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MONTH 2009

© POTEN & PARTNERS 2009

CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 0

Page 0

21st INTERNATIONAL LP GAS SEMINAR

Prepared for:

INTERNATIONAL

LP GAS SEMINAR

Tokyo 2018

The Global LPG Market:Changes, Challenges & the Next Chapter

HOUSTON NEW YORK LONDON ATHENS SINGAPORE GUANGZHOU PERTHWWW.POTEN.COM

[email protected]

March 6-7

INTERNATIONAL LP GAS SEMINAR

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 1

The Global LPG Market:Changes, Challenges & the Next Chapter

Prepared for

INTERNATIONAL LP GAS SEMINAR

Tokyo 2018

By

Poten & Partners (UK) Ltd.

101 Wigmore Str.

London W1U 1QU

UK

This material has been compiled by gathering market intelligence from various public and industry sources which is subject to limited

validation procedures and may include estimates or judgments. No representation or warranty, express or implied, is made as to the

fairness, accuracy, completeness or correctness of the information, opinions and conclusions contained in this presentation. To the

maximum extent permitted by law, Poten & Partners Inc., together with its affiliates and their respective officers, directors, employees and

agents disclaim any liability (including without limitation any liability arising from fault or negligence) for any loss arising from any use of

this presentation or its contents or otherwise arising in connection with this presentation. This presentation should not be distributed or

otherwise reproduced.

Poten & Partners, Inc. ©Copyright 2018

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 2

Poten & Partners

Complimentary Businesses Across the Value Chain Poten & Partners Businesses • Global brokerage for petroleum products, LPG

and LNG

– Largest US tanker broker

– Largest LNG shipbroker

• Commercial advisory

• Capital markets solutions

• Research

- LNG

- LPG

- Tankers

- Petroleum

www.poten.com

NGL Consulting

NGL Retainer Services Available

Global Ethane Trade

DevelopmentsAvailable

NGL Publications Monthly and Forecast

Upstream DownstreamMarine InfrastructureMidstream

http://www.poten.com/

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 3

Agenda

1. Introduction

2. 2017 Evolution

3. The Future

4. Bringing it all Together

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 4

Page 4

1 – Introduction

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 5

Supply Demand

Is the LPG market changing from a supply driven market to a demand driven

market…?

New Era/New Tides

East supply insufficient

to meet growing East

demand

Petrochemical

demand increasing

China dominance

in LPG landscape

How much demand

is price sensitive?

Competition with

lighter feeds

Key supply region no

longer just the Middle

East

Shale Gas

revolution in the US

Surplus supply in

the West

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 6

The changing focus of LPG seaborne demand

— Source, Poten & Partners

Large Bulk Demand

Retail Demand

Seaborne Exports

New PDH facilities

particularly in China and

Korea where propane

demand for PDH grew by

over 6 mm t from 2012 -

2017

Declining retail demand

Increased LPG utilisation

in steam cracking as price

advantage over naphtha

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 7

Pricing becoming more “global”

30%

60%

90%

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Pro

pan

e %

of

oil

Propane prices relative to Oil

NW Europe US Gulf

NE Asia Saudi CP

-100

300

700

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

$/t

Propane price spreads

US Gulf - NE Asia

US Gulf - NW Europe

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 8

Page 8

1 – 2017 Evolution

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 9

Overview of LPG seaborne trade

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 10

A tighter market…particularly in the East

EASTWEST

Unfavorable cracking economics

Displacement by ethane

Increased supply from US, Norway and West Africa

OPEC production cutsUnfavorable US – Asia arbs

Growth in Asia particularly in retail outlets

Poor cracking economics limited petrochemical demand

-1

8

2015-16 2016-17

mm

t

Changes in seaborne supply/demand (mm t)

Supply

Demand

-1

8

2015-16 2016-17

mm

t

Changes in seaborne supply/demand (mm t)

