IHS ENERGY

North America
NGL Market
Short-Term Outlook
January 2015
North America NGL Module

Contents
Key Highlights

US NGL Pricing & Inventories

Canada NGL Pricing & Inventories

12

US Ethylene Economics

14

US & Canada Gas Processing Economics

15

US NGL Supply & Demand

16

Canada NGL Supply & Demand

20

US Propane & Butane Trade

22

Canada NGL Trade

24

Infrastructure Developments

25

Appendix/Glossary

28

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

Key highlights
Declines of spot prices for crude oil continued in early January but slowed in pace. The price

drop since annual highs seen in June is in the range of 53% to 57%, or about $53 to $63 per
barrel. IHS has concluded that prices will remain relatively low through 2016 due to:
OPEC crude production remaining higher than the call on OPEC crude implying a build in global

inventories. The greatest oversupply is expected to occur in Q2 2015 keeping crude prices depressed.
OPEC will let markets decide the clearing price for oil for the time being, keeping markets oversupplied.

This decision should not be viewed as permanent.

Demand remains relatively weak. Lower prices may allow an upside surprise but that addition will be

insufficient to support the market.

Natural gas prices in North America remained fairly low compared to Q4 of 2014 until a mid

January cold spell caused prices to increase

The lower crude oil prices and flat natural gas prices will depress gas processing margins in

North America through 2016, but margins will remain attractive.

Thus, gas plant production of NGLs in the US should continue to generally increase. However,

net production of normal butane by refineries will decline in the winter due to higher demand for
gasoline blending.
Inventories of all NGLs in the US remained far above average in October.

Source: IHS Energy

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

Key highlights (continued)

Ethane prices in January recovered from lows seen in December

which were due to competition from propane/butane as well as

low natural gas prices. Prices should remain steady through
2015 due to the potential availability of supplies that exceeds
demand.
Ethane prices should begin to increase in 2016 as new export

terminals and crackers begin operations.

Crude oil price declines are expected to continue but slow in

decline rates. Resulting gas processing margins should decline.

Total combined production of NGLs is in the process of falling

due to the normal winter cycle as refinery net production of nbutane declines.

Source: IHS Energy, EIA, OPIS

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

Important Assumptions: North America NGL Markets

Absolute NGL prices correlate strongly with crude oil and refined product prices.

Thus, we use the IHS crude oil and refined products price forecasts to form the basis
for our NGL forecasts.
Monthly NGL prices, supply/demand, and trade are all highly seasonal. We generally

assume typical historical seasonality, and exceptions are noted in the text.
IHS typically does not forecast the occurrence or timing of unannounced or unusual

events that might impact NGL pricing, supply/demand, or trade. IHS does make
independent assumptions regarding announced events such as the startup dates of
infrastructure.
IHS relies on third party price discovery companies for historical NGL prices. Price

forecasts are developed by IHS.

IHS uses IHS Waterborne LPG, the IHS Global Trade Atlas, customs data and news

reports for trade information. NGL trade outlooks are developed by IHS based on
these sources as well as our outlook for global supply and demand.
IHS attempts to be consistent with other IHS forecasts regarding the economy,

petrochemicals and other aspects that impact the NGL forecast. Some differences
do occur, related mostly to differing timing or granularity of forecasts.
2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

US ethane prices and inventories

Unusual
premium

Despite falling from historical highs seen in July, ethane inventories at the
end of October remained elevated and were 39% above average.

Even with strong demand by US ethylene plants plus exports to Canada,

ethane stocks will remain high into 2015.

In December 2013, and again in January and March-June 2014, prices

for ethane in E/P mix at Mont Belvieu were above prices for purity ethane.
Since July, purity ethane again commanded a slight price premium over
E/P mix as is expected to continue the trend to 2016.

After remaining relatively stable from July-November 2014, ethane prices

saw a sharp decline in December and hit 16 year lows as it competed
with a declining propane market. Prices have recovered somewhat in
January but remain at relatively depressed levels.

The wide discount of Conway versus Mont Belvieu narrowed in February

of 2014 and is expected to continue into 2016.

Source: IHS Energy, EIA, OPIS

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

US propane prices and inventories

Weekly data at the end of December showed that US propane

inventories are well stocked. December stocks were high in all

regions, 41% above average in the total US.
Prices continued their sharp drop from July into January.

