Call Girls From Pari Chowk Greater Noida ❤️8448577510 ⊹Best Escorts Service I...
NGL Snapshot - April 2018 - Qtrly NGL SD Update.pdf
1. Please see page 53 for rating definitions, important disclosures and
required analyst certifications. All estimates/forecasts are as of 04/30/18
unless otherwise stated. 04/30/18 12:41:14 ET
Wells Fargo Securities, LLC does and seeks to do business with companies covered
in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of the report and
investors should consider this report as only a single factor in making their
investment decision.
April 30, 2018 | Equity Research
NGL Snapshot: April 2018
Quarterly NGL Supply/Demand Update
Raising Near-Term NGL Price Estimates. We have raised our 2018E
and 2019E NGL composite price forecasts to $0.77/gallon and
$0.86/gallon, respectively, from $0.73/gallon and $0.77/gallon
primarily to reflect our higher crude oil price deck, which is set by our
refining analyst Roger Read.
Ethane Prices Are Starting To Climb…For several years now we
have been calling for ethane prices to increase in the 2018-20 time
frame to as high as $0.40 per gallon as new crackers are placed into
service. Ethane prices have started to follow this upward trajectory,
increasing from less than $0.20 for most of 2015-16 to $0.25 per gallon
in 2017 and $0.28 per gallon currently.
…However, Drop In Ethylene Prices Poses Risk To Our Positive
Ethane Thesis. Over the past few months, the spot price of ethylene
at Mont Belvieu has decreased from $0.28 per Lb in 2017, to $0.13 per
Lb currently. We believe the reduction in ethylene prices is partially due
to a growing oversupply of ethylene. We have yet to quantify the
magnitude of oversupply, but we view this development as a potential
risk to our long-term positive outlook for ethane prices. If there is an
oversupply of ethylene and not enough derivative units (i.e.,
polyethylene plants) or export docks (EPD is constructing a new
ethylene export dock) to handle the increase in supply, ethylene prices
could fall further and potentially reduce cracker utilization rates. We
believe petchem consumption of heavier feedstocks (e.g., propane)
would decrease first before ethane. Nevertheless, this dynamic could
cap price upside for ethane. For now, we are maintaining our long-term
ethane price forecast of $0.40 per gallon, but we intend to analyze
ethylene supply/demand dynamics in more depth at a later date.
Ethylene Glut Could Drive Higher LPG Exports; Capacity Could Be
Tight By 2020. The decline in ethylene prices and prospect of
persistently lower ethylene prices (our working assumption), could have
meaningful ramifications for propane and butane (LPG) supply/demand.
First, the drop in ethylene prices has made cracking heavier feedstocks
other than ethane uneconomic. Petchem consumption of propane and
butane has decreased by ~50 MBbls/d. We expect petchem demand for
LPGs to remain muted and potentially decrease further. The reduction
in petchem demand will likely be balanced by an increase in LPG
exports. And, we project LPG exports to remain firm this year at
~1,000 MBbls/d (i.e., near record levels).
Who’s Affected (1) Muted ethane price recovery. If lower ethylene
prices weigh on ethane price recovery, ethane rejection could persist
longer than we project. We believe OKE would be most negatively
affected, followed by DCP, EPD, ETP, and TRGP. (2) Higher LPG exports.
In our view, if LPG exports increase and spot rates go higher, TRGP
stands to benefit the most, followed to a lesser degree by EPD, ETP,
and PSXP. (3) Tight LPG export capacity. We now believe LPG export
capacity could become tight by 2020, suggesting (1) spot rates for LPG
export dock operators could improve and (2) new LPG export capacity
investments could be required. TRGP, EPD, ETP, and PSXP could
benefit.
Midstream/MLPs
Michael Blum
Senior Analyst|212-214-5037
michael.j.blum@wellsfargo.com
Sharon Lui, CPA
Senior Analyst|212-214-5035
sharon.lui@wellsfargo.com
Praneeth Satish
Senior Analyst|212-214-8056
praneeth.satish@wellsfargo.com
Ned Baramov, CFA
Senior Analyst|212-214-8021
ned.baramov@wellsfargo.com
Eric Shiu
Associate Analyst|212-214-5038
eric.shiu@wellsfargo.com
Zachary Cantor
Associate Analyst|212-214-5050
zachary.cantor@wellsfargo.com
2.
3. NGL Snapshot: April 2018 Equity Research
Wells Fargo Securities, LLC | 3
Table of Contents
Quarterly NGL Supply/Demand Update & Price Deck Revision ..............................................................5
Raising Near-Term NGL Price Estimates........................................................................................6
Review Of Ethane Fundamentals .................................................................................................7
Review Of Propane Fundamentals..............................................................................................12
Summary Of Changes To Our Normal Propane Supply/Demand Model............................................14
Summary Of Changes To Our Normal Butane Supply/Demand Model .............................................15
Summary Of Changes To Our Natural Gasoline Supply/Demand Model ...........................................16
Putting It All Together--NGL Supply/Demand Model ................................................................16-17
NGL Supply And Demand Data.......................................................................................................19
NGL Supply For January Up Versus Year-Ago Period.....................................................................20
NGL Production From Natural Gas Processing Was Up Versus The Prior Year ...................................20
The NGL Barrel Mix..................................................................................................................21
January NGL Demand Up From The Prior Year.............................................................................22
Steam Cracker Operating Rate Above Prior Month .......................................................................23
Petrochemical Demand For NGLs Was Up Yr/Yr ...........................................................................24
January Chemical Exports Were Down Versus The Prior Month ......................................................26
U.S. LPG Exports Increased In March ........................................................................................27
Tracking Global LPG Pricing Differentials.....................................................................................27
January Ethane Consumption Was Up From The Prior Month .........................................................29
Ethane Was The Lowest Cost Ethylene Feedstock In February .......................................................29
Ethylene Margin Below Historical Three-Year Average ..................................................................30
NGL Supply And Demand Model ................................................................................................31
NGL Inventory Levels: Above The Five-Year Average ...................................................................31
Ethane Supply And Demand......................................................................................................33
Ethane Inventory Decreased In January .....................................................................................34
Propane Supply And Demand....................................................................................................35
NOAA Forecasts 2019 Winter Heating Season To Be Colder Than 2018...........................................36
Propane Inventory Levels Are Below Prior-Year Levels..................................................................37
NGL Pricing..................................................................................................................................39
Natural Gas Liquids: Prices And Forward Curves ..........................................................................40
Frac Spreads Decreased In March..............................................................................................43
NGL-To-WTI And NGL-To-Brent Crude Ratios ..............................................................................44
Mont Belvieu-To-Conway Ethane, Propane, and EP Mix Differentials...............................................45
Appendix.....................................................................................................................................47
Summary Pricing Table ............................................................................................................47
MLPs Involved In The NGL Market .............................................................................................48
Glossary Of Terms...................................................................................................................49
7. NGL Snapshot: April 2018 Equity Research
Wells Fargo Securities, LLC | 7
Review Of Ethane Fundamentals
Positive Long-Term On Ethane Pricing
As noted, lower ethylene prices could affect our positive long-term outlook for ethane prices. For now, we
continue to believe ethane prices are likely to trend higher over time, to approximately $0.40 per gallon
and ethane rejection to decrease steadily as new crackers are constructed. In fact, we believe ethane
rejection dropped sharply in late 2017 / early 2018 and is now running at around 300 MBbls/d, versus
400-450 MBbls/d in H1’17. ETP’s announcement last month to construct a new 150 MBbls/d ethane export
facility in the USGC further increases the likelihood that the Texas/Mid-Con region will be short ethane,
likely necessitating higher prices and ethane imports from the Rockies/Bakken.
Our base case outlook for ethane. The following exhibit shows incremental supply and demand for ethane.
For the Texas/Mid-Con region, we project 700 Mbbls/d of incremental ethane supply versus 859 MBbls/d
of incremental ethane demand (based on crackers that have received FID and ETP’s recently announced
ethane export facility). Given the mismatch between ethane supply/demand, we believe ethane will need
to be transported to the Gulf Coast region to satisfy cracker demand. The imbalance between ethane
supply and demand in the Gulf Coast region is small to begin with, but widens over the next 1-3 years as
new crackers and export terminals are constructed.
