TABLE OF CONTENTS
Introduction
Overview Of NGL Supply And Demand Drivers ............................................................................................................................... 5
MLPs Play A Meaningful Role In The NGL Value Chain .................................................................................................................. 6
What Companies Are Best Positioned?............................................................................................................................................... 6
Part 1: NGL Supply Demand Outlook
I. NGL Supply Outlook....................................................................................................................................................................... 8
Producer Cutbacks Could Accelerate Gas Production Declines ............................................................................................ 8
Total NGL Production From Processing Expected To Remain Relatively Flat..................................................................... 9
Planned Buildout Of U.S. Processing Capacity Increases Leverage To Ethane .................................................................. 10
U.S. Ethane Extraction Capability Exceeds Petrochemical Demand................................................................................... 11
II. NGL Demand Outlook ................................................................................................................................................................. 12
Capacity Additions In The Middle East Likely To Pose Headwinds................................................................................... 12
Middle East Enjoys A Feedstock Advantage...................................................................................................................... 14
Middle Eastern Exports Could Reduce U.S. Ethylene Derivative Export Activity ............................................................. 14
However, U.S. Export Market Could Be More Resilient Than Our Forecast...................................................................... 15
Impact Of Reduced Export Activity On NGL Demand....................................................................................................... 16
III. Putting It All Together--NGL Supply Demand Outlook.............................................................................................................. 17
What Does This Mean For NGL Pricing?........................................................................................................................... 18
NGL Ratio Likely To Remain Low In The Near Term Relative To Historical Levels........................................................ 18
NGL Demand Sensitivity To Steam Cracker Operating Rate Assumptions ........................................................................ 19
Ethane Rejection Can Help Correct NGL Supply Demand Imbalances .............................................................................. 20
Hedging Implications--Crude Oil Proxy Hedges Could Be Less Effective ......................................................................... 20
NGL And Processing Margin Forecast............................................................................................................................... 21
Implications For Midstream Companies............................................................................................................................. 22
What Companies Are Best Positioned? ............................................................................................................................... 23
Part 2: Drivers Of NGL Supply
U.S. NGL Supply .............................................................................................................................................................................. 26
Natural Gas Processing--The Key Driver Of NGL Supply................................................................................................................ 26
(1) Natural Gas Production ................................................................................................................................................. 27
(2) NGL Yield..................................................................................................................................................................... 28
(3) Processing Capacity ...................................................................................................................................................... 29
Processing Capacity Has Increased Modestly Over Time ..................................................................................... 29
(4) Processing Economics................................................................................................................................................... 31
Relationship Between Processing Margins And NGL Production May Not Be Linear ........................................ 32
Frac Spreads Are Rarely Negative And Having A Strong Tendency To Revert Back To The Mean ................... 33
Part 3: Drivers Of NGL Demand
U.S. NGL Demand Has Been Flat For The Past Ten Years............................................................................................................... 36
What Drives Petrochemical Demand? .............................................................................................................................................. 38
Ethane Fundamentals ........................................................................................................................................................................ 39
Factors That Influence Ethane Supply .............................................................................................................................................. 40
Factors That Influence Demand For Ethane...................................................................................................................................... 41
(1) Overall Demand For Plastics And Other Consumer Products........................................................................................ 41
Ethylene Production Has Remained Stable Over The Past Decade....................................................................... 41
Ethylene Production Is A Proxy For Ethane And NGL Demand .......................................................................... 42
Moving Down The Ethane Derivative Chain ........................................................................................................ 43
(2) Attractiveness Of Ethane As A Feedstock--Overview Of Steam Cracking ................................................................... 45
Description Of Steam Cracking Process................................................................................................................ 45
Overview Of Feedstocks Used In Steam Cracking Process .................................................................................. 45
The Type Of Feedstock Cracked Determines End Products.................................................................................. 47
Description Of By-products Produced Through Steam Cracking.......................................................................... 48
Ability To Accept Light Or Heavy Feeds Depends On Steam Cracker................................................................. 49
Decision To Use Light Or Heavy Feeds Based On Economics ............................................................................ 49
Steam Cracking Economics--A More Detailed Look............................................................................................ 50
Level Of Ethane Cracking Has Minimum And Maximum Bounds Based On Utilizaton ..................................... 53
Propane Fundamentals ...................................................................................................................................................................... 54
Factors That Influence Propane Supply ............................................................................................................................................ 54
Factors That Influence Demand For Propane.................................................................................................................................... 55
Part 4: NGL Market During Recessions
NGL Market During The Last Recession--Looking To History For Guidance.................................................................................. 58
Petrochemical Demand During Previous Recessions........................................................................................................................ 58
U.S. Steam Cracker Operating Rates During Previous Recessions.................................................................................................... 59
Part 5: Overview Of NGL Basics
What Are Natural Gas Liquids? ........................................................................................................................................................ 62
What Is The NGL Value Chain? ....................................................................................................................................................... 62