1. US Ethane Outlook:US Ethane Outlook:
Ethane: It’s Available and For SaleEthane: It’s Available and For Sale
Peter Fasullo
En*Vantage, Inc
pfasullo@envantageinc.com
Presented to the 15th
Annual PFAA Conference
November 13, 2008

2. 2
Our recent studies on ethane have indicated:Our recent studies on ethane have indicated:
Supply SideSupply Side
 US ethane extraction starting to increase – rising gas production and new plants.US ethane extraction starting to increase – rising gas production and new plants.
 Plant expansions will create an overhang of ethane extraction capability.Plant expansions will create an overhang of ethane extraction capability.
 More logistical infrastructure (fractionation and distribution) is needed.More logistical infrastructure (fractionation and distribution) is needed.
 Processors incurring more economic risks on ethane, unless demand increases.Processors incurring more economic risks on ethane, unless demand increases.
Demand SideDemand Side
 Total US ethylene capacity not expected to increase. Contraction is highlyTotal US ethylene capacity not expected to increase. Contraction is highly
possible.possible.
 Ethylene industry maximizing ethane cracking, but level is not enough.Ethylene industry maximizing ethane cracking, but level is not enough.
 It will take time and capital to increase the capability to crack more ethane.It will take time and capital to increase the capability to crack more ethane.
 Less co-product production could be an issue.Less co-product production could be an issue.
IntroductionIntroduction

3. 3
Our Basic Message About Ethane
Gas Processors Ethylene Producers
Face challenges in managing excess
ethane extraction capability and
dealing with the consequences.
Have the opportunity to increase
feedstock optionality by accessing
greater ethane supplies.

4. Quick OverviewQuick Overview

5. 5
Basic Facts About EthaneBasic Facts About Ethane
1.1. Ethane constitutes ~ 40% of the US NGL stream from gas processing.Ethane constitutes ~ 40% of the US NGL stream from gas processing.
2.2. Ethane is the most economically sensitive NGL and its extraction isEthane is the most economically sensitive NGL and its extraction is
discretionary.discretionary.
3.3. Ethane has only one major end use -- feedstock to produce ethylene.Ethane has only one major end use -- feedstock to produce ethylene.
4.4. About 50% of US ethylene is produced from ethane -- 5-yr avg.About 50% of US ethylene is produced from ethane -- 5-yr avg.
5.5. The amount of ethane cracked is a function of ethylene production.The amount of ethane cracked is a function of ethylene production.
6.6. But, ethane feedstock usage can be volatile when ethylene industry’sBut, ethane feedstock usage can be volatile when ethylene industry’s
operating rates are below 90%.operating rates are below 90%.
7.7. The incentive to extract ethane is only as good as the economic viabilityThe incentive to extract ethane is only as good as the economic viability
of the US petrochemical industry and its ability to crack ethane.of the US petrochemical industry and its ability to crack ethane.

6. 6
Ethane supply & demand fundamentals appear simple, but they are complexEthane supply & demand fundamentals appear simple, but they are complex
and volatile. Market range for ethane*: Low-- 475 MBPD; High-- 850 MBPDand volatile. Market range for ethane*: Low-- 475 MBPD; High-- 850 MBPD
Market drivers for ethane
extraction and cracking:
 Ethane Extraction
 Frac spreads
 Processing contracts
 Plant type
 Plant location
 Gas quantity & quality
 Ethane Cracking
 Ethylene business cycles
 Cracker capacities &
feedstock capabilities
 Competing feedstocks
 Ethylene co-products
 Derivative Imports/Exports
Source: DOE, En*Vantage, Hodson; * Includes Ethane from Refining
US Ethane Supply & DemandUS Ethane Supply & Demand
5-Year Average5-Year Average
(2003-2007)(2003-2007)
SupplySupply DemandDemand
SourceSource MBPDMBPD %% End UseEnd Use MBPDMBPD %%
ProcessingProcessing 667667 8989 EthyleneEthylene 737737 9898
RefiningRefining 8383 1111 BlendingBlending
intointo
PropanePropane
1313 22
TotalTotal 750750 100100 TotalTotal 750750 100100
Overview of Ethane Supply & Demand

