© 2012 KBC Advanced Technologies plc. All Rights Reserved.Capitalizing on Shale Gas in theDownstream Energy SectorMatthew ...
Agenda• Why is US natural gas cheap?• What are direct impacts to plants?• Where are opportunities for operators?24 April 2...
0.00.51.01.52.02.53.03.54.04.52002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012PowerGeneration,BillionMW-hrsCoal Petr...
Natural Gas vs. Crude OilNatural gas and crude oil price disconnected in2006 and has not looked back0%20%40%60%80%100%120%...
2008 Natural Gas Production CostPrior to prolific shale gas, production costs increased asconventional gas became more sca...
$- $1 $2 $3 $4 $5 $6 $7Powder River - Coalbed MethaneCotton Valley - HorizontalCotton Valley - VerticalHaynesville - NE TX...
Natural Gas Supply Curve25 bcfd of today’s production from unconventionalresources breaks even at $4/mmbtu or lessEagle Fo...
Forecast Sensitivities> Innovation brings oil production costs down thesame way it has for natural gas> Gas demand increas...
24 April 2013 9PROPRIETARY INFORMATION> Case StudiesUtilizing low-cost fuel gas in plants
Direct impact on plants> Lower energy prices> Lower hydrogen manufacturing cost> Higher propylene prices> Higher butadiene...
Impact on Energy Efficiency> Since 2008.....– Natural Gas price ↓>50%– Import power price ↓>30%– New equipment coststeadil...
Case Study: Implementing an EMS> USGC refinery implementation> Opportunity to reduce energy consumption 8%– 5% from operat...
Opportunity: Utility Optimization2008(cents/kWh)2012(cents/kWh)Import power 8.1 5.4Generate Power using aCondensing turbin...
0.02.04.06.08.010.012.014.02 3 4 5 6 7Payback(years)Natural Gas Price ($/MMBtu)Import power price = 4 cents/kWhImport powe...
> Increased price differential between LPG and its fuel value> Gas plants should be operated to maximize LPG recovery> It ...
Hydrogen Price Impacts> Impacted Areas– Hydroprocessing Units– Reformer Units– Hydrogen Generation orRecovery Units> Addin...
Short TermOperationalOptionsOvertreatDieselIncreaseGasoilHDTSeverityHDC RatevsSeverityGasoil –FCC vsHDCAdjustPurityTargets...
Capitalprojectsjustified bylong-termforecast for lownatural gasprices relativeto expectedcrude oil pricesLong TermInvestme...
Conclusions> US natural gas price expected to remain unlinkedfrom crude oil for long-term> Energy efforts should focus mai...
Closing> Questions?> Future webinar topics:– Market conditions– Asset optimisation– Investment support– Sustainable workfo...
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KBC IoE Webinar - Capitalizing on Shale Gas

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In the last several years, growing natural gas production from shale plays has dramatically impacted the US natural gas market, both in volume and pricing. The focus of this webinar will be to share insights into future gas pricing and supply/demand scenarios, as well as to describe options for refiners and petrochemical operators to take advantage of low priced fuel gas. A methodology will be explained for analyzing and capturing energy usage benefits even when natural gas is inexpensive.

This webinar will answer:
• Why has the US natural gas price disconnected from the US crude oil price?
• How long will the price remain disconnected?
• How are refineries and petrochemical plants affected by low natural gas prices?
• What opportunities for plant operators arise from low natural gas prices?

Presented by: Matthew Kuhl. Matthew is a Senior Consultant at KBC with over 15 years experience as a Chemical Engineer. He has primarily focused on the petrochemical industry, where he served as a process engineer and unit manager for a large polyolefin manufacturing complex. Conversant in various modeling software, he coordinated optimization, manufacturing, sales, and customer services to effectively manage product inventories and execute business management strategies for a USGC olefins producer. For the last three years, he has consulted on various strategic and valuation projects for the petrochemical and refining industries.