Exhibit 3. Framing Our Positive Long-Term Thesis On Ethane – Incremental Demand Versus Supply
Estimated
LT Ethane Supply/Demand Balance (MBbls/d) Completion
Ethane rejection in Texas / Mid-Con ~250 -
Ethane rejection in all other regions ~250 -
Ethane supply growth in Texas / Mid-Con ~450
Ethane supply growth in all other regions ~100
Incremental ethane supply ~1,050
Gulf Coast Worldscale Crackers 66 Q2'17
OxyChem / Mexichem cracker (complete) 62 Q3'17
Dow worldscale cracker (complete) 83 Q1'18
CPChem worldscale cracker (complete) 83 Q2'18
Exxon Mobil Chemical cracker (identified) 30 Q2'18
Shintech cracker (identified) 83 Q4'18
Sasol worldscale cracker (identified) 55 Q2'19
Westlake-Lotte Chemical cracker (identified) 66 Q2'21
Incremental demand from ethane crackers 529 2017-21
EPD Ethane Terminal (USGC) 180 Q3'16
Orbit Ethane Export Terminal (USGC) 150 Q4'20
(-) Incremental demand from Gulf Coast 859
Mariner East 2 (Europe/Asia) 69 Q4'18
Mariner East 2X (Europe/Asia) 63 Q4'19
Utopia East (Eastern Canada) 40 Q1'18
Shell Pennsylvania cracker (identified) 88 Q1'21
(-) Incremental demand from Northeast 260
~700
859
~350
260
191
~1,050
1,310
0
200
400
600
800
1,000
1,200
1,400
Peak ethane rejection Incremental demand
Ethane
Supply/Demand
(MBbls/d)
New ethane
supply from
Texas / Mid-
Ethane
demand
from East
Coast
Ethane
demand
from
Texas
region
New ethane
supply from
Northeast &
Rockies/Bakken
Demand
from pot'l
second
wave of
crackers
Source: Wells Fargo Securities, LLC estimates
Two key variables could materially alter our long-term outlook for ethane prices:
Ethylene Prices & Margins. Over the past few months, the spot price of ethylene at Mont Belvieu
has decreased from $0.28 per Lb in 2017 to $0.13 per Lb currently. We believe the reduction in
ethylene prices is partially due to logistical constraints (Shell ethylene pipeline is down), but more
broadly, due to a growing oversupply of ethylene. We have yet to quantify the magnitude of
oversupply, but we view this development as a potential risk to our long-term positive outlook for
ethane prices. Ethylene supply is only going to increase further as new ethane crackers in the Gulf
Coast are constructed. We estimate an additional 8 billion Lbs per year of ethylene capacity will be
added over the remainder of the year. If there is an oversupply of ethylene and not enough derivative
units (i.e., polyethylene plants) or export docks (EPD is constructing a new ethylene export dock) to
handle the increase in supply, ethylene prices could fall further and potentially reduce cracker
utilization rates, in our view. We believe petrochemical consumption of heavier feedstocks (e.g.,
propane, butane) would decrease first before ethane. Nevertheless, this dynamic could cap price
upside potential for ethane. For now, we are maintaining our long-term ethane price forecast of $0.40
per gallon, but we intend to analyze ethylene supply/demand dynamics in more depth at a later date.
8. Midstream/MLPs Equity Research
8 | Wells Fargo Securities, LLC
Exhibit 4. Historical Spot Ethylene Prices & Minimum Feedstock Cracking Economics
0
5
10
15
20
25
30
35
40
Spot
MB
Ethylene
Price
(cents
/
Lb)
Minimum price for propane
cracking to be economic
Minimum price for ethane
cracking to be economic
Source: IHS Chemical, Hodson Report, and Wells Fargo Securities, LLC
Permian Production Growth. If Permian production growth exceeds our forecast (i.e., Permian
ethane increases by 500 MBbls/d, versus our base case forecast of 350-400 MBbls/d), there could be
sufficient ethane supplies in the Texas/Gulf Coast/Mid-Continent region to feed new ethane crackers
without the need to import ethane from remote locations (e.g., Northeast, Bakken, Rockies). If this
occurs, we think ethane prices still increase, but only to a level to incentivize ethane recovery in the
Mid-Continent (i.e., $0.30 per gallon).
Second Wave Gulf Coast Ethane Crackers. If either of the two worldscale ethane crackers
currently under evaluation (Exxon Mobil/SABIC and Total/Borealis/NOVA) reach FID, we believe Gulf
Coast ethane demand will materially exceed regional ethane supply. This would support a long-term
ethane price of $0.40 per gallon or higher. The two potential crackers are both located in the Corpus
Christi region and a final investment decision (FID) is expected sometime this year. Assuming timely
receipt of FID and no construction delays, these crackers could be up and running by late 2020 (the
earliest).
Ethane Rejection Fell Sharply In Q4’17
We estimate ethane rejection is currently running around 300 MBbls/d, down sharply from the 400-450
MBbls/d level during most of 2017. We believe the big drop in ethane rejection is tied to the start-up of
new crackers and also the reduction in ethylene margin, which has made cracking heavier feedstocks
(e.g., propane, butane) less economic (i.e., we think some flexi crackers shifted to ethane and away from
heavier NGLs). We project ethane rejection to decrease to a level of 150-200 MBbls/d in 2020E, and
essentially zero by 2021E, when a second wave of ethane crackers potentially begin operations and ETP’s
ethane export terminal commences operations.
9. NGL Snapshot: April 2018 Equity Research
Wells Fargo Securities, LLC | 9
Exhibit 5. Historical And Projected Ethane Rejection Over Time
656
610
612
516
519
357
543
450
458
398
467
288
302
302
230
201
194
234
209
135
181
197
199
163
67
25
0
0
0
0
0
0
0
100
200
300
400
500
600
700
Q1'15A
Q2'15A
Q3'15A
Q4'15A
Q1'16A
Q2'16A
Q3'16A
Q4'16A
Q1'17A
Q2'17A
Q3'17A
Q4'17A
Q1'18E
Q2'18E
Q3'18E
Q4'18E
Q1'19E
Q2'19E
Q3'19E
Q4'19E
Q1'20E
Q2'20E
Q3'20E
Q4'20E
Q1'21E
Q2'21E
Q3'21E
Q4'21E
Q1'22E
Q2'22E
Q3'22E
Q4'22E
Ethane
Rejection
(MBbls/d)
Start-up of first
wave of ethane
crackers in the
Gulf Coast
Start-up of
second wave of
crackers & ETP's
ethane export
terminal
Source: EIA and Wells Fargo Securities, LLC estimates
Ethane Frac Spread
The ethane frac spread represents the market value of ethane minus the commodity’s heating value. A
high ethane frac spread incentivizes processors to recover ethane from the gas stream (and thereby,
reduce ethane rejection) and sell the commodity as ethane, rather than methane. Driving our forecast of
decreasing amounts of ethane rejection are higher ethane frac spread assumptions. We forecast the
ethane frac spread to increase to $0.20 per gallon by 2019E. This essentially reflects the cost of
transporting ethane from remote locations (e.g., Marcellus/Utica, Bakken, Rockies) to the U.S. Gulf Coast
market, where most of the incremental ethane demand is being constructed. As previously noted, if
ethane supply growth in the Permian/Mid-Con is sufficient to satisfy incremental ethane demand from new
crackers and/or ethylene prices/margins remain low, we project the ethane frac spread may not increase
above $0.10 per gallon (the cost of transporting ethane from the Mid Continent to the Gulf Coast).
Exhibit 6. Historical And Projected Ethane Frac Spread Over Time
$0.28
$0.22
$0.31
$0.50
$0.22
$0.02
($0.02)
$0.01
$0.03 $0.04
$0.10
$0.20
($0.10)
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
2008A 2009A 2010A 2011A 2012A 2013A 2014A 2015A 2016A 2017A 2018E 2019E
Ethane
Frac
Spread
($/g)
2013-2017:
Oversupplied
ethane market
low frac spreads
ethane
rejection
2008-2012:
Undersupplied ethane
market high frac
spreads ethane
recovery
2019+:
We project
ethane market
becomes
undersupplied
high frac spreads
ethane
recovery
Source: Bloomberg and Wells Fargo Securities, LLC estimates
10. Midstream/MLPs Equity Research
10 | Wells Fargo Securities, LLC
Summary Of Changes To Our Ethane Supply/Demand Model
Supply. We raised our ethane supply estimates slightly to reflect TRGP’s latest fractionator.
Demand. We raised our ethane demand estimates meaningfully to reflect ETP’s recently announced
150 MBbls/d Gulf Coast ethane export facility (Orbit) and some feedslate switching to ethane and
away from less economic heavier NGL feedstocks (propane and butane). Our 2022-23E ethane
demand forecast increases to 2.5 MMBBls/d, versus 2.3-2.4 MMBbls/d previously.
Exhibit 7. Ethane Supply And Demand Model (Physical Volumes)
(Thousand barrels per day) 2017A 2018E 2019E 2020E 2021E 2022E 2023E
Ethane Supply:
Estimated capacity to produce ethane 1
1,814 1,975 2,167 2,230 2,280 2,305 2,305
(●) Ethane rejection due to oversupply 2
382 259 193 185 23 0 0
(●) Ethane rejection due to cracker outages 4
20 0 0 0 0 0 0
(-) Total estimated ethane rejection 403 259 193 185 23 0 0
Physical ethane supply estimate 1,412 1,716 1,974 2,045 2,257 2,305 2,305
Ethane Demand:
Estimated capacity to consume ethane 3
1,399 1,733 1,996 2,070 2,355 2,559 2,559
(-) Actual operating rate versus our estimate 4
(0) 0 0 0 0 0 0
(-) Impact of feedswitching to propane/butane 47 42 47 50 50 42 0
(+) Other adjustments 46 25 25 25 25 25 25
Physical ethane demand estimate 1,398 1,716 1,974 2,045 2,330 2,542 2,584
Ethane over/(under) supply estimate 14 0 0 0 (73) (237) (279)
Note 1: Assumes a 95% utilization rate
Note 2: Represents ethane oversupply due to a mismatch between capacity to produce ethane versus capacity to
consume ethane. If the actual steam cracker operating rate exceeds our assumption of 90-92% in any given quarter, we
have subtracted the incremental ethane demand from this oversupply estimate
Note 3: Assumes a 90-92% operating rate
Note 4: Reflects outages above and beyond a 90-92% assumed operating rate
Source: Company data, EIA and Wells Fargo Securities, LLC estimates
Capacity-Based Ethane Supply/Demand Model
The following exhibit shows our capacity-based supply/demand model for ethane. The table tracks
capacity to supply and consume ethane, rather than actual physical ethane volumes. An oversupplied
balance would suggest low ethane pricing and ethane rejection (to balance the market), while an
undersupplied balance would suggest higher ethane prices (i.e., above natural gas-equivalent value).
