Shale Gas andEthylene: Implicationsof Increased NGLProduction
Claire L. CagnolattiVP, Chemicals StudiesSolomon Associates
Bill Gwozd,Senior VP, Gas ServicesZiff Energy Group (a division of SolomonAssociates)
1
Shale Gas/LPG Production Forces
Resisting Forces (Cons)
Driving Forces (Pros)
Non-Renewable
Less Co-Prod
Unemploymentin Coal Industry
Safety
Fleets Only
Protectionof NA Interests
Ecology
Glut ofLPGs
NaphthaEconomics
PipelinesNeeded
DiscourageEfficiency
Over-Investment
Resistanceto Change
Regulation
RiskAversion
EarlyEnv. Issues
ConflictingPriorities
NIMBY
Conservation
“Fad”
RegionalFavoritism
EmissionsReduction
Target
Reserves100 yrs
CompetitiveCracker Feed
Low Emissions
“U-Turn”Terminals
“Wet” Gas: LPGsLocation
EnergyIndependence Early
Adapters
PR AdCampaign
JOBS!
Shift inTrade Balance
“Buzz”
Boost NAEconomy
Exports LNGDiscoveries
LowCost
Propane asTransport Fuel
EthaneEconomics
Infrastructure
AvailableCapital
Helps Energy-IntensiveIndustries
2
Ziff Energy Group Extends Solomon’s Reach
Solomon acquired Ziff Energy Group, July 2013
International Energy E&Pbenchmarking/consulting
North American NG forecasting/consulting
Creates the #1 benchmarking service providerfrom wellhead to specialty chemicals
Combines Ziff’s shale gas E&P knowledge withSolomon’s actual ethylene plant operating data
3
Ziff’s NG & NGL Supply & Infrastructure Studies46 Subscriptions with 24 Clients
4
Shale Gas Reserves inthe U.S. and Canada,Wet Gas vs Dry Gas
5
Added Value of Wet Gas vs Dry Gas
Many shale gas wells produce significant quantityof NGLs (ethane, propane, butane, C5s), referredto as “wet” gas wells
If little or no NGLs, well is considered “dry gas”
Separating NGLs adds to well cost, but increasedrevenue more than offsets cost
In some cases, ability to sell NGLs limits wellproducing capacity of natural gas
6
“Wet” gas wells produce more ethylene feedstock
Which NorthAmerican Shale GasWells Have MoreNGLs?
77
NGL Content of Gas Wells (Bbl NGL/M ft³ Dry Gas)
Williston
BigHorn
PowderRiver
Wind River
Green River
Piceance
Paradox
San Juan
Palo Duro
Sacramento
SanJoaquin
CACoastal
DJSalina
Sedgwick
Anadarko
GraniteWash
Permian
TX Gulf Coast
NemahaUplift
Cherokee
Ardmore
Ft. Worth
Eagle Ford
Fayetteville
Woodford
EastTX
LAGulf Coast
TX Offshore
LA Offshore
AL Offshore
Arkla-Haynesville
AL-MS-FL
BlackWarrior
Appalachian
MarcellusSouth Core
MarcellusNorth Core
Michigan
MT ThrustBelt
Uinta
Montney BC North
Montney AB
Duvernay
Bbl/M ft³
Low
Medium
High
Very High
8
How do NGLs addRevenue to GasWells?
99
Impact of Liquid Content on Revenue
Raw Gas with LiquidsEquiv
ale
ntG
as
Price
,M
ultip
leofD
ryG
as
Basi
s
Example of LiquidsUplift Calculation
Nat’lGas
C5+
N-Butane
I-Butane
Propane
Ethane 0.1
0.3
<0.1
0.2
0.3
0.7
2.74
0.7
0.5
Assumes 1%plant fuel
Based on:Royalties 30%Shrinkage up to 30%Average Liquids Price US $60/bbl
1.0
10
Impact of Liquid Content on Revenue
11
0 20 40 60 80 100
Liquids Yield, Bbl/MMcf
Equiv
ale
nt
Gas
Price
,M
ultip
leof
Dry
Gas
Basi
s
Gas Price Liquids Uplift
1.01.2
1.5
1.6
2.2
2.6
What do SolomonOlefin StudyResults Say?