7. 7
Key Drivers for Ethane Supply and DemandKey Drivers for Ethane Supply and Demand
Primary Drivers Influences
Natural Gas to Crude Price Ratio
(Henry Hub Gas/WTI on a BTU basis)
Processing
Margins
Ethane Feedstock
Economics
Absolute Value of WTI Absolute spreads and price
Ethane to Crude Price Ratio Absolute Ethane Price.
Ethane Frac Spreads.
Natural Gas Production & Quality Volume of ethane that can be extracted given the
capacities and types of gas processing plants.
US Ethylene Production & Industry
Configuration
Ethane consumption versus competing
feedstocks.
Both being inversely
related to gas to crude
price ratio

8. 8
Key Pricing Drivers for Ethane Supply & DemandKey Pricing Drivers for Ethane Supply & Demand
Gas-to-
Crude Ratio
WTI
Price
Gas BTU
Discount to WTI
Ethane to
Crude Ratio
Ethane
Price
Ethane Frac
Spread
(BTU Basis) $/Bbl $/BTU (Volume Basis) (MB $/gal) (MB $/gal)
1998 87.6% $14.4 $0.32 54.3% $0.19 $0.043
1999 71.8% $19.2 $1.00 61.3% $0.28 $0.125
2000 81.3% $30.3 $0.96 55.9% $0.40 $0.120
2001 87.3% $25.9 $0.47 53.3% $0.33 $0.070
2002 74.2% $26.1 $1.14 42.0% $0.26 $0.039
2003 102.0% $31.1 -$0.11 53.8% $0.40 $0.035
2004 83.6% $41.3 $1.26 51.0% $0.50 $0.113
2005 89.6% $56.4 $0.89 46.2% $0.62 $0.038
2006 59.2% $66.1 $4.71 41.4% $0.65 $0.210
2007 57.6% $72.5 $5.53 45.6% $0.79 $0.331
2008* 50.3% $114.4 $9.80 40.0% $1.08 $0.423
10-Yr AVG 79.4% $38.34 $1.62 50.5% $0.44 $0.112
* Jan - Aug 08
Key Pricing Metrics For Ethane
Source: DOE, En*Vantage, OPIS, ICE

9. 9
 Low Gas-to-Crude RatiosLow Gas-to-Crude Ratios
 High Crude PricesHigh Crude Prices
 Decent Ethane-to-Crude RatiosDecent Ethane-to-Crude Ratios
TheThe Planets Aligned PerfectlyPlanets Aligned Perfectly for Gas Processors tofor Gas Processors to
Maximize Ethane Profitability in ‘07 and 1Maximize Ethane Profitability in ‘07 and 1stst
Half of ‘08.Half of ‘08.
 High Ethane Frac SpreadsHigh Ethane Frac Spreads
 High Ethane PricesHigh Ethane Prices
Two Factors to Consider:
1. Record high ethane prices and frac spreads would not have been possible
if the US ethylene industry was doing poorly.
2. Additional ethane from newly constructed processing plants had not fully
impacted the market yet.
Great for:
Keep
Whole
% of Proceeds

10. 10
Concentration of Processing Plants and
Regional Distribution of Ethane Extracted
US Gas Processing Industry
 # of Plants: ~500
 Inlet Gas Capacity: 65.5 BCFD
 Gas Throughput: 43.2 BCFD
 Industry Operating Rate: 66%
 Gas Production Processed: 80%
Regional Ethane Extraction*
 LA Gulf Coast……….13%
 TX Gulf Coast….........6%
 TX Inland…………….34%
 Midcontinent…………12%
 New Mexico………….14%
 Rockies………………13%
 Upper Midwest……….6%
 Other…………………..2%
* 5-year average
Source: DOE, En*Vantage, LPG Almanac