Supply

Demand

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 11

West to East volumes continue to grow in difficult arb environment

US

LPG Balance – Short

LPG Balance – Long

2015 5 mm t $120/t

2016 5 mm t $52/t

2017 4 mm t $44/t

-60

0

mm

t

Asia/Pacific

0

60

mm

t

US Exports

-60

0

mm

t

Europe/Med

20157 mm t$241/t

201611 mm t$93/t

201715 mm t$87/t

Year Seaborne trade

Average propane spread

0

30

60

90

2016 2017

Nu

mb

er

of

can

cella

tio

ns

US LPG Cancellations

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 12

4.0

1.3

0.7

3.4

2.6

1.0

Korea

2016 2017

Total LPG exports

2016 = 25.3 mm t 2017

= 28.5 mm t

US exports head east displacing Middle Eastern volumes

*estimated

0

5

9

Latin America Asia Europe/Africa

mm

t

US Exports

1H 16 2H 16

1H 17 2H 17*3.4

6.4

1.1

5.94.1

0.8

2016

2017

Japan

Qatar, UAE, Saudi

Arabia & KuwaitUS Others

3.3

12.0

3.13.3

10.7

2.1

China

2016 2017

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 13

…leaving NW Europe tighter…

Supply into the region limited with less from

the US and more exported

to the Med

Propane prices relative to naphtha

significantly increased in

2017

2015 and 2016 saw propane

priced to crack for the majority

of the year

Propane advantage over

naphtha declined

LPG utilization in steam cracking

backed out in favor of ethane and naphtha

0

8

NW Europe Med Asia US

mm

t

NW Europe LPG Movements

2016 2017Imports from US

-200

0

January March May July September November

$/t

NW Europe propane-naphtha spread

2017

2015

2016

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 14

... and lower petrochemical utilisation

Margins for cracking were higher than 2016

But the incentive to crack LPG over naphtha lower

Imports for steam-cracking declined by around 1.3 mm t in 2017

Displacement of LPG by ethane

0

8

2014 2015 2016 2017

mm

t

Imported petchem demand - NW Europe

20%

-300

-150

0

150

300

450

-300

-150

0

150

300

450

Nap

hth

a-Pro

pan

e Sp

read

$/tM

argi

n o

ver

nap

hth

a $

/t

NW Europe Incentive to Crack Propane versus NaphthaBasis: spot prices

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 15

The ethane effect

1H 2015

1.3 mm t

1H 2015

0.4 mm t


Borealis Stenungsund

• Supply of US ethane from

the East Coast expected

1H 2018Sabic Wilton

• 1st cargo arrived

December 2016 from

the US

INEOS Grangemouth

• 1st cargo arrived in

September 2016 from the

US

INEOS Rafnes

• Received 1st ethane cargo

in March 2016

0

450

Rafnes Stenungsund Grangemouth Tees

'00

0 t

on

s

US Gulf ethane exports

0

450

Rafnes Stenungsund Grangemouth Tees

'00

0 t

on

s

US East Coast ethane exports

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 16

Asian petchems turn to naphtha in 2017

LPG prices firmed in the East to 97% of naphtha for propane and 100% of naphtha for butane

Despite steam cracking margins remaining high, the advantage for using LPG declined

Imports into Korea and Taiwan in particular declined for butane

0

1400

Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17

$/t

eth

yle

ne

N.E. Asia Cracker Incremental Margins

Naphtha Butane Propane

0.0

0.4

Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17

$/t

Monthly butane imports

Korea, Taiwan & Thailand butane imports

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 17

Future vision?

FUTURE VISION

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 18

Page 18

3 – The Future

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 19

3.1 Focus on US Supply

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 20

New gas production drives near-term growth

US exports continue to drive expansion in seaborne trade

US exports will account for 33% of total seaborne supply by 2020 and over 38% by 2025

Middle East exports rise but limited by start-up of new gas projects/infrastructure

Other supply regions expecting growth: Canada, Australia, Angola

0

140

2017 2018 2019 2020 2021 2022

mm

t

Global LPG Seaborne Supply

Middle East Asia Pacific Northern Europe

Mediterranean West & Other Africa Americas

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 21


Production growth pushes exports higher…

LPG production in the US is anticipated to grow around 9% in 2018

Limited growth in domestic demand particularly for butane

Increased levels of LPG “pushed” towards the export market

Last of wave of infrastructure developments expected mid 2018 with the Mariner East 2 completion

Will there be future investment in export capacity and when?

