bill waldheim business unit president november 3, 2011 pfaa – 18 th annual conference ngl...
TRANSCRIPT
Bill WaldheimBusiness Unit President
November 3, 2011
PFAA – 18th Annual ConferenceNGL InfrastructureBack to the Future
NGL Infrastructure
2
19551985
NGL Infrastructure
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Flux Capacitor Einstein
Doc Brown
NGL Infrastructure
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1981DeLorean
NGL Infrastructure
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What musician or band wrote the soundtrack for the original movie?
Huey Lewis and the News!
Back in Time – 1990’s-2000’s
A period of declining domestic crude oil production and uncertain gas production
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Mid-Contine
nt
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
1986-20002000-2010
Gas Evolution Timeline
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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 Build Demand BuildInfrastructure
Build Overbuild
Historical Gas Infrastructure Constraints
High gas production with capacity bottlenecks to move gas to market
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Capaci
ty
Const
rain
ts
Move East M
arke
t
Market
Production
Grow
th Areas
West to East Flows
Gas Infrastructure
Gas Infrastructure proposals to alleviate capacity constraints
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West to East Bottleneck
Gas Basis Spreads
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Natural Gas basis spreads narrowed with Gas infrastructure build out
2000’s forward
Drilling shifts to liquids rich areas, driving growth in NGL supply
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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 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
New rich shale gas driving the need for additional NGL Infrastructure
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Bottleneck
NGL Infrastructure Constraints
NGL evolution is beginning similar to Gas. High NGL production with capacity constraints to move to market
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Market
Wet
Gas
Fairway
Market
Capacity C
onstra
ints
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 ProjectsSouthern 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 services15
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
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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
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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
What’s next? Narrow basis
spreads Operational
improvements Extra capacity
to handle outages and turnarounds
Reverse flow on NGL Lines
Repurposing
Supply Build Demand BuildInfrastructure
Build Overbuild
Infrastructure needed to meet production and demand growth
Evolution Timeline
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The NGL market development cycle is evolving similar to gas, just later in time.
Summary
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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 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 C. No opinion because you don’t care or know
?