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KBC IoE Webinar - Capitalizing on Shale Gas

  1. 1. © 2012 KBC Advanced Technologies plc. All Rights Reserved.Capitalizing on Shale Gas in theDownstream Energy SectorMatthew Kuhl24 April 2013
  2. 2. Agenda• Why is US natural gas cheap?• What are direct impacts to plants?• Where are opportunities for operators?24 April 2013 2PROPRIETARY INFORMATION
  3. 3. 0.00.51.01.52.02.53.03.54.04.52002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012PowerGeneration,BillionMW-hrsCoal PetroleumLiquidsPetroleumCokeNaturalGasOtherGasNuclear HydroelectricConventionalOtherRenewableHydroelectricPumpedStorageOtherSource: EIAPower GenerationCrude oil and natural gas no longer linked asinterchangeable fuels for power generationPower generation from liquidpetroleum has almost disappeared24 April 2013 3PROPRIETARY INFORMATION
  4. 4. Natural Gas vs. Crude OilNatural gas and crude oil price disconnected in2006 and has not looked back0%20%40%60%80%100%120%19971999200120032005200720092011201320152017201920212023202520272029HenryHub($/mmbtu)/Brent($/mmbtu)ForecastUsusal RangeExpected RangePossiblerange ifNatural GasVehiclesgaintractionGlobalEconomicDisturbanceMajor switchfrom coal to gaspower generationSource: KBC Energy Economics24 April 2013 4PROPRIETARY INFORMATION
  5. 5. 2008 Natural Gas Production CostPrior to prolific shale gas, production costs increased asconventional gas became more scarce$8.15$-$1$2$3$4$5$6$7$8$92000 2001 2002 2003 2004 2005 2006 2007 2008ENaturalGasPrice,US$/mmbtu2008 NA Natural Gas Breakeven: 10% Rate of ReturnSource: Credit Suisse24 April 2013 5PROPRIETARY INFORMATION
  6. 6. $- $1 $2 $3 $4 $5 $6 $7Powder River - Coalbed MethaneCotton Valley - HorizontalCotton Valley - VerticalHaynesville - NE TXGranite WashPiceanceFayettevilleWoodford - ArkomaHaynesville - CoreBarnettEagle Ford - DryPinedaleHorn RiverMarcellus - NEBarnett - CoreHuronMarcellus - SWBarnett - Liquid-RichCana WoodfordMarcellus - Liquid-RichEagle Ford - Liquid-RichNatural Gas Price, US$/mmbtu2012 Natural Gas Breakeven: 10% Rate of Return by PlaySource: Credit Suisse2012 Natural Gas Production CostCurrent breakevens for unconventional plays aresignificantly below 2008 breakeven valuesNGL valuecovers all wellcosts24 April 2013 6PROPRIETARY INFORMATION
  7. 7. Natural Gas Supply Curve25 bcfd of today’s production from unconventionalresources breaks even at $4/mmbtu or lessEagle Ford - WetMarcellus - VeryWetCana WoodfordBarnett - WetMarcellus - WetHuronBarnett - CoreHorn River BasinEagle Ford - DryPinedaleWoodford - ArkomaHaynesville - CoreBarnettFayettevillePiceance BasinValleyGranite Wash -HorizontalHaynesville -BossierCotton valley -VerticalCotton Valley -HorizontalConventional/Other-12345678910- 10 20 30 40 50 60 70NaturalGasPrice,US$/mmbtuNatural Gas Production, Billion Cubic Feet per DayKBCs US Natural Gas Supply CurveSource: KBC Energy Economics24 April 2013 7PROPRIETARY INFORMATION
  8. 8. Forecast Sensitivities> Innovation brings oil production costs down thesame way it has for natural gas> Gas demand increase– LNG exports– Rapid adoption of Natural Gas Vehicles– Ramp up of coal power plant closures and replacementwith natural gas-fired plants– New manufacturing facilities, especially methanol,fertilizer and gas-to-liquids24 April 2013 8PROPRIETARY INFORMATION
  9. 9. 24 April 2013 9PROPRIETARY INFORMATION> Case StudiesUtilizing low-cost fuel gas in plants
  10. 10. Direct impact on plants> Lower energy prices> Lower hydrogen manufacturing cost> Higher propylene prices> Higher butadiene prices> Reduced demand for naphtha as ethylene cracker feedstockCase studies on Energy Efficiency, LPG Recovery, andHydrogen Addition highlight these impacts24 April 2013 10PROPRIETARY INFORMATION
  11. 11. Impact on Energy Efficiency> Since 2008.....– Natural Gas price ↓>50%– Import power price ↓>30%– New equipment coststeadily increased– Reduced economicincentive for conservingfuel and electricity0204060801001201401601802003 2004 2005 2006 2007 2008 2009 2010 2011 2012CostIndexYearNG PricePlant CostsElectricity PriceNG and Electricity Cost relative to Plant EquipmentCostTo maintain and improve energy efficiency, plants must havean adequate Energy Management System (EMS)24 April 2013 11PROPRIETARY INFORMATION