However, the price ratio should strengthen as new export

terminal capacity is brought online and crude price decline rates
slow.
Due to a much tighter regional market last winter in the Mid-

Continent, daily prices at Conway rose steeply above prices at

Mont Belvieu. However, the premium narrowed sharply in
March at the end of the winter of 2013-2014 and is expected to
stay at historical levels due to expectations of a fairly normal
winter for 2014-2015.

Source: IHS Energy, EIA, OPIS

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

US normal butane prices and inventories

Normal butane inventories in October 2014 remained at record

levels for the month, 18% above the historical October average.

Despite our outlook for higher-than-average waterborne exports,

stocks will likely remain above the top of the typical range until mid2015.

Normal butane prices have been falling versus gasoline prices

since February, but then started to strengthen in July. Prices fell
sharply from July-January due to the sharp decline in crude prices.
The decline rate is expected to slow as crude prices stabilize.

Prices should remain relatively weak for the first quarter of 2015
due to high inventories.

Prices for normal butane at Conway were higher than at Mont

Belvieu through November, but the differential should remain in a
fairly narrow range.

Source: IHS Energy, EIA, OPIS

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

US isobutane prices and differentials

Isobutane stocks in the US set new record highs during

April through September 2013, and were much higher

than the 5-year average in October this year. Higher gas
plant production of isobutane is causing the high stocks.
These high inventories should depress monthly price

spreads versus normal butane. The spreads should

remain low until the spring when refinery demand for
isobutane starts rising for the production of alkylate.
Isobutane prices in the Mid-Continent spiked in April due

to high refinery demand for alkylation, but prices then

declined and should remain near typical premiums.

Source: IHS Energy, EIA, OPIS

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

US natural gasoline prices and inventories

Prices for natural gasoline have fallen sharply, primarily

due to lower crude oil prices. Prices should trend

downward through the spring of 2015 due to the recent
rise in inventory. Price ratios relative to crude oil prices
are expect to return to the historical range in 2015/2016.
Natural gasoline inventories have increased significantly

since below average values in July and are near 5 year

highs in October as gas plant supply increased.
Shipments of surplus natural gasoline in the US Gulf

Coast region to the Mid-Continent will likely narrow the

price differentials between Conway and Mont Belvieu.

Source: IHS Energy, EIA, OPIS

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

10

US West Coast (Los Angeles) NGL prices

After remaining relatively steady compared to other

regions despite the drop in crude prices, West coast

propane prices fell in November and December.
In 2015, high inventories in the region should put

downward pressure on prices. Nonetheless, prices

premiums versus Conway should widen during the
remainder of the winter.
Price spreads between isobutane and normal butane

on the West Coast should remain narrow until next

summer.

Source: IHS Energy, EIA, OPIS

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

11

Canadian propane prices and differentials

Propane prices in December dropped dramatically again

crude due to poor demand and plummeting crude prices.

Prices at Sarnia dropped to 82 uscpg, and prices at
Edmonton plummeted to 26 uscpg
Prices have continued to fall in January and are expected to

remain low unless there is a large uptick in winter demand

and/or crude oil prices recover
At the end of December, spec propane inventories are 5.9

million barrels higher than last year. Demand for heating

continues to be very weak. Without some sustained cold
weather in the next few months, propane supplies will be
starting the spring at extremely high levels

Source: IHS Energy, NEB, OPIS

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

12

Canadian butane and condensate prices

Canadian butane prices dropped along with crude

values. Edmonton butane ended December at 118

uscpg with Sarnia at 85 uscpg.
Edmonton C5+ pricing continued to drop sharply

along with WTI prices in December to $54.96 per

bbl. Discounts to WTI recovered slightly in
December averaging $4-4.50 per bbl. Continued
production growth in C5+ in Canada is having an
effect on pricing as well as reducing the amount
needed from the US.

Source: IHS Energy, Statistics Canada, OPIS

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

13

US Gulf Coast ethylene economics

Ethane became the cheapest cracker feedstock in April 2013,

and remained the cheapest feedstock through November
2014. It has recently faced competition from both Propane
and Butane in December and January due to the sharp drop in
crude prices.

Normal butane was also a relatively cheap feedstock during

March through May. Natural gasoline (light naphtha) has been
the most expensive feedstock since the beginning of 2012 .