1212
Feedstock Changes for Ethylene Productionin North America
Region with the most feedstock changes
Olefin Study North American Trend Group Approx 50% of ethylene production capacity
Trends over three study cycles on same-plantbasis
More feed-flexible plants than other regions
Some plants making permanent changes to allowmore light feed cracking
13
North America plants taking advantageof ethane economics
North American Feedstock Trends 2007–2011
14
0
20
40
60
80
100
2007 2009 2011
Study Year
Perc
ent
of
Cra
cker
Feed
Ethane LPG NRC Gas Oil
What Happened to Co-Product Propylene &Butadiene?
Switch to more ethane feed in North America
Less propylene and butadiene produced in NorthAmerica
Prices rose worldwide, peaking in 2011
Both had higher value per ton than ethylene
High prices improved alternate (non-cracker)production economics
Severe propylene shortages were short term, pricesmoderating as alternative production increases
15
Alternative Production of Propylene
Alternate (non-cracker) production to increase
Polymer-grade propylene from refineries
Must invest in mercury, arsine removal, and C3splitter
Propylene from propane dehydrogenation (PDH)
Eight announced PDH units for USA
NA PDH economics could turn on export plans
PDH also being pursued in ME, E. Europe, Asia
Other On-Purpose Propylene (OPP) via catalyticmethods (metathesis), methanol (MTP), biomass
16
Alternative Production of Butadiene
Metathesis
Butane Dehydrogenation
Biomass
Economic feasibility depends on product pricerelative to raw materials, investment cost
17
Other Uses for LNG, LPGs from Shale Gas
Transportation Fuel Currently fleet vehicles such as buses
Need infrastructure to use in personal vehicles
Exports to Europe, South America, Asia LPGs for cracker feedstock, transportation
LNG for fuel
Syngas, Gas-to-Liquid (GTL) Fuel
Power Generation – half the emissions of coal
Price, especially for LPGs, will depend on pipelinelogistics, and on how quickly these other uses are putinto practice.
18
How Much Shale Gas is Out There?
North American reserves: 100+ years1
Today, limit to North America natural gas production insome areas is disposal of ethane & propane2
New ethane crackers coming online in North America
More “room” to produce natural gas
More supply can lead to lower natural gas prices
Shale gas also in Middle East, China, South America,Australia, East Europe
1 Chemplants.com, 30 June 2013
2 Platts.com, 30 Aug 2013
19
Shale Gas/LPG Production Forces
Resisting Forces (Cons)
Driving Forces (Pros)
Non-Renewable
Less Co-Prod
Unemploymentin Coal Industry
Safety
Fleets Only
Protectionof NA Interests
Ecology
Glut ofLPGs
NaphthaEconomics
PipelinesNeeded
DiscourageEfficiency
Over-Investment
Resistanceto Change
Regulation
RiskAversion
EarlyEnv. Issues
ConflictingPriorities
NIMBY
Conservation
“Fad”
RegionalFavoritism
EmissionsReduction
Target
Reserves100 yrs
CompetitiveCracker Feed
Low Emissions
“U-Turn”Terminals
“Wet” Gas: LPGsLocation
EnergyIndependence Early
Adapters
PR AdCampaign
JOBS!
Shift inTrade Balance
“Buzz”
Boost NAEconomy
Exports LNGDiscoveries
LowCost
Propane asTransport Fuel
EthaneEconomics
Infrastructure
AvailableCapital
Helps Energy-IntensiveIndustries
20
Which Forcesare Stronger?
2121
Shale Gas/LPG Production Forces
Resisting Forces (Cons)
Driving Forces (Pros)
Non-Renewable
Less Co-Prod
UnemploymentIn Coal Industry
Safety
Fleets Only
Protectionof NA Interests
Ecology
Glut ofLPGs
NaphthaEconomics
PipelinesNeeded
Over-Investment
Resistanceto Change
Regulation
RiskAversion
EarlyEnv. Issues
ConflictingPriorities
NIMBY
Conservation
“Fad”
RegionalFavoritism
EmissionsReduction
Target
Reserves100 yrs
CompetitiveCracker Feed
Low Emissions
“U-Turn”Terminals
“Wet” Gas: LPGsLocation
EnergyIndependence Early
Adapters
PR AdCampaign
JOBS!
Shift inTrade Balance
“Buzz”
Boost NAEconomy
Exports LNGDiscoveries
LowCost
Propane asTransport Fuel
EthaneEconomics
Infrastructure
AvailableCapital
Helps Energy-IntensiveIndustries
DiscourageEfficiency
22
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Thank you!
Claire L. CagnolattiVP, Chemicals StudiesSolomon Associates
Bill Gwozd, Senior VP, Gas ServicesZiff Energy Group (a division of SolomonAssociates)
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