - Rockies & MidCont to East CoastGulf Stream - Gulf Coast to FloridaExpanding of Transwestern, El Paso & QuestarMaritimesPortland Natural Gas PipelineExpansion of Texas Intrastate Pipeline infrastructureMore capacity than neededRepurpose linesMarcellus displacementYellow boxes indicate no exporeMore than 20,000 miles of natural gas transmission pipelines were placed in service in the US over the past 10 years
8Historical Gas Infrastructure Constraints West to East FlowsMarketMarketProduction Growth AreasMove EastCapacity ConstraintsHigh gas production with capacity bottlenecks to move gas to market
9Gas Infrastructure West to East Bottleneck Gas Infrastructure proposals to alleviate capacity constraints
10Natural Gas basis spreads narrowed with Gas infrastructure build out Yellow boxes indicate no exporeNatural Gas basis spreads narrowed with Gas infrastructure build out
11Drilling shifts to liquids rich areas, driving growth in NGL supply 2000’s forwardIndustry DynamicsCrude/Gas ratios widenElevated NGL pricing creates incentive to explore liquids rich targetsIncrease in NGL supply due to emerging wet gas shale playsHigh NGL content of shale plays makes drilling economical for producers despite low natural gas pricingIncentives for Petrochemical companies to convert to lighter feed stocksIncreased domestic ethylene production for U.S and export markets.Drilling shifts to liquids rich areas, driving growth in NGL supply
12New rich shale gas driving the need for additional NGL Infrastructure Increased NGL SupplyEmerging Shale PlaysFocus shift from natural gas to NGL’s and crude oilIncrease in production of NGL’sE&P activity outpacing resourcesInsufficient local marketsEthane moves to lowest cost feed for PetChem industryConstraints on current infrastructure to handle new production“Race to Keep Pace” with drilling/productionStorageBottleneckNew rich shale gas driving the need for additional NGL Infrastructure
13NGL Infrastructure Constraints MarketWet Gas FairwayCapacity ConstraintsMarketNGL evolution is beginning similar to Gas. High NGL production with capacity constraints to move to market
14Proposed NGL Infrastructure Proposed NGL P/L’sIncreased E&P activityCurrent infrastructure is inadequate to handle new NGL production forecastsNew processing, fractionation and pipeline investment is necessary to meet current growthOpportunities exist to connect resources to marketsAdditional access to Mt. Belvieu expected to drive a tightening in Conway/Belvieu basis spreads
15DCP Midstream’s NGL Projects Southern Hills Pipeline~150,000 Bbl/d of NGL capacityNGL transport service from Conway, Western Oklahoma and Granite Wash areas to Mont Belvieu in 2013Synergistic with growing Rockies and Mid- Continent NGL productionProvides enhanced connectivity to premium Gulf Coast NGL markets for growing NGL volumesSand Hills Pipeline720 miles, common carrier pipelineExpected total capacity of 350,000 Bbl/d into Mont BelvieuSynergistic with growing Rockies and Mid- Continent NGL production1st phase expected completion Q to accommodate growing Eagle Ford liquids volumesService to Permian expected to be available mid-2013Providing customers with NGL transportation services
16Basis Spreads ?? Ethane Basis Spreads Historically fractionators at or near Conway and Mt. Belvieu processed locally available raw mixNGL Demand has grown primarily due to growth in the Petrochemical demand for ethaneNGL transportation segment is experiencing dwindling available capacity with increasing rates and basis differentialsAdded NGL Infrastructure providing additional access to Mt. Belvieu in the future??Yellow boxes indicate no exporeExpect basis spreads to narrow with additional pipeline infrastructure build
17NGL Evolution Timeline 2000ForwardInfrastructure BuildSupply BuildDemand BuildOverbuildEmerging Shale paysNew horizontal drilling technologyGas to crude ratiosShift from to gas fired power generationPetrochemical companies incentives to convert to lighter feed stocksIncreased consumer demand for plastics and packaging materialsMapcoSeminoleChevronOneok - OPPLSouthern HillsOneok - SterlingSand HillsMEPSVantage PipelineLone Star West Texas PipelineTexas Express PipelineWhat’s next?Narrow basis spreadsOperational improvementsExtra capacity to handle outages and turnaroundsReverse flow on NGL LinesRepurposingYellow boxes indicate no exporeInfrastructure needed to meet production and demand growth
18Evolution TimelineYellow boxes indicate no exporeThe NGL market development cycle is evolving similar to gas, just later in time.
19Summary ? Question for the Group? Where does the Conway / Belvieu basis settle out in the year ?A. At or greater than the transportation costB. Less than the transportation costC. No opinion because you don’t care or knowWill the gas / crude spread which is driving the push to liquids rich E&P plays continueA. Yes, the spread stays wideB. No, market forces pull the spread back to historical levelsYellow boxes indicate no expore?