Propane cash costs are expected to rise in 2016 as new

export terminal capacity places upward pressure on pricing.

We expect that ethane will be the cheapest cracker feedstock

through 2015 and 2016 as the crude price decline rate slows.

Ethylene plant gross margins for each feedstock represent the

difference of spot ethylene prices, minus their cash costs.
Falling cracker feedstock prices will be offset by lower ethylene
prices, resulting in flat margins.

Ethane should generally remain the most attractive feedstock,

with normal butane or propane in second place in 2015.
Natural gasoline (light naphtha) should remain the most
expensive feedstock.

Ethylene plant gross margins should remain positive for all

feedstocks.

Source: IHS Energy

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

14

North American gas processing economics

Very high propane prices in the Mid-Continent depressed

ethane prices in early 2014, and extraction margins
dropped sharply for three months. Margins should remain
negative in all US gas processing regions. The resulting
ethane rejection by gas plants, and high ethylene plant
demand, should keep the ethane market balanced.

Ethane extraction margins are expected to begin to

strengthen during 2016 when the first of several new
ethane-based ethylene plants starts up.

Gas processing margins in both the US and Canada

should stabilize in 2015 and 2016.

Source: IHS Energy

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

15

US ethane supply and demand

Cracker demand for ethane declined through May this

year due to ethylene plant outages for maintenance but

then rose steeply as the plants were restarted.
Following another round of cracker outages for

maintenance again this fall, ethane demand should

remain at more than 1.1 million bd through 2015.
The addition of several new ethane-based ethylene plants

and an ethane export terminal on the US Gulf Coast

during 2016 through 2020 will significantly increase longterm ethane demand.

Ethane production in the total US should reach more than

1.2 million bd in 2015, mostly due to higher cracker

demand.
Furthermore, production should also be stimulated as

ethane exports to Canada rise to 80,000 bd due to:

Source: IHS Energy, EIA

Higher production in the East Coast as exports to Sarnia ramp

up in the Mariner West pipeline during 2014.

Higher production in the East Coast region due to shipments

to the US Gulf Coast in the new ATEX pipeline.

Higher production in North Dakota due to rising ethane exports

to Alberta in the new Vantage pipeline, which started up at the
beginning of May.

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

16

US propane supply and demand

Several shipments of propane were imported from the

North Sea into the US East Coast during January through

March 2014 due to a tight market and high prices. A few
small waterborne imports into the US have continued, but
have been sporadic.
Historically, propane production from gas processing and

from refineries (propane plus propylene) was about evenly

split in the US.
However, production from gas processing is increasing

rapidly due to rising shale gas production, which set a new

record high production rate in September of slightly more
than 1 million bd.
Annually, the residential/commercial sector is the largest

consumer of propane in the US. Demand by the sector

declined for several years until the extremely cold weather
during the recent winter.
Waterborne exports rose to 12 million barrels/month in the

fourth quarter of 2013, but dropped to 8.5 million barrels in

February 2014. Exports should exceed 15 million barrels
each month in the fourth quarter due to rising production.
Propane cracking rates in 2015 are expected to remain

fairly close to the rates this year.

Source: IHS Energy, EIA
2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

17

US normal butane supply and demand

On an annual basis, gas plants produce more normal

butane than refineries.

Refineries produce surplus normal butane when gasoline

blending drops near zero during the warm months. Net

refinery demand of normal butane averaged 300,000 bd
in the winter of 2013/2014, whereas refinery production
averaged 140,000 bd in the summer of 2014.

Annually, refineries consume the largest amount of

normal butane in the US, but demand fell to about 55,000

to 75,000 bd during the summer, according to the EIA.
Use as a cracker feedstock should rise from 78,000 bd in

2013 to 115,000 bd in 2014 and 150,000 bd in 2015.

Isomerization to isobutane is the third-largest use for

normal butane, but rising supplies of isobutane from gas

processing should reduce isomerization rates.
Due to rising supplies from shale gas, exports of surplus

normal butane should averaged nearly 100,000 bd during

the second half of 2014, which was facilitated by a
second expansion of the Targa export terminal that
became operational in August.
Source: IHS Energy, EIA
2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

18

US isobutane supply and demand

Refiners seldom have surplus supplies of isobutane, so gas

processing accounts for most of the US production.

