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Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
Icf 2014 propane markets outlook
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Icf 2014 propane markets outlook

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How long will the propane shortage last and how to position for the Short and Long haul

How long will the propane shortage last and how to position for the Short and Long haul

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  • 1. Reviewing the 2013 - 2014 Propane Markets: A Look at the Numbers – and a Look at the Future February 3, 2014 Michael Sloan Principal ICF International 703-218-2758 Michael.Sloan@icfi.com
  • 2. Propane Shortages (and Prices) Are Making the Evening News  Widespread talk of shortages and high prices at the retail level. ― Wholesale propane prices in the Midwest have tripled in the last two weeks.  ― Conway reached nearly $5 per gallon before falling back to $2.45 per gallon Residential prices reported by DOE for the Midwest states have doubled in the last four weeks.  Significant concern at the national and state government level. ― 2 Widespread propane industry involvement at both the state and federal level.
  • 3. This Presentation is About the Numbers 1) Review of primary near term propane market drivers 2) A more focused look at the numbers and the markets this winter. ― The supply balance in the midwest ― Markets and prices . 3) Looking forward: If this year has been bad (and it has), what will the future look like. 3
  • 4. NEAR TERM PROPANE MARKETS IN 2013, U.S. PROPANE PRODUCTION INCREASED BY 1.4 BILLION GALLONS SO WHY ARE WE SHORT OF SUPPLY? 1) Crop Drying 2) Cold Weather 3) Cargo Exports 4) Capacity Constraints 4
  • 5. 2013 Grain Drying Demand Drew Down Secondary and Tertiary Propane Inventories, particularly in the Midwest  The 2013 Harvest Season: ― ― The 2013 corn harvest was about 13.9 billion bushels, a historical record. Cooler than normal weather in July and August delayed the harvest. ― In October, the corn belt received above-average rainfall, with the first week of October at 200 to 500 percent of normal precipitation.  ICF estimates total grain-drying demand for propane at 300 – 350 million gallons ― 5 235 – 285 million gallons above 2012 levels.
  • 6. Weather: 2013 Heating Degree Days Above Historical Norms, and Significantly Above Last Year  Through to January, reported HDDs for the current heating season are: ― 3.1% above NOAA’s 30year Average ― 10.1% above the 2012/2013 Heating Season ― 15.0% above the 2011/2012 Heating Season  ICF estimates impact of colder weather in 2013 relative to 2012 to be 640 million gallons. 6
  • 7. Propane Exports Doubled After the 2013 Terminal Expansions Came On-line New Targa Refrigerated Capacity +120 MBPD Enterprise Expansion +115 MBPD Enterprise Debottlenecking +30 MBPD 2.6 billion gallons in 2012 4.5 billion gallons in 2013 7
  • 8. U.S. Propane Exports are Driving Domestic and International Propane Markets Increasing U.S exports have narrowed the spread between U.S. and European propane prices. 8 And are starting to put pressure on international propane prices relative to crude oil.
  • 9. In 2013, U.S. Propane Production Increased by 1.4 Billion Gallons. So Why are We Short of Supply? 1) Crop Drying ― +235 million gallons Changes in Propane Supply Balance Between 2012 and 2013 (Million Gallons) 2012 2013 (Estimated) Change 2) Colder Weather ― +640 million gallons Total Propane Supplied U.S. Natural Gas Plant Production U.S. Refinery Production U.S. Propane Imports U.S. Propane Stock Drawdown 16,265 10,950 4,227 1,644 (556) 18,657 12,250 4,290 1,254 864 2,393 1,300 63 (390) 1,420 3) Cargo Exports ― +1.9 billion gallons Total Propane Consumption U.S Consumer Demand (exc. Grain Drying) U.S. Grain Drying Demand U.S. Petrochemical Demand 13,644 7,755 65 5,824 14,180 8,396 300 5,484 535 641 235 (341) 4) Stock Drawdown ― -1.4 billion gallons Propane Exports 2,620 4,478 9 1,857 Note: Improvements in efficiency and other market changes offset about 80 million gallons of consumer propane demand in 2013. 2013 estimated by ICF: All values based on preliminary data and ICF forecasts, and will change as additional data becomes available.