11. NGL Snapshot: April 2018 Equity Research
Wells Fargo Securities, LLC | 11
Exhibit 8. Ethane Supply And Demand Model (Capacity Based)
Est. Expected
(Thousand barrels per day) Capacity In-Service 2016A 2017A 2018E 2019E 2020E 2021E 2022E 2023E
Build-Up Of Ethane Supply:
Est. Capacity to produce ethane (Dec 2014) 1,693 - 1,693 1,693 1,693 1,693 1,693 1,693 1,693 1,693
Mont Belvieu Fractionation Expansions
Enterprise MB1- train 9 (EPD / WES) 41 Q2'18 0 0 30 41 41 41 41 41
Targa Frac 6 (TRGP / Stonepeak) 43 Q1'19 0 0 0 43 43 43 43 43
Lone Star Fractionator IV (Lone Star JV) 51 Q1'17 0 51 51 51 51 51 51 51
Lone Star Fractionator V (Lone Star JV) 51 Q4'18 0 0 13 51 51 51 51 51
Lone Star Fractionator VI (Lone Star JV) 51 Q2'19 0 0 0 38 51 51 51 51
Total ethane fractionation expansions at Belvieu 237 0 51 95 224 237 237 237 237
Appalachia Fractionation Expansions
(•) Total incremental frac exp. (Appalachia) 175 Various 50 70 150 175 175 175 175 175
(+) ATEX volumes 145 Ramp 98 116 145 145 145 145 145 145
Incremental volume transported to MB via ATEX (EPD) 98 116 145 145 145 145 145 145
Assumed Fractionation Expansions
Additional fracs to support Permian growth 175 Q4'22 0 0 38 75 125 175 175 175
Additional fracs to support Northeast growth 25 Q4'22 0 0 0 0 0 0 25 25
Additional fracs to support all other growth 0 Q4'22 0 0 0 0 0 0 0 0
Total assumed ethane fractionation expansions 200 0 0 38 75 125 175 200 200
Total Potential Ethane Supply (United States) 1,743 1,814 1,975 2,167 2,230 2,280 2,305 2,305
Build-Up Of Ethane Demand:
Est. Capacity to consume ethane (Dec 2014) 1,150 - 1,150 1,150 1,150 1,150 1,150 1,150 1,150 1,150
Gulf Coast Ethylene Expansions
Lyondell Corpus Christi expansion 20 Q1'17 0 20 20 20 20 20 20 20
Lyondell Channelview expansion 6 Q3'15 6 6 6 6 6 6 6 6
Dow's Plaquemine expansion 11 Q4'16 3 11 11 11 11 11 11 11
Indorama cracker restart 20 Q3'18 0 0 10 20 20 20 20 20
Williams Geismar ethylene expansion 17 Q2'15 17 17 17 17 17 17 17 17
Ethane demand from ethylene expansions 74 26 54 64 74 74 74 74 74
Gulf Coast Worldscale Crackers
OxyChem / Mexichem cracker (complete) 66 Q2'17 0 41 66 66 66 66 66 66
Dow worldscale cracker (complete) 62 Q3'17 0 23 62 62 62 62 62 62
CPChem worldscale cracker (complete) 83 Q1'18 0 0 72 83 83 83 83 83
Exxon Mobil Chemical cracker (identified) 83 Q3'18 0 0 31 83 83 83 83 83
Shintech cracker (identified) 30 Q2'18 0 0 19 30 30 30 30 30
Sasol worldscale cracker (identified) 83 Q4'18 0 0 10 83 83 83 83 83
Westlake-Lotte Chemical cracker (identified) 55 Q2'19 0 0 0 35 55 55 55 55
Formosa Louisiana cracker (identified) 66 Q2'21 0 0 0 0 0 41 66 66
Exxon Mobil / SABIC cracker (awaiting FID) 75 Q3'21 0 0 0 0 0 28 75 75
Total / Borealis/ NOVA cracker (awaiting FID) 55 Q3'21 0 0 0 0 0 21 55 55
Ethane demand from GC crackers 659 0 65 261 442 463 553 659 659
Other U.S. Petchem Projects
Shell PA ethane cracker (identified) 88 Q1'21 0 0 0 0 0 88 88 88
PTT Global Ohio cracker (awaiting FID) 61 (E) Q1'22 (E) 0 0 0 0 0 0 61 61
Ethane demand from other U.S. projects 149 0 0 0 0 0 88 149 149
Ethane Export Projects
Mariner East I (Europe) 25 Q3'15 25 25 25 25 25 25 25 25
Mariner East 2/2X (Europe) 69 (E) Q4'18 0 0 13 69 69 69 69 69
Mariner East 2X (Europe) 63 (E) Q4'19 0 0 0 16 63 63 63 63
EPD Ethane Terminal (USGC) 180 Q3'16 19 105 180 180 180 180 180 180
Orbit Ethane Export Terminal (USGC) 150 Q4'20 0 0 0 0 6 113 150 150
Utopia East (Eastern Canada) 40 (E) Q1'18 0 0 40 40 40 40 40 40
Ethane demand from export projects 527 44 130 258 330 383 490 527 527
Total Potential Ethane Demand (United States) 1,220 1,399 1,733 1,996 2,070 2,355 2,559 2,559
Ethane Over / (Under) Supply (United States) 523 416 242 171 160 (75) (254) (254)
Note: Analysis assumes (1) ethane makes up 45% of new NGL fractionation capacity, (2) a 95% max utilization rate for
fractionators, and (3) an operating rate of 90% on new ethylene capacity
Source: Company data, EIA, and Wells Fargo Securities, LLC estimates
12. Midstream/MLPs Equity Research
12 | Wells Fargo Securities, LLC
Review Of Propane Fundamentals
Low Inventory Likely To Support High Propane Prices
Propane inventory continues to track below 5-year averages, LPG exports are near cord highs, and the
price of Brent oil has improved to more than $70/Bbl. The combination of these factors will likely support
continued strength in propane prices, in our view. While lower ethylene prices could result in reduced
petrochemical demand for propane (i.e., due to negative feedstock margins), we believe excess supply will
be exported and not materially disrupt pricing. We are assuming petchem demand for LPGs decreases by
around 50 MBbls/d, due to lower ethylene prices/margins. To the extent that petchem demand for LPGs
decreases by more than 150-200 MBbls/d, LPG export docks could become full, likely resulting in lower
propane prices. However, we don’t believe this dynamic will occur.
Exhibit 9. U.S. Propane Inventory (Data As Of February 2018)
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
4/17
5/17
6/17
7/17
8/17
9/17
10/17
11/17
12/17
1/18
2/18
3/18
Thousand
Barrels
5-year range 5-year average Prior Year Current year
Source: EIA and Wells Fargo Securities, LLC
LPG Exports Could Rise From Ethylene Glut
Previously, we had been forecasting a decrease in LPG exports this year due to low propane inventory
levels and narrow LPG export margins. However, the decline in ethylene prices and the prospect of
persistently lower ethylene prices (our working assumption for now), could have meaningful ramifications
for propane and butane (LPG) supply/demand. First, the drop in ethylene prices has made cracking any
feedstock heavier than ethane uneconomic (i.e., propane, butane, naphtha, etc). Accordingly, petchem
consumption of propane and butane has decreased by around 50 MBbls/d. We expect petchem demand
for LPGs to remain muted and potentially decrease even further. The reduction in petchem demand will
likely be met by exports to keep the LPG market in balance, in our view. Accordingly, we project LPG
exports to remain firm this year at around 1,000 MBbls/d (i.e., near record levels), rather than decrease.
In fact, we now believe LPG export capacity could become tight by 2020, suggesting (1) spot rates for LPG
export dock operators could improve and (2) new LPG export capacity investments could be required.
14. Midstream/MLPs Equity Research
14 | Wells Fargo Securities, LLC
Summary Of Changes To Our Propane Supply/Demand Model
Supply & Demand. We have raised our long-term propane supply projections based on new
fractionation capacity announcements. Based on our higher supply forecast and lower petrochemical
demand for propane, we have raised our propane export estimates.
Exhibit 11. Propane Supply And Demand Model
(Thousand barrels per day) 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E 2023E
Natural gas processing 1,144 1,166 1,221 1,284 1,385 1,453 1,492 1,499 1,506
% of total 75% 73% 74% 75% 76% 77% 77% 78% 78%
Refining 283 307 306 306 306 306 306 306 306
% of total 18% 19% 18% 18% 17% 16% 16% 16% 16%
Imports 105 120 129 129 129 129 129 129 129
% of total 7% 8% 8% 7% 7% 7% 7% 7% 7%
Total Propane Supply 1,532 1,594 1,655 1,718 1,820 1,887 1,926 1,933 1,941
Yr/yr change 11.0% 4.0% 3.8% 3.8% 5.9% 3.7% 2.0% 0.4% 0.4%
Heating (e.g. residential ) 439 339 281 312 321 312 302 293 284
Agricultural (e.g. crop drying ) 40 47 47 47 47 47 47 47 47
(+) Ethylene plants 374 405 348 315 360 360 360 360 360
(+) PDH plants 24 57 72 121 121 121 121 121 121
Petchem feedstock 3
388 448 419 436 481 481 481 481 481
(+) Waterborne exports 607 778 898 912 925 1,038 1,086 1,102 1,118
(+) Pipeline exports 10 22 29 10 10 10 10 10 10
Exports 616 799 904 922 935 1,048 1,096 1,112 1,128
Total Propane Demand 1,483 1,633 1,652 1,717 1,784 1,887 1,926 1,933 1,941
Yr/yr change 14.6% 10.1% 1.2% 4.0% 3.9% 5.8% 2.0% 0.4% 0.4%
Oversupply / (Undersupply) 49 (39) 3 1 35 0 0 0 0
Note 1: Residential and nonresidential split estimates based on data provided by propane MLPs under coverage
Note 2: Other reflects commercial, industrial, agricultural, transportation, and wholesale consumption
Note 3: Includes estimated demand from proposed on-purpose PDH plants
Source: EIA, Hodson Report, CMAI, and Wells Fargo Securities, LLC estimates
15. NGL Snapshot: April 2018 Equity Research
Wells Fargo Securities, LLC | 15
Summary Of Changes To Our Normal Butane Supply/Demand Model
Supply & Demand. We have raised our long-term normal butane supply projections based on new
fractionation capacity announcements. Based on our higher supply forecast, we have raised our
butane export estimates.