Production of isobutane by natural gas processing plants is

increasing due to rising shale gas production. Gas plant

production of isobutane should rise from an average 160,000
bd in 2013 to more than 175,000 bd in 2014 and nearly
190,000 bd in 2015.
Waterborne imports of isobutane averaged only 1,000 bd

during 2013 and will likely be close to zero in the future.

Isobutane imports from Canada are also declining slightly.
Isobutane stocks in the total US in July were 22% above the

average for the month, and should remain near the previous
record highs during the fourth quarter of 2014.

Demand for isobutane by refineries has been increasing on

an annual average basis, but only slowly. Monthly demand

rises during the summer due to increased need to produce
alkylate for gasoline blending. Refinery demand in August
this year was about 15,000 bd higher than the average for the
month.
Isobutane use as chemical feedstocks in both 2014 and 2015

should be about the same as in 2011 and 2012, but lower

than in 2013 (which was slightly higher than average).
Source: IHS Energy, EIA
2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

19

Canada ethane supply and demand

Volumes from Vantage Pipeline continue to be less than

capacity with October shipments being 16,000 bbls per

day. Volumes are slowly rising however, and we still
expect volumes to climb to around 25,000 barrels per day
in 2015
Flows of ethane from the Marcellus resource in the US to

Sarnia, Ontario were approximately 47,000 bd in October

2015. September 2014 Mariner imports were 32,000 bd.
Nova Chemicals has recently made firm commitments for

a new ethane pipeline operated by Kinder Morgan to

bring Utica production of ethane and ethane mixes to
Sarnia. They have committed to be the anchor shipper for
this pipeline.

Source: IHS Energy, Statistics Canada, AER

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

20

Canada propane and butane supply and demand

Source: IHS Energy, Statistics Canada

Note: The last Canadian monthly historical NGL supply / demand data released were for February 2013.

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

21

US waterborne propane trade

-------- No Imports --------

Source: Waterborne

There were no waterborne imports of propane into the US from May

2012 through November 2013. Imports to the US East Coast then
restarted in December and peaked at 38 million in January before in
February and in March. Small shipments were also received June and
October. No shipments were seen in November or are expected in
December.

Algeria provided the propane that was received in March 2014. The
remaining propane was supplied from the North Sea.

The US East Coast (PADD I) received all the imported propane to help
meet residential demand in the winter of 2013-2014. Close to normal
winter weather for the 2014-2015 season has not necessitated any
shipments of propane into the US.

Waterborne exports of propane have risen quickly since mid-2009, but

dropped during the recent winter due to high prices in the US which
closed the arbitrage.

Most of the US waterborne exports of propane are shipped to Latin

America. Exports to Europe dropped in September but jumped to
126,000 bd in October. In November, exports to Europe fell.
Conversely, exports to Asia were cut roughly in half to 36,000 bd in
August but then rebounded.

Expansions at two USGC existing export terminals during 2013 and a

second expansion at the Targa terminal during July 2014 facilitated
increased waterborne exports of propane. New terminal projects and
more expansions are planned.

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

22

US waterborne butane trade

No Imports

No Imports

Waterborne imports of normal butane have nearly ceased

since 2011. Occasional imports of isobutane from the North
Sea continued through 2012 but then stopped.

Normal butane exports soared to about 60,000 70,000 bd

since March this year. Seasonal shipments from the US West
Coast started in May this year a month earlier than usual.
Exports from the Gulf Coast were facilitated by an expansion
of Targas export terminal in July 2014. Exports to Asia
dropped to zero in October and November.

Isobutane exports increased through mid-2013, with most

going to Mexico. However, exports dropped to zero during
September 2013 through July 2014. They resumed in August
with shipments being directed to Mexico.

Source: Waterborne
2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

23

Canada NGL trade

Canadian propane exports to the US rose in October to

93,000 bd from 69,000 in September. These rates are
about 23,000 bd lower than at this time last year.

Propane exports to PADD I and II are lower than last

year due to a lower demand for crop drying and early
heating season demand.