  • 10. In 2013, Propane Markets Balanced Due To Inventory Drawdowns  In 2013 inventories fell by 864 million gallons relative year end 2012 inventory levels. ― Propane inventory levels are currently below 10year seasonal lows.  Propane inventories started the heating season at normal levels 10
  • 11. Change in U.S. October 2013-January 2014 Propane Consumption Relative to Last Year  ICF estimates that between October 2013 and January 2014, total U.S. propane demand increased by about 450 million gallons relative to the same period in the previous year: ― Grain Drying: 235 million gallons ― Cold Weather: 215 million gallons 11
  • 12. Change in Midwest (PADD 2) 2013/14 Heating Season Demand  ICF estimates that between October 2013 and January 2014, propane demand in the Midwest increased by 390 million gallons (9.5 million barrels) relative to the same period in the previous year: ― Grain Drying: 225 million gallons ― Cold Weather: 165 million gallons 12
  • 13. Propane Supplies into the Midwest have been Constrained by Production and Transportation Outages and Limitations  Constrained Capacity on Cochin Pipeline ― Out of service for three weeks (November 27- December 17). ― Currently flowing below capacity due to high Canadian demand for propane.  Removal from service of Todhunter storage capacity in Ohio ― Reduced PADD 2 propane storage by about 0.8 – 0.9 million barrels.  Reversal of TEPPCO line for ATEX Pipeline has created congested flows on the remaining TEPPCO system. ― Scheduling propane shipments along with other products.  Several Midwest refinery and gas processing plants have been offline for routine maintenance and other reasons.  Fractionation outages at Mont Belvieu have reduced propane production.  Storage deliverability has started to decline as storage volumes reach critical levels. 13
  • 14. What is the Shortfall in Midwest (PADD 2) Supply October - January Million Barrels Million Gallons Increase in Midwest Demand + 9.3 + 390 Changes in PADD 2 Supply + 2.9 + 120 Decline in PADD 2 Production + 0.7 + 30 Cochin Pipeline Shutdown and Capacity Constraints + 2.2 + 90 + 3.3 + 140 Todhunter Storage - 0.9 - Other Storage + 4.2 + 180 + 8.8 + 370 50 2,100 Increase in Stock Withdrawals Increase in Midwest Requirements Total Midwest Requirements 40 Estimated by ICF: All values based on preliminary data and ICF forecasts, and will change as additional data becomes available. 14
  • 15. Remaining Inventories in PADD 2 and PADD 3  PADD 2 Inventories are below 5-year minimum, normally seen in mid-March, near end of heating season 8,789 MBBL Ten-Year Minimum, Mar. wk 2 2008, 7,951 MBBL  At January withdrawal rates, current PADD 2 inventory is 5 days away from 10-year minimum level.  PADD 3 inventories are at 5year minimums for this time of year.  17.4 million barrels below 3rd Week January 2013 levels. 14,924 MBBL Ten-Year Minimum, Feb. wk 4, 2004. 10,134 MBBL 15  At January withdrawal rates, current PADD 3 inventory is 28 days away from 10-year minimum level.
