ohio river valley growth and...

www.advisian.com

February 22, 2018

Ohio River Valley Growth and Development Options, Risks & Opportunities

We provide strategic and business-level

consulting, integrated with deep technical expertise, across the entire asset lifecycle with a truly global footprint, and the ability to localise

solutions.

We offer our customers specialization in the

delivery of large complex projects. It

reflects our customers’ organizations by

supporting large and complex projects

wherever they are in the world.

We provide services to local customers,

utilizing the knowledge and capability

throughout our global organization. From

concept selection, front-end studies, small and large project delivery,

and portfolio management in greenfield and

brownfield environments.

We provide our customers with global best practice solutions

to optimize the performance of their

operating assets, including brownfield

project portfolio delivery, business

improvement, operations and

maintenance support, shutdowns and

outages.

Advisian Major Projects Services Integrated Solutions

WorleyParsons Group

FY2016 Revenue: AUD 6 Billion

Advisian / 2

Global reach and local perspective

Advisian / 3

offices 106

countries 42

people 22,800

Our heritage is in the energy, resources and infrastructure sectors

Advisian / 4

Hydrocarbons

Minerals & Metals Chemicals Infrastructure

Power

Energy

Resources

The U.S. is in place to be the most competitive global manufacturer of chemicals as a result of hydraulic fracturing and natural gas… and the wave of investments is far from over.

The American Chemistry Council (ACC), June 2017

Advisian / 5

Independent market drivers North America

Petrochemical developments taking advantage of low-cost/abundant feedstock will continue to be robust.

Midstream: major investment in pipelines, gas processing, storage and LNG in US, Canada and Mexico.

“Permania” in the US will dominate upstream spending. Canada becoming a more regional market with IOCs reducing presence.

Infrastructure investment and structural changes will create port, rail and power opportunities.

Financial investors/private equity will exert increasing control and create new market opportunities.

Advisian / 6

Capital spend size and growth forecast by sector in North America

Sector

US Capex

(US Bn, 2017)

US Growth CAGR

2017-2022

Canada Capex (US Bn, 2017)

Canada Growth CAGR 2017-2022

1 Upstream 118 5-6% 32 2-3%

2 Downstream 15 Flat 2 Flat

3 Petrochemicals 55 3-4% 9 3-4%

4 Power 86 Flat 8 Flat

5 Mining 10 Flat 18 2-3%

Advisian / 7

Forecast US chemical market capital spending >US60Bn in 2021 at CAGR 7.5%

All chemical groups anticipate growth in production

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2014 2015 2016 2017 2018 2019 2020

US Chemical Market Capital Spend Forecast US Production Forecasts for Chemicals All >0% Yr-on-Yr

0

1

2

3

4

5

6

7

8

2015 2016 2017 2018 2019

Organic Plastic resins Synthetic rubber Specialty/other Inorganic Agriculture Consumer Manmade fibers

Advisian / 8 Source: American Chemistry Council

010,00020,00030,00040,00050,00060,00070,000

2015 2016 2017 2018 2019 2020 2021

Petrochemical market forecast CAGR 3% - 3.5% in North America

Canada: CAGR +3.6%

US Market: CAGR +3.1%

M USD

Petrochemical Manufacturing Revenue to 2021

Advisian / 9

US is ~10x size of Canada

38.5%

42.3% 19.2%

46.6%

<5% US market each

12.1%

Respective Distribution of Production: US & Canada

Source: IBIS World

Petrochemical market forecast (Cont’d)

% Split of Market by Producers

19.3

15.0

9.3

2.6

0

5

10

15

20

25

30

35

Others: 54% 30.6

12.7

6.5 4.6 3.7 3.5 2.3

0

5

10

15

20

25

30

35

Others: 36%

Advisian / 10 Source: IBIS World

Regional value chain Intersection of Energy and Downstream value chains

PRODUCTION

Stabilization around

60 USD/BBL and increased drilling activity

MIDSTREAM

Key pipeline projects

connecting shale basins to markets.

PETROCHEMICALS

Main ethylene production

and enablers include

infrastructure & utilities.

DERIVATIVES

Specialty chemical

production with access to feedstock and GDP + growth

LOGISTICS

Rail, port and road

distribution of intermediate or final products.

Advisian / 11

Regional value chain (Cont’d) Intersection of Energy and Downstream value chains

PRODUCTION

Focus: Stability in E&P and

selected growth

Last 12 months3: 460B


Attractive short/ mid-term returns

MIDSTREAM

Focus: Low-cost

feedstock delivery


Last 18 months2: 8.5B

Attractive as annuity based

PETROCHEMICALS

Focus: Next wave

expansion projects



Focus on procurement & ownership of supply chain

DERIVATIVES

Focus: Expansion of

diversified products



Specialty Chemicals Investors in high growth

LOGISTICS

Focus: Constraints,

bottlenecks, resilience

Last 18 months: 4.9B

Last 18 months: 0

Limited 3rd party investment in key

infrastructure

Expended 3rd Party Enabled

Why?