Exhibit 12. Normal Butane Supply/Demand Model
(Thousand barrels per day) 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E 2023E
Natural Gas Processing 384 353 391 402 442 455 466 467 468
% of total 84% 86% 87% 89% 89% 90% 90% 90% 90%
Refining 65 47 42 42 42 42 42 42 42
% of total 14% 11% 9% 9% 9% 8% 8% 8% 8%
Imports 7 11 15 10 10 10 10 10 10
% of total 1% 3% 3% 2% 2% 2% 2% 2% 2%
U.S. Normal Butane Supply 455 411 448 455 494 507 518 519 520
Yr/yr change 13% (10%) 9% 1% 9% 3% 2% 0% 0%
(+) Demand (domestic market) 151 158 158 155 151 148 145 141 138
(+) Demand (gasoline exports) 19 19 19 19 19 19 19 19 19
Refinery Demand (Blending) 170 177 177 174 170 167 164 160 157
% of total 38% 41% 42% 38% 35% 33% 32% 31% 30%
Isomerization (nC4 iC4) 50 60 82 80 67 52 44 42 40
% of total 11% 14% 19% 18% 14% 10% 8% 8% 8%
Petrochemical Consumption 138 135 112 122 119 122 122 115 115
% of total 31% 31% 26% 27% 24% 24% 24% 22% 22%
Exports (Waterborne & Other) 83 96 122 89 148 177 199 213 233
% util. (of new LPG export cap.) 2
53% 40% 53% 35% 49% 79% 113% 134% 163%
% of total 19% 22% 29% 20% 30% 35% 38% 41% 45%
Exports (Diluent Canada) 1
14 14 14 14 14 14 14 14 0
% of total 3% 3% 3% 3% 3% 3% 3% 3% 0%
Other (10) (51) (81) (25) (25) (25) (25) (25) (25)
% of total -2% -12% -19% -5% -5% -5% -5% -5% -5%
U.S. Normal Butane Demand 444 430 426 455 494 507 517 519 520
Yr/yr change 13% (3%) (1%) 7% 9% 3% 2% 0% 0%
Oversupply / (Undersupply) 10 (19) 23 0 0 (0) 0 0 (0)
Note 1: Estimated amount of butane shipped via pipeline to Western Canada for diluent use
Note 2: Utilization of new LPG export capacity after accounting for estimated propane exports
Source: EIA, Jacobs Consultancy; The Hodson Report, CMAI, and Wells Fargo Securities, LLC estimates
16. Midstream/MLPs Equity Research
16 | Wells Fargo Securities, LLC
Summary Of Changes To Our Natural Gasoline Supply/Demand Model
Supply & Demand. We have raised our long-term natural gasoline supply projections based on new
fractionation capacity announcements. The increase in natural gasoline supply is projected to be met
by higher refinery demand, which has trended higher over the past few quarters.
Exhibit 13. Natural Gasoline Supply/Demand Model
(Thousand barrels per day) 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E 2023E
Natural Gas Processing 434 434 449 498 558 577 592 592 592
Refining 4
0 0 0 0 0 0 0 0 0
Imports 11 14 7 4 2 1 1 0 0
U.S. Natural Gasoline Supply 445 447 457 502 560 578 593 593 592
Yr/yr change 9% 1% 2% 10% 12% 3% 3% (0%) (0%)
(+) Ethanol denaturant 21 22 22 22 22 22 22 22 22
(+) Gasoline blending & other 146 146 177 176 175 174 173 172 171
Refinery Demand (Blending) 168 167 198 197 196 196 195 194 193
Exports Canada (Pipe/Rail) 177 191 150 191 263 285 303 306 309
% of total diluent demand 66% 59% 40% 45% 61% 66% 70% 70% 71%
Exports Waterborne 6 11 22 15 5 5 5 5 5
Other 2
95 66 101 99 96 93 90 88 85
U.S. Natural Gasoline Demand 445 435 471 502 560 578 593 593 592
Yr/yr change 14% (2%) 8% 7% 12% 3% 3% (0%) (0%)
Oversupply / (Undersupply) (1) 13 (14) 0 0 0 0 0 0
Note 1: Based on pentane export data from PADD II and PADD IV
Note 2: Includes petrochemical demand
Note 3: Pipeline exports estimated by taking diluent pipeline capacity and multiplying by reported volume composition
data
Note 4: Adjusted to show gasoline consumption from ethanol denaturing as a demand driver rather than a supply source
Source: Company data, EIA, and Wells Fargo Securities, LLC estimates
Putting It All Together--NGL Supply/Demand Model
The following exhibit aggregates the supply/demand data from our ethane, propane, normal butane, iso-
butane, and natural gasoline models. We forecast that the combination of ethane rejection and exports
should help keep the NGL market essentially in balance. However, pricing for certain NGL components will
likely need to decrease or remain low to support the aforementioned market trends.
19. NGL Snapshot: April 2018 Equity Research
Wells Fargo Securities, LLC | 19
NGL Supply And Demand Data
20. Midstream/MLPs Equity Research
20 | Wells Fargo Securities, LLC
NGL Supply For January Up Versus Year-Ago Period
Total U.S. NGL supply averaged 4,458,000 Bbls/d in January 2018, according to the latest data published
by the Energy Information Administration (EIA), which represents a 12.0% increase from the prior year.
NGL field production (i.e., y-grade NGLs sourced through the processing of natural gas) made up the
largest component of NGL supply in January, accounting for 86% of total supply.
Exhibit 15. Total U.S. NGL Supply (Data As Of January 2018)
64% 64% 66% 66% 70%
72% 74%
76%
77%
80%
82%
82%
82%
85%
86%
21% 23% 24% 23%
22%
22%
20%
19%
18%
17%
14%
14%
13%
8%
8%
14% 13% 10% 10% 7%
6%
6%
5%
5%
4%
4%
4%
4%
7%
6%
2,665 2,725 2,712 2,688 2,711
2,894
2,998
3,189
3,391
3,789
4,090
4,299
4,531
3,979
4,458
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Jan-17 Jan-18
Total
Domestic
NGL
Supply
(MBbls/d)
Imports Refinery Outputs Natural Gas Processing
Source: EIA and Wells Fargo Securities, LLC
NGL Production From Natural Gas Processing Was Up Versus The Prior Year
Total U.S. NGL production from processing plants averaged 3,825,000 Bbls/d in January 2018, up 13.7%
from the prior year level and down 2.8% from the prior month. January processing volumes remain above
the five-year (2013-17) average of 2,968,000 Bbls/d.
Exhibit 16. NGL Production From Processing (Data As Of January 2018)
1,200
1,700
2,200
2,700
3,200
3,700
4,200
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
U.S.
NGL
Production
(MBbls/d)
Processing
Margin
($/Gallon)
U.S. NGL Production (MBbl/d)
- Processing Margin
Source: Bloomberg, EIA, and Wells Fargo Securities, LLC
21. NGL Snapshot: April 2018 Equity Research
Wells Fargo Securities, LLC | 21
Based on January data, the average gallons of NGLs per Mcf of gas (GPM) was 1.94, above the prior-year
period GPM of 1.87 and compares with the Q4’17 and 2017 averages of 2.03 and 1.99, respectively.
Exhibit 17. Historical NGL Yield From Natural Gas Processing (Data As Of January 2018)
1.10
1.20
1.30
1.40
1.50
1.60
1.70
1.80
1.90
2.00
2.10
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Gallons
Of
NGLs
Per
Mcf
Of
Natural
Gas
Source: EIA and Wells Fargo Securities, LLC estimates
The NGL Barrel Mix
In January, the average mix of NGL field production was split 39% ethane, 32% propane, 8% normal
butane, 9% iso-butane, and 11% natural gasoline. The aforementioned figures represent the average
composition of a barrel of NGLs produced by U.S. natural gas processing plants based on data provided by
the EIA (adjusted to reflect isomerization activity).
To note, the “standard” breakdown of components typically used to price a Mont Belvieu NGL barrel is
37% ethane, 32% propane, 11% normal butane, 6% iso-butane, and 14% natural gasoline. Ethane has
made up a lower proportion of the overall NGL barrel over the past six years (i.e., 34-38%, versus 42%
and 40% in 2011 and 2012, respectively, primarily due to ethane rejection across the country. We expect
the ethane mix to increase over time, due to increased ethane recovery tied to the build-out of new
crackers in the Gulf Coast and the shift to shale drilling (higher ethane cut). We estimate that
approximately 300 MBbls/d of ethane is currently being rejected.
