esteban sagel november 18, 2013 - apla sagel november 18, 2013 trusted commercial intelligence...

Unconventionals: Beyond Shale Gas

Esteban Sagel

November 18, 2013

Trusted commercial intelligencewww.woodmac.com

Trusted commercial intelligence© Wood Mackenzie

2

Wood MackenzieDelivering Commercial Insight

� The most comprehensive source of knowledge about the world’s oil, gas, coal, chemicals, and metals industries

� Analyse markets, assets & companies through the full value chain

� Unique asset-by-asset supply methodology, bottom-up proprietary databases & analytical tools

� Nearly 900 employees located close to clients throughout the world

� Our expertise gives our clients the confidence to evaluate their markets, identify new opportunities, define their strategy, and improve their performance


3

1970s: Wood Mackenzie developed into top-rated institutional broker, with particular emphasis on high quality research and recognised in

financial centres across UK, Europe and US

Wood MackenzieOur History 1844 to 2013

1970

1973

1980

2001

2003

2004

2007: Creation of coal team via acquisitions of

Hill & Associates and Barlow Jonker

2008: Creation of metals team via acquisition of Brook Hunt

2013: Developing

of Chemical Research

2001: Management & employee buy-out from Deutsche Bank backed by the Bank of Scotland

2012 2013

2003: Development of Regional Gas & Power Services

1973: North Sea Service, Wood Mackenzie’s first industry research offering was launched

1980s: Commenced provision of consulting services

2004: Initial investment in LNG and Macro Oils Research

2012: Refinancing deal, involving Hellman & Friedman acquiring the majority equity stake in the business alongside Charterhouse Capital Partners Ltd

20072008

North

Sea

North

SeaWM HQ in Edinburgh EXCHANGEPLACE 2

1844: Wood Mackenzie

founded asEdinburgh-based

stock-broking firm 30 employees10 employees 850 employees

1970 20121980 1990 2000

20 employees 150 employees


4

Wood Mackenzie consulting project locations

Wood Mackenzie offices

BostonAnnapolis

Kuala Lumpur

Singapore

Calgary

HoustonNew York

Rio de Janeiro

Beijing Tokyo

Seoul

Moscow

Dubai

Sydney

PerthBrisbane

Wood Mackenzie Our analysts advise clients in more than 60 countries, from 24 offices

Jakarta

Abuja

London

Edinburgh

Guildford

Lima

Algiers

New Delhi

La Paz


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Shale Gas: Yesterday’s News… Tight Oil Investment Booming

Shale gas M&A spend by play Tight oil M&A spend by play

Source: Wood Mackenzie M&A Service. Disclosed spend only.

0

5

10

15

20

25

30

35

40

45

50

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

M&

A S

pend (

US

$ b

illio

n)

Multi Others

Horn River Arkoma Woodford

Haynesville Eagle Ford

Fayetteville Montney

Marcellus Barnett

0

5

10

15

20

25

30

2006 2007 2008 2009 2010 2011 2012

M&

A S

pend (

US

$ b

illio

n)

Others Wolfcamp

Utica Niobrara

Multi Mississippian

Granite Wash Eagle Ford

Duvernay Bone Spring

Bakken


6

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

'000 b

/d

Conventional L48 Tight Oil Gulf of Mexico Alaska NGLs

Tight oil rejuvenates US production

Total US Liquids Supply Forecast US Tight Oil Forecast

Source: Wood Mackenzie Macro Oils Long Term Update November 2012

0

1,000

2,000

3,000

4,000

5,000

'000 b

/dBakken NiobraraEagle Ford Bone Springs/WolfcampOther Established Tight Plays Emerging/New Tight Plays


7

0

10

20

30

40

50

60

70

80

90

100

EagleFord

BonnyLight

Bakken LLS WTI Brent ANS Mars Maya

Yeild

Cu

t, W

t%

LPG

Naphtha

Kero

Distillate

VGO

Resid

Source: Wood Mackenzie

API: 58.0 33.0 41.7 36.4 39.9 38.5 26.5 28.5 21.9

Crude From Tight Oil Plays: Light


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Issue: Historically, refinery investments have focused on increasing

heavy crude processing at the expense of light crude…

0

100

200

300

400

500

600

700

Pre(2010)

Post(2013)

Th

ou

nsan

d b

bls

per

day (

kb

d)

0

100

200

300

400

500

600

700

Pre (2010) Post(2011)

Th

ou

nsan

d b

bls

per

day (

kb

d)

0

100

200

300

400

500

600

700

Pre(2010)

Post(2013)

Th

ou

nsan

d b

bls

per

day (

kb

d)

Detroit RepositioningDetroit Repositioning

Light Medium Heavy

Whiting RepositioningWhiting Repositioning Wood River RepositioningWood River Repositioning

0

100

200

300

400

500

600

700

Pre(2010)

Post(2012)

Th

ou

nsan

d b

bls

per

day (

kb

d)

Port Arthur Motiva RepositioningPort Arthur Motiva Repositioning

Source: Wood Mackenzie; company reports


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Aromatics (BTX) are fundamental building blocks for the petrochemical industry . . .