Source: IHS Markit, Rystad, Reuters, Preqin Advisian / 12

Indicative composition of capital projects

25%

50%

25%

Utilities & Power Plants

Process Plant

Infrastructure

Capital Outlay

■ Process Plant (40-55%) – Process units – ISBL requirements

■ Utilities & Power Plants (20-35%)

– Water supply, water treatment – Power generation (CHP) and

transmission – Feedstock pipeline(s) – Steam generation

■ Infrastructure (20-25%) – Roads – Buildings – Marine facilities, maintenance and

storage – Rail connection, maintenance and

storage

With $70B – $80B (USD p.a.) capital spending in North American Downstream and Petrochemicals over next 5 years (350-400B TIC),

$150B - $200B will be spent on new utilities and infrastructure.

Advisian / 13

NGL production in Eastern US is expected to double in next 35 years (40% of total US production)

Advisian / 14

0

5

10

15

20

25

30

35

40

45

50

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Outlook for NGL Production in Eastern US

BCF/day

• The US produces 25% of the world’s NGLs; 25% of US supply comes from the Eastern US. • In PA, OH and WV, production of NGLs has grown almost 10-fold over the past 4 years. • More than 70% of this NGL is ethane and propane. PA currently exports 100% of its ethane. • New investments will increase US PE production to over 54 billion pounds by 2020.

Processing & Fractionation Capacity in Appalachian Region

Top: major processing capacity sites (over 50m cu.ft./day) Bottom: major fractionator sites (over 50,000 bpd)

Source: Petrochemical Update, EIA

Rapid expansion in NGL production from 2010 - 2020

Regional development projects: Anchors and Enablers

Advisian / 15 Source: Pittsburgh Post-Gazette, West Virginia Executive Magazine, Petrochemical Update

Ethylene Processing Plants

Additional projects under consideration include: • PTT Global Chemicals: 1 mtpa in Ohio (under review) • Braskem: 1.1 mtpa plant in WV (stalled)

Petrochemical Storage

Above: Shell’s $6 billion project with capacity of 1.6 mtpa in Beaver County, PA (under construction). Startup is scheduled for 2022.

Above: $10 billion Appalachian storage hub would handle 100m barrels of NGL with 3,000 miles of pipelines across four states.

Additional projects under consideration include: • Energy Storage Ventures LLC (ESV): bulk NGL

storage in Salina bedded salt caverns

Geographic and supply advantages are threatened by midstream, labor and land risks

Advisian / 16

Source: Petrochemical Update, EIA

• 70% of North America PE customers within 700-mile range of Pittsburgh.

• Feedstock transport cost advantage vs. USGC • Up to 400,000 b/d of ethane availability for PE

feedstock in the region – enough for 5-6 crackers.

• Lack of pipelines restricts what is sold. Remaining 150,000 b/d is downgraded and sold to homes.

• Siting: Difficult to find 200 hundred acres of flat land; 800 to 1,000+ acres required for PC complex.

• Relatively higher plant construction costs compared to the US Gulf Coast.

• NGL storage hub access.

• Processing near the source can avoid pipeline transport cost to Gulf Coast ($0.15 to $0.24/gallon).

• Expanded access to foreign markets due to lower cost and excess volume of US production.

• New tax law offers accelerated depreciation schedules for investments in new plants/equipment.

• Streamlining of regulations and potential options for a regional view for synergies.

• Relatively more stringent state and federal

regulation of oil and gas production. • Aging workforce with declining participation

among prime age men due to opioid epidemic. • High labor costs and lack of skilled craft labor due

to competition with Gulf Coast and other projects.

STRENGTHS WEAKNESSES

OPPORTUNITIES THREATS

∙

∙ ∙

∙ ∙

∙

∙ ∙

What investments will be made?

Investment dynamics are changing

Market availability

Regulatory relief

Access to capital

Tax reform

International markets

Domestic growth

160 changes enacted to date

Streamlining of processes

Appetite for spending

Options for deployment

Costs to business down

Incentives to construct up

Advisian / 18

The development roadmap

Identify Select Operate Deliver

Final Investment Decision

Conceptualize/ Strategy

Prove Feasibility & Concept

Procure/Definition & Development Construct Operate

Public Sector

Private Sector

Business Case, Feasibility Study, Project Definition, Options Analysis

Project Design

Procurement Planning

Transaction Management

Project Oversight

Policy; Strategy; Business Planning; Site Identification & Selection

Finance, Project Finance & PPP (Inception)

Finance & Commercial (Optimization)

Operational Planning

Operation & Maintenance

Ow

ner R

equi

rem

ents

/ Re

gion

al R

equi

rem

ents

6-12 months 12-18 months 18-36 months 20-40 years

Where are risks?

Where can collaboration be

leveraged?