22. Midstream/MLPs Equity Research
22 | Wells Fargo Securities, LLC
Exhibit 18. Historical Composition Of NGL Field Production (Data As Of January 2018)
42% 42% 40% 37% 36% 34% 36% 38% 40% 39% 39%
28% 28% 30%
32% 33% 34%
33% 33% 32% 33% 32%
10% 10% 10% 11% 11% 11% 10% 9% 9% 8% 8%
7% 7% 7% 7% 7% 8% 8% 9% 9% 9% 9%
13% 13% 13% 13% 13% 13% 12% 12% 11% 11% 11%
0%
20%
40%
60%
80%
100%
2010 2011 2012 2013 2014 2015 2016 2017 Nov-17 Dec-17 Jan-18
%
Composition
Of
U.S.
NGL
Field
Production
Ethane Propane Normal Butane Iso Butane Natural Gasoline
Note: Adjusted to reflect butane isomerization activity
Source: EIA and Wells Fargo Securities, LLC
January NGL Demand Up From The Prior Year
According to the EIA, total U.S. NGL demand averaged 5,561,000 Bbls/d in January 2018, which is up
9.0% from the prior year.
Exhibit 19. Total U.S. NGL Demand (Data As Of January 2018)
42% 44% 44% 42% 43% 45% 46% 45% 43% 40% 39% 37% 35% 31% 31%
33% 33% 31%
32% 30% 23% 21% 20%
21% 23%
20% 17% 17%
25%
26%
23% 22% 22%
22% 22% 27% 25% 25%
22% 18%
17% 18% 17%
17%
17%
6%
8%
13% 19%
24%
28%
31%
27%
27%
2,648 2,707 2,770
2,618
2,752
2,872
2,982
3,121
3,466
3,657
4,037
4,284
4,558
5,101
5,561
0
1,000
2,000
3,000
4,000
5,000
6,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Jan-17 Jan-18
Total
Domestic
NGL
Demand
(MBbls/d)
Exports Gasoline Blending Heating & Other Petrochemical Demand
Source: EIA, Jacobs Consultancy; The Hodson Report, and Wells Fargo Securities, LLC
Demand for NGLs (especially ethane) is driven primarily by the petrochemical industry, which accounted
for approximately 31% of total consumption in January 2018. The remaining 69% of end-use NGL demand
in the United States was split between (1) exports, 27%; (2) heating and fuel (primarily propane), 26%;
and (3) gasoline blending, 17%. The petrochemical industry uses NGL products (e.g., ethane, propane,
and butane) as feedstock (i.e., raw material) in steam crackers to produce ethylene (and other by-
products).
23. NGL Snapshot: April 2018 Equity Research
Wells Fargo Securities, LLC | 23
Steam Cracker Operating Rate Above Prior Month
According to The Hodson Report, the average operating rate was 95.4% in February, which compares to
the prior month rate of 93.7% and five-year average (2013-17) operating rate of 91.0%. In February,
total ethylene production was 64.7 million lbs per year versus 56.8 million lbs in the prior-year period.
Exhibit 20. Historical Steam Cracker Utilization Rates (Data As Of February 2018)
0
15
30
45
60
75
90
0%
20%
40%
60%
80%
100%
120%
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
Ethylene
Production
(B
lbs
/
year)
Steam
Cracker
Utilization
Rate
(%)
Operating rate 5-Year Avg
Ethylene production
(Right Axis)
Source: Jacobs Consultancy; The Hodson Report and Wells Fargo Securities, LLC
Excluding the impact of planned and unplanned outages, we calculate that the adjusted operating rate
would have been 97.8% in February, which is 2.4% higher than the reported operating rate of 95.4%. In
comparison, the adjusted operating rate in the prior month was 97.7% (versus a reported operating rate
of 93.7%). In total, we calculate roughly 131MM lbs of ethylene capacity were offline, due to the outages,
versus 241MM lbs in the prior month.
24. Midstream/MLPs Equity Research
24 | Wells Fargo Securities, LLC
Exhibit 21. Implied Operating Rate After Adjusting For Outages (Data As Of February 2018)
92%
95%
97% 98%
96%
89%
69%
83%
90%
92% 94%
95%
5%
4%
2%
2%
2%
7%
13%
11%
7%
5%
4%
2%
96%
99% 99%
100%
98%
96%
81%
93%
97% 97%
98% 98%
60%
65%
70%
75%
80%
85%
90%
95%
100%
105%
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Operating
Rate
(%)
Actual Operating Rate Impact From Planned/Unplanned Outages
Source: Jacobs Consultancy; The Hodson Report and Wells Fargo Securities, LLC estimates
Description of steam cracking process. In order to create ethylene, saturated hydrocarbons need to
be broken down (or cracked) into smaller, unsaturated hydrocarbons in a process known as steam
cracking. Steam cracking is accomplished by heating hydrocarbon feedstock diluted with steam in a
furnace to approximately 650-850˚ Celsius. The mixture is subsequently rapidly cooled to 400˚ Celsius to
stop the reaction. Injection of water further cools the mixture and a condensate, rich in ethylene and
various quantities of other co-products (depending on the type of feedstock), is created.
Exhibit 22. Summary Of Inputs And Outputs Of Steam Cracking Process
Natural Gas
Liquids
Ethane
Propane
Butane
Oil Refinery
Outputs
Naphtha
Gas Oil
Light
Feedstocks
Heavy
Feedstocks
Steam
Cracker
Ethylene
Propylene
Butadiene
Aromatics (C5+)
Olefins
Source: Wells Fargo Securities, LLC
Petrochemical Demand For NGLs Was Up Yr/Yr
Petrochemical plants consumed 1,765,000 Bbls/d of NGLs in February, which is up versus the prior year
by 15.1% and the last month by 2.3%. Petrochemical demand for NGLs was above the five-year (2013-
17) average of 1,542,000 Bbls/d. Ethane consumption averaged 1,361,000 Bbls/d in February, which
compares with 1,330,000 Bbls/d in the prior month and 1,133,000 Bbls/d in the prior-year period. Ethane
consumption as a percentage of total NGLs consumed was 77%, above the prior-year period of 74%.
Petrochemical demand for light feeds (i.e., ethane, propane, and butane) remains at elevated levels. Many
petrochemical companies have retooled existing facilities to accept additional NGL feedstock, given the
relative cost advantage. In addition, 8 new petrochemical plants are being built in the United States
primarily to consume low-cost ethane, which is increasing demand for the product.
25. NGL Snapshot: April 2018 Equity Research
Wells Fargo Securities, LLC | 25
Exhibit 23. Composition Of Steam Cracker Feed Slate (Data As Of February 2018)
775 707 743 770 714
799
881 930 932 956 1,033 1,060 1,039
1,154 1,133
1,330 1,361
364
355
375 376
315
329
356
373 426
459 312
383 402
340 313
274 277
113
137 135
111
88
122 127
510
493
437 428
357 272
234
210 144
120
100
104 110 125
120
121 116
1,816
1,729 1,755 1,768
1,568
1,523
1,581 1,617 1,584
1,637
1,578
1,710 1,703
1,748
1,684
1,860 1,893
0
400
800
1,200
1,600
2,000
2,400
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Feb-17Jan-18Feb-18
Steam
Cracker
Feedslate
(MBbl/d)
Ethane Propane Butane Naphtha Gas Oil
Heavy Feeds
Light Feeds (NGLS) Heavy Feeds
Source: Jacobs Consultancy; The Hodson Report and Wells Fargo Securities, LLC
The ratio of light feedstock as a percentage of the overall steam cracker feed slate was 93.2% in
February, above the prior month. Light feedstock consumption is above the five-year (2013-17) average
of 92.1%.
Exhibit 24. Light Feeds As Percentage Of Total Ethylene Feedslate (Data As Of February 2018)
40%
50%
60%
70%
80%
90%
100%
0.0x
10.0x
20.0x
30.0x
40.0x
50.0x
60.0x
Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
Light
Feeds
As
%
Of
Total
Feedslate
Crude
Oil
/
Natural
Gas
Ratio
Light Feeds As % Of Total Feedslate
Crude Oil / Natural Gas Ratio (Left Axis)
93.2%
Source: Bloomberg, Jacobs Consultancy; The Hodson Report, and Wells Fargo Securities, LLC
27. NGL Snapshot: April 2018 Equity Research
Wells Fargo Securities, LLC | 27
U.S. LPG Exports Increased In March
LPG exports increased to 1,112 MBbls/d in March from 940 MBbls/d in February.
Exhibit 26. LPG Exports By Terminal (Data As Of March 2017)
(All units in MBbls/d)
Company Location Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18
EPD Gulf Coast 546 448 428 489 302 577 538 589 565 539 510 633
TRGP Gulf Coast 202 163 101 157 115 192 202 218 209 189 211 229
ETP Gulf Coast 185 127 84 122 143 191 183 193 185 168 155 120
P66 Gulf Coast 108 113 125 96 106 157 181 129 194 169 159 140
ETP Northeast 61 44 57 61 90 67 34 56 37 59 34 19
BPL Gulf Coast 19 24 29 20 11 29 22 27 26 19 8 23
Petrogas West Coast 38 36 38 36 18 38 19 38 19 18 0 19
All reconciling items 63 2 28 (34) 5 (136) (190) (207) (234) (224) (138) (70)
Total LPG exports 1,222 957 889 947 791 1,115 989 1,042 1,001 937 940 1,112
Month over month (%) 25% (22%) (7%) 6% (16%) 41% (11%) 5% (4%) (6%) 0% 18%
0
150
300
450
600
750
900
1,050
1,200
1,350 Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
LPG
Exports
(MBls/d)
Petrogas (West Coast)
BPL (Gulf Coast)
ETP (Northeast)
P66 (Gulf Coast)
ETP (Gulf Coast)
TRGP (Gulf Coast)
EPD (Gulf Coast)
Note: Above figures reflect our best estimate of LPG export volumes by terminal and by month based on data from
En*Vantage, the Hodson Report, and our own adjustments. Because the data is coming from different sources, we have
made adjustments (in the “all reconciling items line”) in order to conform to total LPG export data reported by the
Hodson Report.