11. 11
NGL Extraction Will Continue to Shift Further InlandNGL Extraction Will Continue to Shift Further Inland
Regional Change in Total NGL and Ethane Extraction Volumes
max 2001 vs max 2008
(160)
(140)
(120)
(100)
(80)
(60)
(40)
(20)
0
20
40
60
80
100
VolumeChangeMBPD
Change in Total NGL Extraction Change in Ethane Extraction
TX Inland
TX Gulf Coast LA Gulf
Coast
N. LA/Ark
New Mexico
Rockies
Mid-Continent
Upper
Midwest Other
+10%
+15%
-30%
-34%
+57% +257%
-26%
-26%
+35%
-17%
-20%
+42%
-4%
+2%
+21%
-21%
-93%
-4%
Source: DOE and En*Vantage

12. Outlook For Ethane ExtractionOutlook For Ethane Extraction

13. 13Source: EIA and En*Vantage
Ethane Extraction From Processing Can Be VolatileEthane Extraction From Processing Can Be Volatile
Total Ethane Extraction From US Gas Processing
(Data for Jan '00 thru Aug '08)
250
300
350
400
450
500
550
600
650
700
750
800
850
Jan-
00
Jul-
00
Jan-
01
Jul-
01
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
NGLExtractionMBPD.
High Gas-to-Crude Ratios

14. 14Source: EIA and En*Vantage
Prior to ‘07 Ethane Extraction Capability was DecliningPrior to ‘07 Ethane Extraction Capability was Declining
Range of US Ethane Extraction
MBPD
300
400
500
600
700
800
2000 2001 2002 2003 2004 2005 2006
Min C2 Extraction AVG C2 Extraction Max C2 Extraction

15. 15Source: EIA and En*Vantage
Major Changes in Regional Proved Natural Gas Reserves - 2000 to 2007
(Wet after Lease Seperation)
(-49%) (-12,883)
(-36%) (-2,313)
(-12%)(-1,455)
(-25%) (-1434)
(-4%) -501
389 (+10%)
1991 (+45%)
2,499 (+56%)
3,063 (+32%)
3,093 (+93%)
5,350 (+84%)
5,641 (+39%)
11,643 (+107%)
13,685 (+80%)
22,244 (+533%)
(20,000) (16,000) (12,000) (8,000) (4,000) 0 4,000 8,000 12,000 16,000 20,000 24,000
Billion Cubic Feet
Federal G.O.M………
Texas (Barnett Shale)……………………………………………………
Wyoming……………………………………………………………………
Colorado……………………………………………………………………
Oklahoma………………………………………………………………….
North Louisiana…………………………………………………………..
East Texas…………………………………………………………………
Utah…………………………………………………………………………
New Mexico (San Juan)…………………………………
Texas Panhandle…………………………………………………………
New Mexico (Permian)……………………………………………………
West Texas (Permian)…………………………………………………..
South Texas…………………………………………
South Louisiana………………………………
Kansas (Hugoton)…………………………………
Gas Reserve Additions in Key Processing Regions

16. 16Source: EIA and En*Vantage
Gas Production is UP 11% or +5.8 BCFD since 2006.
US Natural Gas Production versus Rig Count
(Average Monthly Rig Count versus Marketed Gas Production)
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
Jan-00M
ay-00S
ep-00Jan-01M
ay-01S
ep-01Jan-02M
ay-02S
ep-02Jan-03M
ay-03S
ep-03Jan-04M
ay-04S
ep-04Jan-05M
ay-05S
ep-05Jan-06M
ay-06S
ep-06Jan-07M
ay-07S
ep-07Jan-08M
ay-08S
ep-08
MarketedGasProduction(BCFD)
100
200
300
400
500
600
700
800
900
1000
1100
1200
1300
1400
1500
1600
RotaryGasRigCount
Marketed Natural Gas Production Gas Rig Count
Hurricanes