Butane exports to the US were down slightly in October

from September but remain significantly higher than this
last year

Shipments to PADD I doubled from September with the

start of the gasoline blending season and high demand
from Eastern Refineries

Source: Waterborne
2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

24

Infrastructure Developments
PROJECTS

INSIGHTS

Tall Oak Midstream announced in January 2015 that

Project supports further development of the STACK oil

initial operations had commenced on its STACK (Sooner

Trend, Anadarko Basin and Oklahomas Canadian and
Kingfisher counties) System. The system currently
consists of 150 miles of gathering pipelines. Tall Oak
expects to commission the systems first gas plant, the
100 MMcf/d Chisholm Plant, in the third quarter of 2015.
Tall Oak Midstream is also building a gas gathering and

processing system to serve producers in the Central

Northern Oklahoma Woodford (CNOW) play. The system
consists of 250 miles of gathering pipelines and the 75
MMcf/d Battle Ridge processing plant. The Battle Ridge
plant will be in service by the end of January 2015.
Targa Resources plans to purchase Atlas Energy and

Atlas Pipeline Partners for $6.7 billion in a deal expected

to close in the first quarter of 2015. Currently, Targa
Resources and Altas Gas have a combined 1.44 Bcf/d of
processing capacity in the Permian and 400 MMcf/d in the
Eagle Ford. The companies plan to add processing
capacity of 500 MMcf/d in the Permian by the first quarter
of 2016.

and gas reserves.

Project supports further development of the CNOW oil

and gas reserves.

The deal is expected to create one of the largest

Permian/Eagle Ford gas processors. Neither Targa nor

Atlas own any major NGL pipelines as Atlas sold its
20% stake in the West TX LPG Pipeline in May 2014
to Martin Midstream.

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

25

Infrastructure Developments (Contd)

PROJECTS

INSIGHTS

In December 2014, Oneok announced that it would

Deal increases Oneoks total NGL pipeline mileage by

acquire Chevron Corporations 80% interest in the West

Texas LPG Pipeline and 100% interest in the Mesquite
Pipeline for approximately $800 million. Collectively the
pipelines consist of approximately 2,600 miles of NGL
gathering pipelines, extending from the Permian Basin to
Mont Belvieu, TX. The remaining 20% of the West Texas
LPG Pipeline is owned by Martin Midstream.
Pembina placed its 100 MMcf/d (approximate yield of

4,200 b/d of NGL) Musreau II gas processing plant into

service in December 2014, ahead of its original in-service
date of the first quarter of 2015. The plant is part of
Pembinas Cutbank Complex in west central Alberta and
cost approximately $110 Million (US).
Pembina is proposing the construction of a 38,000 b/d

propane marine terminal for the export of propane in

Portland, Oregon. The facility is expected to cost $500
million (US) and would receive propane shipments by rail
from Pembinas Redwater Fractionation and Storage
Facility in Edmonton, Alberta. Facility is expected in 2018.

approximately 45% and provides Oneok with majority

ownership of the 240,000 b/d West TX LPG Pipeline
flowing from the Permian to fractionation zones in
Mont Belvieu.

The Musreau II plant is underpinned by long-term

contracts with area producers for 100% of the plants

capacity. As a result Pembina plans to add additional
capacity at the facility by mid-2016.

Project would allow Pembina to ship its excess supply

of propane to high demand centers in Asia.

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

26

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Appendix/Glossary
Abbreviations and Acronyms
E-P

Ethane-Propane Mix

USGC

US Gulf Coast

Gal

US gallon

LA

Los Angeles

US dollars

IEA

International Energy Agency

bbl

Barrels

DOE

Department of Energy

bd

Barrels per day

NGL

Natural Gas Liquids

cpg

US cents per gallon

OPIS

Oil Price Information Service

$/bbl

US dollars per barrel

US

United States

$/MMBtu

US dollars per million British thermal units

iC4

Isobutane

LSB

Light sweet crude blend (Canadian)

nC4

Normal Butane

PADD

US Petroleum Administration for Defense District

DOE

US Department of Energy

MMcf/d

Million cubic feet per day

WTI

West Texas Intermediate crude oil

Historical oil price data are extracted or derived by IHS Energy from Oil Price Information Service (OPIS). All
rights reserved. All liability for errors and omissions is hereby excluded by OPIS and its sources. No
representations or warranties are made by OPIS or its sources concerning the data or any conclusions to be
drawn from it.

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.

28

For more information about this report or

IHS in general, please contact
Debnil Chowdhury
Associate Director, NGL Research
+1 713 331 4000
Debnil.chowdhury@ihs.com

IHS Customer Care

800 447 2273 (IHS CARE)
+44 (0) 1344 328 300
CustomerCare@ihs.com

2015, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.