  12. 12. Case Study: Implementing an EMS> USGC refinery implementation> Opportunity to reduce energy consumption 8%– 5% from operational changes and low investment projects– 3% requiring capital projects >$500,000– Examples: minimize product give-away, optimize stripping steam,optimize distillation, maximize hot feed to units> Implement monitoring tools - Dashboards> Improve energy conservation cultureEnergy efficiency focus has shifted from implementing largecapital projects to implementing no/low cost projects24 April 2013 12PROPRIETARY INFORMATION
  13. 13. Opportunity: Utility Optimization2008(cents/kWh)2012(cents/kWh)Import power 8.1 5.4Generate Power using aCondensing turbine13.7 4.3ProSteam TM Utility Optimizer• Facilities should routinelymonitor and optimizeinternal power generation• Online utility optimizersare proven to significantlyreduce operating costs24 April 2013 13PROPRIETARY INFORMATION
  14. 14. 0.02.04.06.08.010.012.014.02 3 4 5 6 7Payback(years)Natural Gas Price ($/MMBtu)Import power price = 4 cents/kWhImport power price = 5 cents/kWhImport power price = 6 cents/kWhImport power price = 7 cents/kWhImport power price = 8 cents/kWhAt 2007 US GulfCoast PricesAt 2012 US GulfCoast PricesCogeneration – a capital intensive project for whichthe economic incentive has actually improvedSimple Payback time for a Cogeneration PlantOpportunity: Cogeneration24 April 2013 14PROPRIETARY INFORMATION
  15. 15. > Increased price differential between LPG and its fuel value> Gas plants should be operated to maximize LPG recovery> It may be economic to install a cryogenic unit2006 2007 2008 2009 2010 2011 2012Value of C3/C4 ($MM/yr) 23.2 27.1 32.2 19.0 26.7 33.3 25.4Fuel Debit ($MM/yr) 14.1 14.2 17.9 8.0 8.9 8.1 5.6OPEX ($MM/yr) 3.0 3.0 3.0 3.0 3.0 3.0 3.0Net Benefit ($MM/yr) 6.0 10.0 11.3 8.0 14.9 22.2 16.9Installed Cost ($MM) 25.1 25.9 26.7 27.5 28.3 29.1 30.0Payback (years) 4.2 2.6 2.4 3.4 1.9 1.3 1.8Payback of 15 MMSCFD Cryogenic Recovery Unit*Assumes 14 mol% LPG in Fuel GasOpportunity: Increase LPG Recovery24 April 2013 15PROPRIETARY INFORMATION
  16. 16. Hydrogen Price Impacts> Impacted Areas– Hydroprocessing Units– Reformer Units– Hydrogen Generation orRecovery Units> Adding hydrogen to oilincreases volume swell> Chart is example of ULSD HDTgross margin impact vs H2consumption> Generated with Petro-SIM™24 April 2013 16PROPRIETARY INFORMATION
  17. 17. Short TermOperationalOptionsOvertreatDieselIncreaseGasoilHDTSeverityHDC RatevsSeverityGasoil –FCC vsHDCAdjustPurityTargetsAdjustReformerRate andSeverityIncreaseSMRUtilizationReviewHDT feedcutpointtargetsOptimizefeedstockroutingamongHDTsMaximizeinexpensivehydrogenaddition toswell volumeof high-valuefuels products24 April 2013 17PROPRIETARY INFORMATION
  18. 18. Capitalprojectsjustified bylong-termforecast for lownatural gasprices relativeto expectedcrude oil pricesLong TermInvestmentOptionsCatalystFormulationsExpand H2CompressionCapacityIncreaseHDC TreatandQuenchCapacityImproveHDTFractionatorProductRecoveryExpandSMRCapacityInstallGasoilorResidHDCInstallAdditionalReactorsAddHydrogenRecoveryUnitsChangeHydrogenDistributionNetworkConvertGasoilHDT toMHC24 April 2013 18PROPRIETARY INFORMATION
  19. 19. Conclusions> US natural gas price expected to remain unlinkedfrom crude oil for long-term> Energy efforts should focus mainly on low capitalopportunities and be stewarded by an effectiveEnergy Management System> Strong economic incentive to drive inexpensivehydrogen into refined products24 April 2013 19PROPRIETARY INFORMATION
  20. 20. Closing> Questions?> Future webinar topics:– Market conditions– Asset optimisation– Investment support– Sustainable workforce development> We welcome suggestions for future topics – please emailkbc-marketing@kbcat.com> Next webinar information will go out shortly.> Thank you for joining us!24 April 2013 PROPRIETARY INFORMATION 20

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