17. 17
Recently Completed & Announced Plant Additions ~6.8 BCFD.
Rockies-- 54%; TX Inland-- 29%; MidCont-- 11%; G.C.-- 6%
Region Year
Processing
Capacity
(MM CFD)
NGL Production
Capabilty
(MBPD)
Ethane Extraction
Capability (MBPD)
Rockies 2007 1100 52 26
Texas Inland 2007 825 51 20
Mid-Continent 2007 0 0 0
Gulf Coast 2007 0 0 0
Total 2007 1925 103 46
Rockies 2008 1520 71 35
Texas Inland 2008 510 34 13
Mid-Continent 2008 360 28 11
Gulf Coast 2008 295 17 7
Total 2008 2685 106 67
Rockies 2009 700 33 16
Texas Inland 2009 655 48 19
Mid-Continent 2009 380 31 16
Gulf Coast 2009 100 7 3
Total 2009 1835 58 54
Rockies 2010 350 30 15
Texas Inland 2010 0 0 0
Mid-Continent 2010 0 0 0
Gulf Coast 2010 0 0 0
Total 2010 350 30 15
Rockies Total '07-'10 3670 185 93
Texas Inland Total '07-'10 1990 132 53
Mid-Continent Total '07-'10 740 59 27
Gulf Coast Total '07-'10 395 24 10
Grand Total 6795 401 182
*Assumes 100% utilization rates
Additions to US Gas Processing Capacity and NGL Production Capability*
Source: En*Vantage and Company Announcements

18. 18
 Trunkline is building a 1.050 BCFD NGL extraction plant at its LakeTrunkline is building a 1.050 BCFD NGL extraction plant at its Lake
Charles LNG Terminal, completion in late 2008/early 2009.Charles LNG Terminal, completion in late 2008/early 2009.
 Depending on the quality of LNG being imported, anywhere between 18Depending on the quality of LNG being imported, anywhere between 18
MBPD to 48 MBPD could be extracted.MBPD to 48 MBPD could be extracted.
 Most likely, the Trunkline LNG terminal will process Nigerian LNG withMost likely, the Trunkline LNG terminal will process Nigerian LNG with
an average BTU content of 1150 +/- 25.an average BTU content of 1150 +/- 25.
 That would imply an NGL recovery rate of at least 39 MBPD, withThat would imply an NGL recovery rate of at least 39 MBPD, with
ethane extraction about 24 MBPD.ethane extraction about 24 MBPD.
In Addition to Incremental NGLs from Processing, OneIn Addition to Incremental NGLs from Processing, One
USGC LNG Terminal will have NGL Extraction CapabilityUSGC LNG Terminal will have NGL Extraction Capability

19. 19Source: EIA and En*Vantage
Announced Plants Boosting Ethane Extraction CapabilityAnnounced Plants Boosting Ethane Extraction Capability
Forecast of US Ethane Extraction Capability
500
550
600
650
700
750
800
850
900
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
MBPD
500
550
600
650
700
750
800
850
900
Ethane Extraction from Existing Plants as of 2006 Ethane Extraction From Announced Plants
Level of C2 Extraction Capability
Predicted for 2007 was 756
778
Level of C2 Extraction Capability
Predicted for 2008 was 817
803
Did not include C2 extracted from
LNG at Trunkline's LC terminlal

20. 20
Another 0.5 - 1 BCFD of cryo-plant capacity could be built in next few years.
Represents 30 to 60 MBPD of NGLs of which 12 to 24 MBPD is ethane.
Potential Production Change in Growing Gas Processing Basins
2006 to 2015
0.0
2.0
4.0
6.0
8.0
10.0
12.0
B
a
rn
e
tt
S
h
a
le
P
ic
e
a
n
c
e
G
re
e
n
R
iv
e
r
A
rk
la
te
x
A
rkh
o
m
a
/A
n
ad
a
rk
o
P
e
rm
ia
n
T
o
ta
l
BillionCFD
6.8 BCFD of cryogenic capacity just completed or under construction.
Potentially another ~3.4 BCFD of
incremental gas is rich of enough to be
processed over the next 10 years.
Source: EIA, Enterprise, Energy Transfer, Williams, Broadwalk
+4.9 BCFD
+1.7 BCFD
+1.0 BCFD +1.0 BCFD +1.0 BCFD
+0.6 BCFD
Financial Crisis Could Delay Unannounced Plants