Note: Total LPG exports assume a 10% gross up due to butane exports.
Source: Company data, En*Vantage, Jacobs Consultancy; The Hodson Report, and Wells Fargo Securities, LLC estimates
Tracking Global LPG Pricing Differentials
Differential To Export Propane To Western Europe. The differential between Mont Belvieu and Western
Europe propane prices increased to $0.07 per gallon in March, which compares to the Q1’18 and full-year
2017 averages of $0.05 per gallon and $0.08 per gallon, respectively. This also compares to five-year
average spreads of $0.25 per gallon. Propane prices at Mont Belvieu were $0.78 per gallon in March, down
from the prior month of $0.88 per gallon, while propane prices in Western Europe were $0.85 per gallon,
down from the prior month of $0.87 per gallon.
See the following exhibit for other global propane differentials.
31. NGL Snapshot: April 2018 Equity Research
Wells Fargo Securities, LLC | 31
NGL Supply And Demand Model
Based on EIA data as of January 2018, the NGL market was undersupplied for 2018 to-date by 2,145
MBbls/d (i.e., supply of 4,135 MBbls/d, versus demand of 6,280 MBbls/d). In comparison, the NGL market
was undersupplied by 2,046 MBbls/d in the prior-year period. The yr/yr increase in NGL demand was
primarily attributable to growth in exports and heating demand.
Exhibit 32. Summary NGL Supply And Demand Model (Data As Of January 2018)
(MBbls/d) 2011 2012 2013 2014 2015 2016 2017 2017TD 2018TD
NGL Supply:
Field Production 2,215 2,408 2,605 3,013 3,342 3,509 3,736 3,365 3,825
Supply From Refineries 334 354 349 377 347 350 347 71 71
Imports 148 132 152 118 132 156 161 254 239
Total NGL Supply 2,697 2,894 3,106 3,509 3,821 4,015 4,244 3,690 4,135
NGL Demand:
. .
Petrochemical Usage 1,386 1,437 1,517 1,482 1,585 1,621 1,685 1,578 1,605
Refinery Usage 508 527 515 531 538 558 588 649 630
Heating Demand 767 385 450 488 439 339 281 957 1,051
Exports 249 314 467 702 967 1,211 1,395 1,402 1,481
Other 130 157 233 174 237 281 267 1,150 1,513
Total NGL Demand 3,041 2,821 3,182 3,377 3,766 4,010 4,216 5,736 6,280
NGL Oversupply / (Undersupply) (345) 73 (76) 131 54 6 27 (2,046) (2,145)
Source: EIA, Jacobs Consultancy; The Hodson Report, IHS Chemical, and Wells Fargo Securities, LLC estimates
NGL Inventory Levels: Above The Five-Year Average
According to the EIA, NGL inventory decreased in January (the latest available data). Total U.S. NGL
(ethane, propane/propylene, normal butane/butylenes, isobutene/butylenes) inventory was 154.4 MMbbls
in January 2018, which down 7.4% below the prior-year level of 166.8 MMbbls and 8.5% above the five-
year period average of 142.4 MMbbls.
Exhibit 33. U.S. NGL Inventory (Data As Of January 2018)
50,000
100,000
150,000
200,000
250,000
300,000
2/17
3/17
4/17
5/17
6/17
7/17
8/17
9/17
10/17
11/17
12/17
1/18
Thousand
Barrels
5-year range 5-year average Prior Year Current year
Source: EIA and Wells Fargo Securities, LLC
The number of days of NGL stock (based on total U.S. NGL demand) in January was 28 days, below the 35
days in the prior month and the 33 days in the prior-year period.
32. Midstream/MLPs Equity Research
32 | Wells Fargo Securities, LLC
Exhibit 34. NGL Days Of Supply (Data As Of January 2018)
0
20
40
60
80
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Days
Of
NGL
Supply
Current Year Prior Year
Source: EIA, Jacobs Consultancy; The Hodson Report, and Wells Fargo Securities, LLC
33. NGL Snapshot: April 2018 Equity Research
Wells Fargo Securities, LLC | 33
Ethane Supply And Demand
Based on data available through January, the ethane market was undersupplied in 2018TD by 138
MBbls/d, versus an undersupply of 72 MBbls/d in the prior-year period. Ethane supply was up 22.0%
versus the prior-year period, and ethane demand was up 25.8% versus the prior-year period.
Exhibit 35. Ethane Supply And Demand Model (Data As Of January 2018)
(Thousand barrels per day) 2010 2011 2012 2013 2014 2015 2016 2017 2017TD 2018TD
Natural gas processing 869 925 975 970 1,091 1,130 1,273 1,406 1,230 1,499
% of total 98% 99% 99% 99% 100% 100% 100% 100% 100% 100%
Refining 14 14 13 7 5 5 3 5 2 4
% of total 2% 1% 1% 1% 0% 0% 0% 0% 0% 0%
Imports 0 0 0 0 0 0 1 0 0 0
% of total 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Total Ethane Supply 884 939 988 977 1,096 1,134 1,277 1,412 1,232 1,503
Feedstock for ethylene 881 930 932 956 1,033 1,060 1,039 1,154 1,111 1,346
% of total 101% 98% 98% 96% 96% 93% 85% 83% 85% 82%
Ethane exports - - - - 38 65 95 180 135 213
% of total - - - - 3% 6% 8% 13% 10% 13%
Other to conform to EIA (7) 18 18 39 8 14 91 64 59 83
% of total (1%) 2% 2% 4% 1% 1% 7% 5% 4% 5%
Total Ethane Demand 874 948 950 995 1,079 1,139 1,224 1,398 1,304 1,641
Oversupply / (Undersupply) 10 (8) 38 (18) 17 (4) 53 14 (72) (138)
800
900
1,000
1,100
1,200
1,300
1,400
1,500
2010 2011 2012 2013 2014 2015 2016 2017
(MBbl/d)
Total Ethane Supply Total Ethane Demand
Note: Petrochemical feedstock demand data are derived from Jacobs Consultancy; The Hodson Report; however, total
ethane demand is based on figures provided by EIA.
Source: EIA, Jacobs Consultancy; The Hodson Report, IHS Chemical, and Wells Fargo Securities, LLC
34. Midstream/MLPs Equity Research
34 | Wells Fargo Securities, LLC
Ethane Inventory Decreased In January
Ethane inventory was 49.1 MMbbls in January, down from 53.3 in the prior month. Inventory levels were
above the five-year period average of 34.0 MMbbls and below the prior-year period inventory level of 49.8
MMbbls. A significant inventory withdrawal generally results in higher ethane prices; conversely, a
significant inventory injection generally results in downward pressure on ethane prices, all else being
equal.
Exhibit 36. U.S. Ethane Inventory (Data As Of January 2018)
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
55,000
60,000
2/17
3/17
4/17
5/17
6/17
7/17
8/17
9/17
10/17
11/17
12/17
1/18
Thousand
Barrels
5-year range 5-year average Prior Year Current year
Note: Ethane data have been adjusted to exclude ethylene stocks at bulk terminals.
Source: EIA and Wells Fargo Securities, LLC
The number of days of ethane stock in January was 30, down from the prior month and below the 38 days
in the prior-year period.
Exhibit 37. Ethane Days Of Supply (Data As Of January 2018)
0
15
30
45
60
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Days
Of
Ethane
Supply
Current Year Prior Year
Source: EIA and Wells Fargo Securities, LLC
35. NGL Snapshot: April 2018 Equity Research
Wells Fargo Securities, LLC | 35
Propane Supply And Demand
The propane market was undersupplied by 537 MBbls/d in 2018TD, versus an undersupply of 761 MBbls/d
in the prior-year period. Demand for propane decreased 4.9% year over year to an average of 2,285
MBbls/d, compared to 2,403 MBbls/d in the prior-year period. The decrease in demand was driven by
exports (down 14.3%), partially offset by an increase in industrial, residential, and other demand (up
9.9%). Propane supply increased 6.5% to an average of 1,748 MBbls/d in 2018TD, versus 1,642 MBbls/d
in the prior-year period. The growth in propane supplies primarily reflects higher natural gas processing.
Exhibit 38. Propane Supply And Demand Model (Data As Of January 2018)
<-- two months lagged
(Thousand barrels per day) 2010 2011 2012 2013 2014 2015 2016 2017 2017TD 2018TD
Natural gas processing 586 630 712 823 984 1,144 1,166 1,221 1,129 1,240
% of total 61% 64% 66% 68% 71% 75% 73% 74% 69% 71%
Refining 282 270 276 284 306 283 307 306 298 296
% of total 29% 27% 26% 23% 22% 18% 19% 18% 18% 17%
Imports 93 82 85 103 90 105 120 129 215 212
% of total 10% 8% 8% 9% 6% 7% 8% 8% 13% 12%
Total Propane Supply 961 982 1,073 1,209 1,380 1,532 1,594 1,655 1,642 1,748
Petchem feedstock 356 373 426 459 312 383 402 340 345 276
% of total 37% 38% 41% 36% 24% 26% 25% 20% 14% 12%
Industrial, Residential, & Other 497 480 437 511 559 484 432 452 1,015 1,116
% of total 52% 49% 42% 40% 43% 33% 26% 27% 42% 49%
Exports 109 124 171 301 422 616 799 904 1,043 894
% of total 11% 13% 17% 24% 33% 42% 49% 53% 43% 39%
Total Propane Demand 962 977 1,033 1,271 1,293 1,483 1,633 1,696 2,403 2,285
Oversupply / (Undersupply) (1) 5 40 (62) 87 49 (39) (41) (761) (537)
800
1,000
1,200
1,400
1,600
1,800
2010 2011 2012 2013 2014 2015 2016 2017
(MBbl/d)
Total Propane Supply Total Propane Demand
Source: EIA, Jacobs Consultancy; The Hodson Report, IHS Chemical, and Wells Fargo Securities, LLC estimates
36. Midstream/MLPs Equity Research
36 | Wells Fargo Securities, LLC
NOAA Forecasts 2019 Winter Heating Season To Be Colder Than 2018
Propane demand is driven by multiple factors, including the residential market for heating and cooking,
petrochemical demand, commercial/industrial/agricultural, and exports. The residential market primarily uses
propane as a heating fuel and thus, experiences higher demand and prices during the heating season, which
lasts from 10/1 through 3/31.