0

80

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

mm

t

US gas plant LPG production

0

50

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

US LPG Terminal Capacity vs Estimated Export Volumes

Total US exports US export terminal capacity

millio

n t

on

s p

er

MONTH 2009


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© POTEN & PARTNERS

March 2018 Page 22

… increasing length in the West

EASTWEST

-30

0

2017 2018 2019 2020 2021 2022

mm

t

LPG Balance – Short

LPG Balance – Long

0

30

2017 2018 2019 2020 2021 2022

mm

t

20 mm t

•2017

21 mm t

•2018

27 mm t

•2022

MONTH 2009


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© POTEN & PARTNERS

March 2018 Page 24

Asia holds the key to absorbing additional supply

Asia continues to be pivotal in absorbing additional LPG supply volumes

Near term increase in steam cracking demand over 2017 levels west and east

Anticipation of new wave of petrochemical projects (PDH, steam crackers)

Continued growth of retail with potential new outlets

0

140

2017 2018 2019 2020 2021 2022

mm

t

Global LPG Seaborne Demand

Middle East Asia Pacific Northern Europe

Mediterranean West & Other Africa Americas

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 25

The changing focus of LPG seaborne demand


Large Bulk Demand

Retail Demand

Seaborne Exports

0%

100%

2012 2015 2017 2020

mm

t

Asia/Pacific

0%

100%

2012 2015 2017 2020

mm

t

Global seaborne import demand

0

40

2012 2015 2017 2020

mm

t

N. America

Increased LPG flexibility in

steam cracking

Continued growth in retail

demand and delayed/cancelled

new PDH facilities

Increased infrastructure

developments and new

PDH facilities

Limited growth due to

ethane displacement

0%

100%

2012 2015 2017 2020

mm

t

NW Europe

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 26

Other Asia

China expected to remain dominant LPG importer…

2

0

30

2015 2017 2019 2021

mm

t

India

0

30

2015 2017 2019 2021

mm

t

China

0

30

2015 2017 2019 2021

mm

t

Japan

0

30

2015 2017 2019 2021

mm

t

Korea Korea

Japan

China

India21%

% Large Bulk Demand in 2017

% Retail Demand in 2017

% of total seaborne trade in 2022x %

12%

10%

7%

0

30

2015 2017 2019 2021

mm

t

Other Asia

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 27

… but is growth slowing?

No new PDH plants started since end 2016

Refinery production continues to grow

Some new plants/additional phases delayed or cancelled

Competition between LPG and other fuels e.g. natural gas

Some growth in feedstock flexibility in steam cracking

Ethane: new projects looking at importing US origin C2

-40

0

40

80

Supply Demand Supply Demand Supply Demand

mm

t

China LPG Supply/Demand Balance

Gas Plant RefineryImports/Inventory "Net" RetailPetchem/Large Bulk Exports "Seaborne & Land"

2015 2017 2022

64%25%

25%

10%

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 28

India leads the way for retail demand…

0.2

0.7

1.2

Jan-13 Oct-13 Jul-14 Apr-15 Jan-16 Oct-16 Jul-17

mm

t

Quarterly average LPG imports

29%

31%

19%

10%

4%6%

2017 Import Origin

Saudi

Qatar

UAE

Kuwait

Oman

Other

2nd largest global importer of LPG in 2017

96% of total demand is for

retail

Political pressure

Displacement of LPG with ethane

Diversification of supply

Competition with other fuels

Infrastructure limitations

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 29

… with new markets import potential centered on retail outlets

Additional LPG

steam cracking

flexibility

Continued retail

growth

Retail growth

potential

Retail & Power

Generation

0

3

2017-2022

mm

t

Japan, Korea & Vietnam

0

3

2017-2022

mm

t

Indonesia

0

3

2017-2022

mm

t

Caribs/Central America

0

3

2017-2022

mm

t

Africa & Other Asia

*base case scenario

0

3

2017-2022

mm

t

S. Med & N. Africa

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 31

Oversupply again

Lower prices –

petchems setting the

price?

US export availability

key

Increased liquidity

India/China the price

settersFurther infrastructure

investment?

How much of a role will

Africa play and when?New demand centres or

growth of current outlets

PROPANE BUTANE

2017 seemed to be an anomaly in the trend

What does this mean going forward?

MONTH 2009


CONFIDENTIAL

© POTEN & PARTNERS

March 2018 Page 32

LNG & NATURAL GAS CONSULTING CONTACTS:

AMERICAS

Contact: Jim Briggs

Email: [email protected]

Tel: +1 212 230 2000

EUROPE, MIDDLE EAST, AFRICA

Contact: Graham Hartnell


Tel: +44 207 493 7272

ASIA PACIFIC

Contact: Stephen Thompson


Tel: +61 8 6468 7942

LPG CONSULTING CONTACTS:

Emma Lamb


Tel: +44 (0) 20 3747 4883

Poten & Partners (UK) LTD

101 Wigmore Street

London, W1U 1QU

Tel: +44 (0) 20 3747 4800

Fax: +44 (0) 20 3747 4870

E-mail: [email protected]

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