21. Outlook For US Ethane DemandOutlook For US Ethane Demand

22. 22
 Low gas-to-crude ratios in the US made US ethylene producers moreLow gas-to-crude ratios in the US made US ethylene producers more
competitive globally.competitive globally.
 The US ethylene industry’s ability to shift to ethane and E/P gave it aThe US ethylene industry’s ability to shift to ethane and E/P gave it a
competitive edge over heavy feedstock crackers in Europe and Asia.competitive edge over heavy feedstock crackers in Europe and Asia.
 Although the US economy was slowing, the low US dollar created anAlthough the US economy was slowing, the low US dollar created an
export market for US petrochemicals.export market for US petrochemicals.
 In 2007 and 1In 2007 and 1stst
Half of 2008, US ethylene operating rates were 88.5%Half of 2008, US ethylene operating rates were 88.5%
and 87.3%, respectively.and 87.3%, respectively.
 However, those US ethylene producers leveraged to heavy-feedstocksHowever, those US ethylene producers leveraged to heavy-feedstocks
suffered in the high crude price environment during Q1 and Q2 ‘08.suffered in the high crude price environment during Q1 and Q2 ‘08.
Fairly Good Business Environment for the USFairly Good Business Environment for the US
Ethylene Industry in ’07 & 1Ethylene Industry in ’07 & 1stst
Half of ’08Half of ’08

23. 23
Growth in US Ethylene Production and Capacity hasGrowth in US Ethylene Production and Capacity has
Basically Stagnated Over the Past 5 yrs.Basically Stagnated Over the Past 5 yrs.
US Ethylene Capacity versus Production
(Billion Pounds per Year)
0
10
20
30
40
50
60
70
80
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 H1
08
BillionLbs/Year
0
10
20
30
40
50
60
70
80
Ethylene Capacity Ethylene Production
During the 1990's U.S. ethylene production and
capacity were growing at a rate 1.5 times GDP.
During the 2000's U.S. ethylene production
and capacity have basically flatlined.
Source: En*Vantage, Hodson, CMAI

24. 24
¹ Capacity excludes plants that are mothballed; Source Hodson and En*Vantage
100.0%60.1100.0%62.2Total Effective Capacity
5.3%3.214.4%8.9Heavy Feed Crackers
45.1%27.150.5%31.4Flexi Feed Crackers
38.6%23.228.0%17.4E/P Crackers
11.0%6.67.2%4.5Purity Ethane Crackers
%Billion Lb/Yr%Billion Lb/Yrof Ethylene Plants
20002007Basic Types
Effective Capacity¹
Shift in US Ethylene Capacity
¹ Capacity excludes plants that are mothballed; Source Hodson and En*Vantage
100.0%60.1100.0%62.2Total Effective Capacity
5.3%3.214.4%8.9Heavy Feed Crackers
45.1%27.150.5%31.4Flexi Feed Crackers
38.6%23.228.0%17.4E/P Crackers
11.0%6.67.2%4.5Purity Ethane Crackers
%Billion Lb/Yr%Billion Lb/Yrof Ethylene Plants
20002007Basic Types
Effective Capacity¹
Shift in US Ethylene Capacity
Over the Past Few Years, US Ethylene CapacityOver the Past Few Years, US Ethylene Capacity
has Shifted More to Flexi and Heavy Feed Crackers.has Shifted More to Flexi and Heavy Feed Crackers.
Plus, 21% of US ethylene plant capacity is aging (35 years and older)
and this capacity represents 33% of total ethane consumption.

25. 25
Cracking of Gas Processors’ Ethane
U.S. Ethylene Feedstock Consumption - MBPD
(Jan-00 to Aug-08)
0
100
200
300
400
500
600
700
800
900
Jan-00M
ay-00S
ep-00Jan-01M
ay-01S
ep-0
1Jan-02M
a
y-02S
ep-02Jan-03M
a
y-03S
ep-03Jan-04M
ay-04S
ep-0
4Jan-05M
ay-05S
ep-0
5Jan-06M
a
y-06S
ep-06Jan-07M
a
y-07S
ep-07Jan-08M
ay-08
IndividualFeedVolumesMBPD…..
0
100
200
300
400
500
600
700
800
900
Ethane (from gas processors)
Propane
Heavy Feeds
N-Butane
Source: Hodson Reports
and En*Vantage
Hurricanes
High Gas-to-Crude
Ratio Environment
Low Gas-to-Crude
Ratio Environment
8 Year Average is 670 MBPD. Peaked at 800 MBPD in ’01. High in ’08 was 745 MBPD.