Advisian / 19

LOST VALUE

Take life cycle perspective on decisions

■ Capital Costs ■ Sustaining Capital

■ Power, Fuel, Chemical Consumption ■ Operation and Maintenance ■ Capacity and Reliability

■ Revenues

Internal success factors ■ Health and Safety ■ Social License and Development ■ Regulatory Trends and Changes ■ Environmental and Climate Change ■ Commodity cycles ■ Divestment / Closure

External success factors and risks

FORCED CHANGES

Digital risks are also emerging…

Lack of accurate

information

Lack of collaboration

System and information silos

Lack of reuse of data

Disconnect of digital and physical asset

Resources and safety

practices not aligned

Inefficient operational

practices

Engineering primarily

focused on discipline

deliverables

Inefficient practices

Poor return on

capital invested

Operation inefficiency and safety

issues

Poor employee engagement

Sub-optimal business outcomes

Navigating to FID and NPV

Advisian / 22

1

2

3

4

Market access Establish a differentiated position, optimize product slates, understand feedstock supply and security, identify and access target markets

Strategy Clarify strategic objectives to make an

informed decision; Understand key issues and vulnerabilities, technologies

employed, operating efficiencies and reliabilities, logistics and supply chain.

.

Siting Find the best available site to meet project objectives and streamline permitting.

Financing Get practical advice on funding options

and opportunities, development of partnering approach, also

business model development. .

What region or project to invest in?

5 3 2 7 1 4 6 Enablers

Location (Supply / Demand) Regulatory

Construction Access Feedstock Access / Availability

Community Sentiment Infrastructure & Utilities

Access to Workforce

Regional Storage Hub

Logistics services

IT services

Transportation services Healthcare services Partnerships / Academia

HR services

1

2

3

4

5

6

7

8

9

10

11

12

13

14

Location Comparison

=0 (Poor) =4 (Excellent)

Importance to investors

Important

Very important

Illustrative

Advisian / 23

The development roadmap: risks vs. collaboration

Identify Select Operate Deliver

Final Investment Decision

Conceptualize/ Strategy

Prove Feasibility & Concept

Procure/Definition & Development Construct Operate

Public Sector

Private Sector

Business Case, Feasibility Study, Project Definition, Options Analysis

Project Design

Procurement Planning

Project Oversight

Policy; Strategy; Business Planning; Site Identification & Selection

Finance, Project Finance & PPP (Inception)

Finance & Commercial (Optimization)

Operations & Maintenance

Ow

ner R

equi

rem

ents

/ Re

gion

al R

equi

rem

ents

• Site location/selection • Feedstock access • Midstream/storage • Development finance

• Construction access • Community & social license • Labor resources • Project finance /NPV

• Schedule/cost • Community • Labor relations • Delivery certainty

• Operational efficiency • New skills • Logistics & supply

chain • Sustaining capital

• Regional coordination/planning • Ensuring options: feedstock, storage • Enablers for development: regs. tax

• Common infra development • Early contractor engagement • Alternate finance/delivery models

• Stakeholder mgt. • Digital plant • Training design

• Digital industry • Utilities/infra-sharing • Academia partnerships

Risks

Collaboration

Ops Planning

Transaction Management

• Enable focus on core business

• Reduce capital to achieve FID

• Enhance access to advanced technologies and expertise

• Mitigation of risks

• Fit-for-purpose commercial structure

• Whole of asset lifecycle view

Patrick Mullen, Managing Director Global Water Development Partners

A Blackstone Portfolio Company

Over the lifecycle, the project capital construction cost is only a percentage of the overall cost impact of new infrastructure — typically, capital only makes up 30% to 50% of project costs; the rest are related to financing and O&M costs. Most projects never get priced for the entire life of the project.

“

“

Benefits of a collaborative approach

Advisian / 25

• Market dynamics and reforms are spurring new investment but creating competition

• Speed to market is key but not at the expense of longer term benefits

• Leverage asset life cycle value during planning to reduce risks and drive innovation

• Key risks (e.g., siting, storage etc.) need to be mitigated to unlock full value chain

• Non-traditional partners can emerge but proponents need to take broader view

DISCLAIMER

This presentation has been prepared by a representative of Advisian.

The presentation contains the professional and personal opinions of the presenter, which are given in good faith. As such, opinions presented herein may not always necessarily reflect the position of Advisian as a whole, its officers or executive.

Any forward-looking statements included in this presentation will involve subjective judgment and analysis and are subject to uncertainties, risks and contingencies—many of which are outside the control of, and may be unknown to, Advisian.

Advisian and all associated entities and representatives make no representation or warranty as to the

accuracy, reliability or completeness of information in this document and do not take responsibility for updating any information or correcting any error or omission that may become apparent after this document has been issued.

To the extent permitted by law, Advisian and its officers, employees, related bodies and agents disclaim all liability—direct, indirect or consequential (and whether or not arising out of the negligence, default or lack of care of Advisian and/or any of its agents)—for any loss or damage suffered by a recipient or other persons arising out of, or in connection with, any use or reliance on this presentation or information

ohio river valley growth and...

Documents