For the most recent completed winter heating season (i.e., 10/1/2017 through 3/31/2018), the number of
HDDs in the United States totaled 3,635, which was about 6% warmer than normal (i.e., 3,880 HDDs) and
approximately 12% cooler than the comparable 2017 winter season (i.e., 3,242 HDDs). The NOAA’s current
forecast suggests the 2019 winter season could be about 4% warmer than normal.
Exhibit 39. Population-Weighted Degree Days By Heating Season
3,507
3,641
3,748
3,883
3,922
3,944
3,223
3,732
4,122
3,906
3,225
3,242
3,635
3,740
2,500
3,000
3,500
4,000
4,500
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E
Weighted
Heating
Degree
Days
(Annual
Data)
The 2019 heating season
is forecasted to be 4%
warmer than normal and
3% cooler than 2018
Normal
Degree
Days
4%
3%
4%
1%
1%
(18%)
(5%)
16%
10%
(17%)
1%
12%
3%
Note: Data as of 04/19/18
Note: Heating season defined as 10/1 to 3/31
Source: NOAA and Wells Fargo Securities, LLC
37. NGL Snapshot: April 2018 Equity Research
Wells Fargo Securities, LLC | 37
Propane Inventory Levels Are Below Prior-Year Levels
At the end of March, U.S. propane inventory stood at approximately 36.2 million barrels, which was
17.6% below the year-ago level of 44.0 million barrels. Propane inventory was 23.7% below the five-year
period average of 47.5 million barrels, according to the EIA.
Exhibit 40. U.S. Propane Inventory (Data As Of February 2018)
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
4/17
5/17
6/17
7/17
8/17
9/17
10/17
11/17
12/17
1/18
2/18
3/18
Thousand
Barrels
5-year range 5-year average Prior Year Current year
Source: EIA and Wells Fargo Securities, LLC
Propane demand averaged 1,420 MBbls/d in March, which compares to 1,167 MBbls/d in the prior-year
period. At the end of March, the number of days of propane stocks was 28, which compares with 27 days
in the prior month and 38 days in the prior-year period.
Exhibit 41. U.S. Propane Days Of Supply (Data As Of February 2018)
0
20
40
60
80
100
120
140
Nov-16
Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Days
Of
Propane
Supply
Current Year Prior Year
Source: EIA and Wells Fargo Securities, LLC
39. NGL Snapshot: April 2018 Equity Research
Wells Fargo Securities, LLC | 39
NGL Pricing
40. Midstream/MLPs Equity Research
40 | Wells Fargo Securities, LLC
Natural Gas Liquids: Prices And Forward Curves
NGL composite prices averaged $0.69 per gallon in March, down from the average NGL composite price in
February of $0.70. Based on the data provided by the Wells Fargo Commodity Derivatives Group, the
forward curve for NGLs is currently averaging $0.70 per gallon for 2018E, decreasing to an average $0.54
per gallon in 2023E.
Exhibit 42. Natural Gas Liquids Pricing
Avg.
Monthly
Price 2018E 2019E 2020E 2021E 2022E 2023E
Jan-18 $0.76 $0.71 $0.66 $0.64 $0.62 $0.60 $0.58
Feb-18 $0.70 $0.66 $0.62 $0.60 $0.58 $0.55 $0.53
Mar-18 $0.69 $0.70 $0.65 $0.62 $0.60 $0.57 $0.54
Average Futures Price as of Month End
$0.00
$0.25
$0.50
$0.75
$1.00
$1.25
$1.50
$1.75
$2.00
$2.25
$2.50
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22
NGL
Price
-
Mt.
Belvieu
($/gallon)
Historical
Dotted Line Represents Our
NGL Price Deck
Forward Curve For NGLs Based On
Data From Wells Fargo Commodity
Derivatives Group
Source: Bloomberg and Wells Fargo Commodity Derivatives Group
Ethane prices averaged $0.25 per gallon in March, compared with $0.24 in the prior month. Based on the
data provided by the Wells Fargo Commodity Derivatives Group, the forward curve for ethane is currently
averaging $0.27 per gallon in 2018E, increasing to $0.29 in 2023E.
Exhibit 43. Ethane Pricing
Avg.
Monthly
Price 2018E 2019E 2020E 2021E 2022E 2023E
Jan-18 $0.27 $0.27 $0.29 $0.31 $0.32 $0.31 $0.30
Feb-18 $0.24 $0.25 $0.28 $0.31 $0.31 $0.30 $0.29
Mar-18 $0.25 $0.27 $0.28 $0.30 $0.30 $0.30 $0.29
Average Futures Price as of Month End
$0.00
$0.25
$0.50
$0.75
$1.00
$1.25
$1.50
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22
Ethane
Price
-
Mt.
Belvieu
($/gallon)
Historical
Forward Curve Based On Data From WellsFargo Commodity Derivatives Group
Dotted Line Represents
Our Price Deck
Source: Bloomberg and Wells Fargo Commodity Derivatives Group
41. NGL Snapshot: April 2018 Equity Research
Wells Fargo Securities, LLC | 41
Propane prices averaged $0.78 per gallon in March, down from $0.84 in the prior month. Based on the
data provided by the Wells Fargo Commodity Derivatives Group, the forward curve for propane is
currently averaging $0.77 per gallon in 2018E, decreasing to $0.60 in 2023E.
Exhibit 44. Propane Pricing
Avg.
Monthly
Price 2018E 2019E 2020E 2021E 2022E 2023E
Jan-18 $0.90 $0.81 $0.73 $0.69 $0.67 $0.65 $0.64
Feb-18 $0.84 $0.74 $0.67 $0.64 $0.61 $0.59 $0.58
Mar-18 $0.78 $0.77 $0.69 $0.66 $0.63 $0.61 $0.60
Average Futures Price as of Month End
$0.00
$0.25
$0.50
$0.75
$1.00
$1.25
$1.50
$1.75
$2.00
$2.25
$2.50
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22
Propane
Price
-
Mt.
Belvieu
($/gallon)
Historical
Forward Curve Based On Data From
Wells Fargo Commodity Derivatives Group
Dotted Line Represents
Our Price Deck
Source: Bloomberg and Wells Fargo Commodity Derivatives Group
Iso-butane prices averaged $0.91 per gallon in March, compared with the average price in February of
$1.00 per gallon. Based on the data provided by the Wells Fargo Commodity Derivatives Group, the
forward curve for iso-butane is currently averaging $0.89 per gallon in 2018E, decreasing to $0.68 per
gallon in 2023E.
Exhibit 45. Iso-butane Pricing
Avg.
Monthly
Price 2018E 2019E 2020E 2021E 2022E 2023E
Jan-18 $1.07 $0.93 $0.85 $0.80 $0.78 $0.76 $0.75
Feb-18 $1.00 $0.84 $0.78 $0.73 $0.70 $0.68 $0.67
Mar-18 $0.91 $0.89 $0.81 $0.76 $0.73 $0.70 $0.68
Average Futures Price as of Month End
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22
Iso-butane
Price
-
Mt.
Belvieu
($/gallon)
Historical
Forward Curve BasedOn Data From
Wells Fargo Commodity Derivatives Group
Dotted Line Represents
Our Price Deck
Source: Bloomberg and Wells Fargo Commodity Derivatives Group
Normal butane prices averaged $0.76 per gallon in March, down from the average price in February of
$0.78 per gallon. Based on the data provided by the Wells Fargo Commodity Derivatives Group, the
forward curve for normal butane is currently averaging $0.89 per gallon in 2018E, decreasing to $0.68 per
gallon in 2023E.
42. Midstream/MLPs Equity Research
42 | Wells Fargo Securities, LLC
Exhibit 46. Normal Butane Pricing
Avg.
Monthly
Price 2018E 2019E 2020E 2021E 2022E 2023E
Jan-18 $0.91 $0.93 $0.84 $0.79 $0.77 $0.75 $0.74
Feb-18 $0.78 $0.84 $0.77 $0.72 $0.69 $0.67 $0.66
Mar-18 $0.76 $0.89 $0.80 $0.75 $0.72 $0.70 $0.68
Average Futures Price as of Month End
$0.00
$0.25
$0.50
$0.75
$1.00
$1.25
$1.50
$1.75
$2.00
$2.25
$2.50
$2.75
$3.00
$3.25
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22
Normal
butane
Price
-
Mt.