  • 16. Market Price Response Increasing U.S. Propane Exports have reduced the price spread between the U.S. and Europe The price spread between Mont Belvieu and Conway shifted as PADD 2 Inventories started to fall below normal levels Source: Bloomberg, 2014-01-30, ICF Analysis 16
  • 17. LONGER TERM OUTLOOK FOR PROPANE SUPPLY 17
  • 18. ICF Forecast of Propane Production from Natural Gas Liquids Propane From North American NGLs (million barrels):  333 in 2013  552 in 2020  628 in 2025  Marcellus & Utica propane output grows from 16 million barrels in 2013 to 124 million barrels in 2025.  Bakken (North Dakota and Montana) production over 57 million barrels in 2025.  Niobrara (Rockies) production increases from zero in 2010 to nearly 24 million barrels in 2025. 18
  • 19. Planned Export Terminals Significantly Add to Current Export Capacity Company Export Capacity Mil. Gallons/m Location Cost ($Million) Start-up *Estimated Targa 154 Galena Park, TX 2014, Q3 $240 Sunoco Logistics LP 51 Marcus Hook, PA 2014, Q3 $270 Occidental 96 Corpus Christi, TX 2015, Q1 $400 Sunoco Logistics LP 253 Nederland, TX 2015, Q1 $400* Enterprise 63 Houston Ship Channel, TX 2015, Q1 $100* Pembina Pipeline Co. 51 Prince Rupert, BC 2015, Q3 $320* Boardwalk 128 Moss Lake, LA 2015, Q4 $700* Enterprise 291 TX/LA 2015, Q4 $500* Phillips66 185 Freeport, TX 2016, Q3 $1,000 Total Proposed 19 1,272 $3,930*
  • 20. Existing and Proposed PDH and Export Capacity is Likely to Exceed Propane Supply 20
  • 21. Economics of Export Capacity Greater Than Supply  The availability of additional propane export capacity does not guarantee that the capacity will be used. Instead, it links the domestic propane market to the international propane market. ― Domestic and international prices will equilibrate, (at least on a rough basis). ― Propane will stay in domestic markets -- if the domestic price is high enough.  Price volatility is likely to increase.  Propane in storage will not automatically be available to the domestic market. ― Will require price bidding, or contracted storage.  Seasonal stock builds for winter demand will no longer be automatic. ― Seasonality of international demand will impact domestic markets  Asian demand will have limited seasonality  Central and South American demand generally countercyclical. 21
  • 22. Economics of Limiting Exports  Limiting propane exports will reduce domestic propane prices, and increase International propane prices. Lower domestic prices: ― Benefit propane consumers ― Probably benefit the petrochemical industry ― But will hurt producers, traders, exporters….  Return to traditional seasonal supply/demand and inventory patterns.  Indirect impacts are complex, but likely would offset some of the benefits to consumers. ― Lower domestic prices will reduce the overall value of natural gas and liquids production, and will reduce natural gas and liquids production. ― Lower ethane production increases ethane prices, potentially shifting petrochemical feedstock demand from ethane to propane. ― Lower domestic propane prices (and higher international propane prices) drive growth in domestic PDH facilities and propylene exports.  Some economic theories suggest limiting exports would slow overall economic growth. 22
  • 23. Cochin Pipeline Reversal  Cochin is a major source of propane supply into Midwest markets.  Current Cochin pipeline capacity at almost 1.2 billion gallons per year  Recent annual propane throughput to U.S. has averaged around 300 million gallons per year.  A major source of incremental supply to meet unusual swings in demand  Grain drying  Cold weather Estimated Cochin Flows for U.S. Delivery  Access to propane storage capacity in Western Canada  Cochin will be taken out of propane service in March/April 2014 Source: EIA Petroleum Imports Database, propane receipts at Portal and Sherwood, ND 23
  • 24. Cochin Pipeline Reversal  The annual loss of supply into the Midwest due to the Cochin reversal is roughly equivalent to the amount of propane needed to meeting this year’s grain drying demand.  However, while reversal of Cochin removes the readily defined path to market for Alberta propane, it does not remove or reduce the supply of propane. ― Likely to reduce propane prices in Alberta, indirectly reducing supply.  Excess Alberta propane will find a market. ― Injection into the Alliance Pipeline for removal at the AuxSable plant near Chicago. ― Rail and truck transport out of Alberta ― Waterborne export markets from British Columbia  Hence, more markets will be competing for the supply, and the supply transportation infrastructure will be slower and less reliable. ― Less supply certainty ― More price volatility 24

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