ASSESSMENT OF THE NATURAL GAS LIQUIDS MARKET IN WESTERN CANADA - PowerPoint PPT Presentation

ASSESSMENT OF THE NATURAL GAS LIQUIDS MARKET IN WESTERN CANADA Flagship Breakfast Overview Sponsor: Allan Fogwill, CEO Canadian Energy Research Institute February 2019

Canadian Energy Research Institute Overview Founded in 1975, the Canadian Energy Research Institute (CERI) is an independent, registered charitable organization specializing in the analysis of energy economics and related environmental policy issues in the energy production, transportation, and consumption sectors. Our mission is to provide relevant, independent, and objective economic research of energy and environmental issues to benefit business, government, academia and the public. CERI publications include: • Market specific studies • Geopolitical analyses • Energy Market reports (crude oil, electricity and natural gas) In addition, CERI hosts an annual Petrochemical Conference and supports Argus Energy Week.

Core Funders: Donors: Ivey Foundation In-kind:

Introduction • Global NGLs markets • Historic production trends of NGLs in Western Canada • natural gas processing plants • crude oil refineries • bitumen upgraders’ off -gas processing plants • Stakeholder perceptions • NGLs Production Forecast and Supply Demand Balances • Conclusions Source: Bloomberg

NGL Products NGL Uses End-use Products End-use Sectors Petrochemical Plastics; anti-freeze; Ethane/C2 feedstock for Industrial detergents ethylene production Space or water heating; cooking; Residential, Fuel for cooking, transportation; commercial, Propane/C3 heating and drying; petrochemical industrial, and plastics feedstock; oil sands transportation solvent technologies Petrochemical and petroleum refinery Motor gasoline; Butanes (normal and feedstock; motor solvents; plastics; Industrial and isobutane) gasoline blending; oil synthetic rubber; transportation sands solvent lighter fuel technologies Blending fuel for non-upgraded Diluent; motor Industrial and Pentanes plus bitumen; additive to gasoline transportation motor gasoline

Global NGLs Production Source: Eni

Global Demand Is Increasing Source: IHS Markit

Source: IEA

Petrochemical Capacity

Ethane Supply and Demand

Propane Supply and Demand

Butane Supply and Demand

Pentanes plus Supply and Demand

US Production and Exports

Implied Pricing

Midstream Infrastructure: NGL plants Western Raw Gas Sales Gas Canadian Capacity Capacity Province Facility # Share (MMcfpd) (MMcfpd) (%) Fractionators 11 - - AB Straddle Plants 8 14,094 12,154 88 Gas Plants 623 36,851 34,614 Fractionators 10 - - BC Straddle Plants 1 597 548 11.5 Gas Plants 63 4,801 4,500 SK Gas Plants 32 219 173 0.5 Fractionators 21 - - Western Straddle Plants 9 14,690 12,702 100 Canada Gas Plants 718 41,871 39,287

Natural Gas Production Forecast

Stakeholder Perceptions • Limited Infrastructure development especially when compared to the US • Market Access Concerns by Rail • Limited Local Demand for NGLs however the market is expected to grow due to exports • High fees for gas processing and transportation charges • Governments to continue their support for the sector (e.g. incentives) • Market and price transparency is limited • Environmental concerns related to GHG emissions and plastic waste

Market Assessment • The Western Canadian NGLs market is supported by an abundant resource base and accessible subsurface formations • Infrastructure and export options remain both areas of weakness and opportunity in the market • Asian market demand is increasing and Western Canada has a locational advantage • The Gulf Coast NGLs market presents varying degrees of threats to Western Canadian NGLs, fostered by higher levels of infrastructure development, fiscal policies and a decreasing US reliance on Western Canadian NGLs

NGLs Market Opportunities • Develop a market clearing price mechanism to increase transparency for new entrants and foreign investors • Export market development in particular for ethane/ethylene • Greater collaboration between upstream and downstream NGL infrastructure projects • Greater collaboration between industry, government and First Nations for regional development • Foster long term sale and purchase agreements to provide long term security of supply • Liquified natural gas export projects – needed to maintain the demand for methane • Increased NGL recovery

Ethane Supply and Demand Outlook

Propane Production Projections

Butane Production Projections

Pentanes Plus Production Projections

Conclusions • Natural gas production will continue to be the main driver of NGLs supply growth in Western Canada • Canada’s export market for NG and NGLs to the US is shrinking. Alternative markets need to be found included value added demand domestically • Few companies involved with the market resulting in a concentration of market power (processing and logistics) • Lack of price transparency is limiting infrastructure and petrochemical investment • Gas processing • Value added • Rail

Thank You for Your Time www.ceri.ca CANADIAN ENERGY RESEARCH INSTITUTE @CERI_CANADA UPCOMING STUDIES: ECONOMIC AND ENVIRONMENTAL IMPACTS OF URBAN ENERGY AND TRANSPORTATION SYSTEMS AN ASSESSMENT OF A CLEAN FUEL STANDARD ECONOMIC IMPACTS AND EMISSIONS PROFILES OF THE PETROCHEMICAL INDUSTRY IN CANADA