Belvieu
($/gallon)
Historical
Forward Curve Based On Data
From Wells Fargo Commodity Derivatives Group
Dotted Line Represents
Our Price Deck
Source: Bloomberg and Wells Fargo Commodity Derivatives Group
Natural gasoline prices averaged $1.46 per gallon in March, compared with the average natural gasoline
price in February of $1.36 per gallon. Based on the data provided by the Wells Fargo Commodity
Derivatives Group, the forward curve for natural gasoline is currently averaging $1.42 per gallon in 2018E,
decreasing to $0.92 per gallon by 2023E.
Exhibit 47. Natural Gasoline Pricing
Avg.
Monthly
Price 2018E 2019E 2020E 2021E 2022E 2023E
Jan-18 $1.43 $1.39 $1.25 $1.16 $1.10 $1.02 $0.92
Feb-18 $1.36 $1.34 $1.21 $1.10 $1.04 $0.97 $0.88
Mar-18 $1.46 $1.42 $1.29 $1.18 $1.10 $1.01 $0.92
Average Futures Price as of Month End
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22
Natural
Gasoline
Price
-
Mt.
Belvieu
($/gallon)
Historical
Forward Curve Based On Data
From Wells Fargo Commodity Derivatives Group
Dotted Line Represents
Our Price Deck
Source: Bloomberg and Wells Fargo Commodity Derivatives Group
43. NGL Snapshot: April 2018 Equity Research
Wells Fargo Securities, LLC | 43
Frac Spreads Decreased In March
The processing margin in March averaged $0.46 per gallon, which compares to the February average of
$0.47 per gallon. As a reminder, the five-year average (i.e., 2013-17) processing margin is $0.42 per
gallon, and the ten-year (i.e., 2008-2017) average margin is approximately $0.58 per gallon, while the
average margin since 1990 is $0.35 per gallon.
Exhibit 48. Historical Processing Margin
Avg.
Processing
Margin
Dec $0.52
Jan $0.46
Feb $0.47
Mar $0.46
5-yr $0.42
10-yr $0.58
0.0x
10.0x
20.0x
30.0x
40.0x
50.0x
60.0x
70.0x
$0.00
$0.25
$0.50
$0.75
$1.00
$1.25
$1.50
$1.75
$2.00
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
Crude Oil to Natural Gas Ratio (Right Axis)
Processing Margin - $/gal (Left Axis)
Source: Bloomberg and Wells Fargo Securities, LLC
Exhibit 49. Histogram Of Historical Frac Spread Since 1990
Min: ($0.90)
Max: $1.21
Median: $0.23
Mean: $0.35
STDev: $0.29
68% of values: $0.06 - 0.63
95% of values: $-0.23 - 0.92
2%
11%
16%
14%
10%
7%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
($0.30)
($0.25)
($0.20)
($0.15)
($0.10)
($0.05)
$0.00
$0.05
$0.10
$0.15
$0.20
$0.25
$0.30
$0.35
$0.40
$0.45
$0.50
$0.55
$0.60
$0.65
$0.70
$0.75
$0.80
$0.85
$0.90
$0.95
$1.00
$1.05
$1.10
$1.15
$1.20
$1.25
$1.30
Percentage
Of
Total
Occurences
Since
1990
Frac Spread Per $0.05/Gallon Interval
Current
Frac
Spread
Source: Bloomberg and Wells Fargo Securities, LLC
44. Midstream/MLPs Equity Research
44 | Wells Fargo Securities, LLC
NGL-To-WTI And NGL-To-Brent Crude Ratios
The NGL-to-WTI and NGL-to-Brent crude oil ratios averaged 46% and 44%, respectively, in March,
compared to 47% and 45% in February. NGL prices to a large extent track Brent more closely than WTI
given, in our view, that a significant portion of overall demand for NGLs is predicated on exports and
competition in the global markets (e.g., ethylene derivative and LPG exports). For example, U.S. ethylene-
derivative exports compete with ethylene produced by naphtha-based crackers overseas, which is predicated
on Brent pricing. Hence, an increase in the Brent-to-WTI premium could result in a higher NGL-to-crude
(WTI) ratio, all else being equal.
Exhibit 50. Historical NGL-To-Crude-Oil Ratio
WTI Brent
Dec 55% 50%
Jan 50% 46%
Feb 47% 45%
Mar 46% 44%
5-yr 45% 41%
10-yr 51% 47%
NGL-to-Crude-Oil Ratios
30%
40%
50%
60%
70%
80%
90%
100%
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
NGL
To
Crude
Oil
Ratio
(%)
NGL To WTI Crude
NGL To Brent Crude
Source: Bloomberg and Wells Fargo Securities, LLC
In addition, the March ratio between ethane, the largest component of the NGL barrel, and WTI averaged
17%. The ratio between ethane and Brent crude oil prices in March averaged 16%, up from the prior
month.
Exhibit 51. Historical Ethane-To-Crude Oil Ratio
WTI Brent
Dec 16% 15%
Jan 18% 16%
Feb 16% 15%
Mar 17% 16%
5-yr 16% 15%
10-yr 23% 21%
Ethane-to-Crude-Oil Ratios
5%
15%
25%
35%
45%
55%
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
Ethane
To
Crude
Oil
Ratio
(%)
Ethane To WTI Crude
Ethane To Brent Crude
Source: Bloomberg and Wells Fargo Securities, LLC
45. NGL Snapshot: April 2018 Equity Research
Wells Fargo Securities, LLC | 45
Mont Belvieu-To-Conway Ethane, Propane, and EP Mix Differentials
In March, the differential between ethane prices in Mont Belvieu, Texas and Conway, Kansas averaged
$0.12 per gallon, which compares to the prior month average of $0.09 per gallon, the Q1’18 average of
$0.12 per gallon, and the five-year historical average (i.e., 2013-17) of $0.04 per gallon.
Exhibit 52. Historical Mont Belvieu-To-Conway Ethane Differential
0.23
0.29
0.50
0.27
0.26
0.18
0.08
0.02
0.06
0.04
0.07
0.09
0.03 0.03
0.02
0.01
0.02 0.03
0.03 0.02
0.04
0.030.03
0.05 0.05
0.08
0.06
0.12
0.07
0.09
0.12
($0.05)
$0.05
$0.15
$0.25
$0.35
$0.45
$0.55
Q2'11
Q3'11
Q4'11
Q1'12
Q2'12
Q3'12
Q4'12
Q1'13
Q2'13
Q3'13
Q4'13
Q1'14
Q2'14
Q3'14
Q4'14
Q1'15
Q2'15
Q3'15
Q4'15
Q1'16
Q2'16
Q3'16
Q4'16
Q1'17
Q2'17
Q3'17
Q4'17
Q1'18
Jan-18
Feb-18
Mar-18
Belvieu
-
Conway
Ethane
Differential
($/Gallon)
5-Year Historical
Average
Source: Partnership reports, Midstream Monitor and Wells Fargo Securities, LLC
In March, the differential between propane prices in Mont Belvieu, Texas and Conway, Kansas averaged
$0.14 per gallon, which compares to the prior month average of $0.15 per gallon, the Q1’18 average of
$0.14 per gallon, and the five-year historical average (i.e., 2013-17) of $0.01 per gallon.
Exhibit 53. Historical Mont Belvieu-To-Conway Propane Differential
(0.40)
0.01
(0.01) (0.02)
0.04
0.06
0.05 0.04 0.04 0.03 0.05
0.01
0.06
0.03 0.04
0.06
0.14
0.03
0.15 0.14
($0.50)
($0.40)
($0.30)
($0.20)
($0.10)
$0.00
$0.10
$0.20
Q1'14
Q2'14
Q3'14
Q4'14
Q1'15
Q2'15
Q3'15
Q4'15
Q1'16
Q2'16
Q3'16
Q4'16
Q1'17
Q2'17
Q3'17
Q4'17
Q1'18
Jan-18
Feb-18
Mar-18
Belvieu
-
Conway
Propane
Differential
($/Gallon)
5-Year Historical Average
Source: Midstream Monitor and Wells Fargo Securities, LLC
In March, the differential between EP Mix prices in Mont Belvieu, Texas and Conway, Kansas averaged
$0.11 per gallon, which compares to the prior month average of $0.09 per gallon, the Q1’18 average of
$0.08 per gallon, and the five-year historical average (i.e. 2013-2017) of $0.03 per gallon.
48. Midstream/MLPs Equity Research
48 | Wells Fargo Securities, LLC
Midstream Companies Involved In The NGL Market
In total, 29 MLPs are involved in some aspect of the NGL market, providing services commonly referred to
as part of the midstream value chain. The most prominent players in the NGL logistics market include
Enterprise Products Partners, L.P. (EPD) and ONEOK (OKE). For more information, please see our report,
“Cracking The Code On Natural Gas Liquids,” dated February 2, 2009, which provides an overview of the
NGL market.
Exhibit 56.Midstream Companies Involved In The NGL Value Chain
AM AMID ANDX
CEQP DCP ENB
ENBL ENLK EPD
ETP EVEP HESM
KMI MPLX OKE
OMP PAA SEMG
SMLP SXE TEP
TRGP WES WPZ AM AMID ANDX
BWP CEQP DCP
ENLK EPD ETP
EVEP HESM KMI
MPLX OKE PSXP
SXE TEP TRGP
WES WPZ
BWP DCP ENB
EPD ETP KMI
MMLP MPLX OKE
PAA PSXP SEP BWP CEQP DCP
WES ENLK EPD ETP
HESM MMLP MPLX
NGL OKE OMP
PAA PSXP TRGP
WPZ
Wet Natural Gas
Production Gathering
Processing
Interstate
Pipelines
Intrastate
Pipelines
NGL Fractionation
Raw NGL Pipelines
NGL Storage
Source: Partnership reports and Wells Fargo Securities, LLC