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