26. 26
The Amount of Ethane Cracking Positively Correlates
with the Amount of Ethylene Produced.
Ethylene
Production Rate
Ethylene
Operating Rate
Min Ethane
Cracking
Avg Ethane
Cracking
Max Ethane
Cracking
Billion Lb/Yr % MBPD MBPD MBPD
50 80% 480 598 680
52 84% 530 629 710
54 87% 580 660 740
56 90% 620 691 770
58 93% 670 722 800
60 96% 710 753 830
62 100% 750 784 860
Call on Ethane from Gas Processing
Ethane Cracking as a Function of Ethylene Production
Source: Hodson and En*Vantage.

27. 27
US Ethylene Production Forecast ScenariosUS Ethylene Production Forecast Scenarios
US Ethylene Capacity versus Ethylene Production
(Billion Pounds per Year)
30
35
40
45
50
55
60
65
70
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
BillionLbs/Year
US net exports of ethylene products
declines as foreign production increases
Historical Ethylene Capacity
Ethylene Capacity Forecast
High Case: 3.5% AGR
Historical Ethylene Production
Historical Data: CMAI,
Hodson
Forecast: En*Vantage
Low Case: 1.5% AGR

28. 28
High Likelihood That an Ethane Extraction OverhangHigh Likelihood That an Ethane Extraction Overhang
Will Continue Through 2012.Will Continue Through 2012.
US economy
grows at 3%/yr.
Max C2 Cracking
US economy
stagnates and an
ethylene surplus
develops
worldwide
Ethane Extraction Capability versus Ethane Demand
500
550
600
650
700
750
800
850
900
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
MBPD
500
550
600
650
700
750
800
850
900
Max Ethane from Existing Plants Prior to '07 Max Ethane from Announced Plants Ethane from LNG
Forecasted range of demand
for ethane from gas processing
Ethane Extraction Capability
HISTORIC MAXIMUM
ETHANE CRACKING ABILITY
Historical Demand for
Ethane from Processing
Additions came
in Q4 07
Source: DOE, En*Vantage, Hodson

29. ImplicationsImplications

30. 30
Lower Ethane Values Relative to Crude (WTI)Lower Ethane Values Relative to Crude (WTI)
Ethane Price Relationship to WTI
(On a $/Bbl Basis)
20%
30%
40%
50%
60%
70%
80%
90%
Jan-91
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
20%
30%
40%
50%
60%
70%
80%
90%
Long-Term Avg 49%
Source: DOE, En*Vantage, OPIS, ICE

31. 31
Greater Ethane Volumes and Poor EconomyGreater Ethane Volumes and Poor Economy
Pressuring Ethane Frac SpreadsPressuring Ethane Frac Spreads
Ethane Frac Spreads
Mt. Belvieu Ethane minus Henry Hub Gas
(Cents per Gallon)
(20)
(10)
0
10
20
30
40
50
60
70
Jan-91
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
EthaneFracSpread(Cents/Gallon)
-20
-10
0
10
20
30
40
50
60
70
Winter ‘95/’96
Winter
‘00/’01
'05 Hurricanes
Asian Crises/
Crude Price
Collapse
Econmomic Recession/
Crude Collapse Winter/Spring '03
Record High Crude Prices &
Low Gas-to-Crude Ratios
Average 10.6¢/gal
Over the past 206 months (~17 yrs),
ethane frac spreads have traded 66%
of the time below 10¢/gal and have
traded 30% of the time below 5¢/gal.
Source: DOE, En*Vantage, OPIS, ICE

32. 32
Ethane Overhang Will Affect Gas Processors DifferentlyEthane Overhang Will Affect Gas Processors Differently
High Exposure to Economic RiskHigh Exposure to Economic Risk Lower Exposure to Economic RiskLower Exposure to Economic Risk
Processors with the following:Processors with the following:
 ““Keep Whole” ContractsKeep Whole” Contracts
 No ability to re-inject ethaneNo ability to re-inject ethane
 Little or no integration along the NGLLittle or no integration along the NGL
value chain.value chain.
 High T&F feesHigh T&F fees
 High Fuel Usage & CostsHigh Fuel Usage & Costs
 Little or no gas basis offsetLittle or no gas basis offset
 Low value market for ethaneLow value market for ethane
 Little integration with gas producerLittle integration with gas producer
Processors with the following:Processors with the following:
 POP ContractsPOP Contracts
 Ability to re-inject ethaneAbility to re-inject ethane
 High degree of integration alongHigh degree of integration along
the NGL value chain.the NGL value chain.
 Low T&F feesLow T&F fees
 Low Fuel Usage & CostsLow Fuel Usage & Costs
 Wide gas basis offsetWide gas basis offset
 High value market for ethaneHigh value market for ethane
 Integration with gas producerIntegration with gas producer