� C6-C8 cyclic hydrocarbons recovered from petroleum products

» Benzene (C6H6)

» Toluene (C7H8)

» Mixed Xylenes (C8H10)

� 2 Mbpd (100+ Mtpa) global markets dominated by benzene & mixed xylenes

� Readily transportable & used in many key material chains


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But are sourced mostly as by-products of refining, steam cracking and coal gasification


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As such aromatics operations ride the waves of much larger and more strategic businesses

50%

55%

60%

65%

70%

75%

80%

85%

90%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013


US Benzene Recovery Utilization


12

BTX recovery assets are already short of feedstock

Lighter Cracker Feeds

Reduced pyrolysis gasoline make from steam crackers


13

Ethylene Production Economics - Generic Feed Competitiveness

0

10

20

30

40

50

60

70

2010 2011 2012 2013 2014

Ethane Propane Butane Natural Gasoline Full-Range Naphtha

Cash Cost Competitiveness:Cents per Pound

Source: Wood Mackenzie Chemical Markets Research

Dollars per Metric Ton


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Liquids cracking has been eroded as a result of a severe cost disadvantage

US Steam Cracker C5+ Feedstock Usage

0

5000

10000

15000

20000

25000

30000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: AFPM; Wood MackenzieThousand Metric Tons

Cost advantaged NGLs pushing naphtha out of the steam cracker

feedslate


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BTX recovery assets are already short of feedstock

Lighter Cracker Feeds

Recessionary Traumas

MSAT2 Benzene Regulations

Naphtha Quality

Reduced pyrolysis gasoline make

Aromatics margins and output suffered differentially during the recent recession

Many refiners elected to steer clear of benzene recovery in their compliance efforts

Reduced Reforming Throughput

Cheap on-purpose hydrogen and low fuel gas credits saw reformer operating costs escalate

Tight oil is driving major changes in naphtha with more implications for aromatics yields


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Gulf Coast refineries are ill-suited to process rapidly growing volumes of tight oil

Sample Naphtha Fraction Yields

0%

10%

20%

30%

40%

OIL SANDS HEAVY BLENDEDUSGC

IMPORTEDLIGHT

BAKKEN EAGLEFORD

VERY LIGHT (<160 DEG F) LIGHT (160-250) MEDIUM (250-325) HEAVY (325-375)


Light end processing

limitations are holding refiners

back

Tight oil moves yields with naphtha

trending higher


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Light naphtha supply balloons as refiner’s options narrow

Straight Gasoline Blending

Steam Crackers

Diluent

Exports

Light Naphtha

The gasoline pool is shrinking and blend limitations are rife

Naphtha cracking for olefins is sharply disadvantaged

Highly competitive market due to “trapped” condensates

Processing for Blending

Most light upgrading units are already maxed out

Need to displace existing sources


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More paraffinic material is likely to be pushed towards under-utilized reforming capacity

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

WTI EF 01 EF 02 EF 03 EF 04 EF 05

PARAFFINS OLEFINS NAPHTHENES AROMATICS


Sample Naphtha Qualities (PONA Volume Split)


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At what point does by-product sourcing fail the US benzene market?

(500)

-

500

1,000

1,500

2,000

2000 2002 2004 2006 2008 2010 2012

Exports Imports Net Imports

Source: Global Trade Atlas; Wood Mackenzie

Thousand Metric Tons

Imports

Exports

* 2013 Year-to-Date Trade Annualized

United States Benzene Net Trade


20

Does the US potentially withdraw as a mixed xylenes exporter?

United States Mixed Xylenes Net Trade

(700)

(600)

(500)

(400)

(300)

(200)

(100)

-

100

200

2000 2002 2004 2006 2008 2010 2012

Imports Exports Net Imports

Source: Global Trade Atlas; Wood Mackenzie

Imports

Exports

Thousand Metric Tons

* 2013 Year-to-Date Trade Annualized


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Implications for Latin America

� Since diesel economies are favored, U.S. refiners need to find a home for gasoline and naphtha surpluses

� Facilities are being built to export the excess naphtha and gasoline out of the region

� There will be a large excess of light naphtha available for export; good for olefins cracking, not so good for aromatics

� Heavy naphtha that Latin America sourced from the U.S. is going to decrease

� Increasing benzene deficits will be an opportunity for countries like Brazil; however, most material is expected to be consumed internally

Unconventionals: Beyond Shale Gas

Esteban Sagel

November 18, 2013

Trusted commercial intelligencewww.woodmac.com

esteban sagel november 18, 2013 - apla sagel november 18, 2013 trusted commercial intelligence...

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