33. 33
Wellhead
Production
Gas Gathering
& Processing
NGL
Transport
NGL
Fractionation
NGL
Storage
Product
Distribution
Opportunities and Bottlenecks Occurring Across
NGL Value Chain
Greater Gas
Production
Volumes
Greater Need
for Long Haul
NGL Takeaway
Capacity.
More
Opportunities
for Gathering
& Processing.
Greater
Need for Full
Fractionation
Capacity.
Storage Plays
a Greater
Role in
Balancing
Supply &
Demand
Greater
Need for
More
Ethane
Distribution
to Petro-
Chemicals
Keeps Gas-to-
Crude Ratios Low
Expansions are
being completed:
- MAPL
- Overland Pass
- Sterling
- West Texas P/L
- Arbuckle
Belvieu Fracs
at capacity.
More Barrels
being diverted
to Louisiana
More
Capacity
may be
needed

34. 34
US Ethylene Industry Faces Challenges andUS Ethylene Industry Faces Challenges and
OpportunitiesOpportunities to Increaseto Increase Ethane ConsumptionEthane Consumption
 Some heavy-feed crackers are isolated from large ethane distribution systems.Some heavy-feed crackers are isolated from large ethane distribution systems.
Additional ethane distribution is needed to access these plants.Additional ethane distribution is needed to access these plants.
 Midstream companies are reluctant to bear the full risk in building more logisticsMidstream companies are reluctant to bear the full risk in building more logistics
to handle ethane. (to handle ethane. (The Chicken and Pig FableThe Chicken and Pig Fable))
 Maximizing ethane cracking at some heavy-feed ethylene plants may requireMaximizing ethane cracking at some heavy-feed ethylene plants may require
investments to retool process equipment.investments to retool process equipment.
 Ethylene producers need to be convinced that ethane supplies will last.Ethylene producers need to be convinced that ethane supplies will last.
 Co-product production could suffer and petrochemical companies will need toCo-product production could suffer and petrochemical companies will need to
find ways to meet downstream co-product requirements.find ways to meet downstream co-product requirements.
 Economic slowdown plus more ethylene plants worldwide could dampenEconomic slowdown plus more ethylene plants worldwide could dampen
enthusiasm to make investments to access and handle more ethane.enthusiasm to make investments to access and handle more ethane.
Ethane cracking capability could increase by another 50 to 75 MBPD at
existing plants, but….

35. 35
Is There A Happy Ending?Is There A Happy Ending?
 Cooperation and sharing of risks between midstream and petrochemicalCooperation and sharing of risks between midstream and petrochemical
companies is required to increase ethane distribution and demand.companies is required to increase ethane distribution and demand.
 Current economic recession may delay aggressive actions by both parties.Current economic recession may delay aggressive actions by both parties.
 In the meantime, gas processors will need to prepare for a greaterIn the meantime, gas processors will need to prepare for a greater
frequency of marginal ethane extraction economics.frequency of marginal ethane extraction economics.
 Careful study and planning is required by individual processors looking toCareful study and planning is required by individual processors looking to
build that next cryogenic processing plant.build that next cryogenic processing plant.
 Although additional US ethylene capacity is unlikely, petrochemicalAlthough additional US ethylene capacity is unlikely, petrochemical
companies have the opportunity to increase feedstock optionality by takingcompanies have the opportunity to increase feedstock optionality by taking
advantage of ethane’s growing availability and lower valuation relative toadvantage of ethane’s growing availability and lower valuation relative to
competing feedstocks.competing feedstocks.