NGLs and ethane What’s on the horizon? Argus India Oil & Gas Summit … · Navigator Gas Jiangnan...
Transcript of NGLs and ethane What’s on the horizon? Argus India Oil & Gas Summit … · Navigator Gas Jiangnan...
NGLs and ethane – What’s on the horizon?
Argus India Oil & Gas Summit
March 18 2015
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Section 1
Business Update Section I
BW LPG Introduction
Vision
“BW LPG will be a driving force in the growth of the global NGL
marketplace by providing market leadership in marine-based NGL
logistics solutions across the globe.”
BW LPG is the largest owner/operator of VLGCs, with a fleet of
38 VLGCs and 5 LGCs, including newbuilding VLGCs on order.
Our largest shareholder is the BW Group, 100% owner pre-IPO,
presently holding approximately 47% of our shares.
We have an ongoing 8 ship newbuilding program at HHI, with a
balance of 6 vessels delivering through 2015 - 2016.
Our market leading position
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35 years of operating experience to provide
market-leading reliability
Oil companies have strict requirements on crewing
Experience requirement for top 4 officers
1 vessel 10 vessels BW LPG
(pool of 334 senior officers)
BW LPG onshore (53 technical professionals)
Time on gas
carriers 24 years 240 years 4,446 years
816 years (in the gas industry)
Time in company 8 years 80 years 4,921 years 844 years
LPG requires specialised competencies
Engineers do not normally have refrigeration knowledge:
If the cargo is a few degrees off, the vessel is rejected by the terminal
Complex cargo operations:
Ship to ship transfer to different ship types, part discharge/loading,
temperature, different phases
Re-liquefaction during voyage:
Crew need to constantly monitor cargo condition and re-liquefy throughout
the voyage
LNG-like complexity with less technology to manage it:
Many of the same challenges as LNG, but with more reliance on crew
knowledge and operational systems rather than automation
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Section 1
Business Update Section II
Indian LPG Fleet & Ethane Orderbook Overview
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Indian flagged & owned LPG fleet
Source: Clarksons, BW LPG analysis
• 3% of the LPG fleet is under Indian Ownership with the majority under Indian flag
• Largest presence in LGC & MGC segments
• Limited presence in the VLGC sector
Indian Flagged & Owned Ships As % of Fleet By Segment
2.2% 1.7%
9.1% 4.0%
- 0.4% 3.0% 2.2%
9.1% 7.1%
- 0.4% -
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
LPG Fleet VLGC LGC MGC 5- 20k CBM <5k CBM
Indian Flag Indian Owner
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Ethane orderbook
Source: Company data
• Bulk of ethane-capable orderbook will service coastal European crackers
• VLECs will be deployed on long-haul routes to South and East Asia
• Full alignment across entire ethane value chain needed to support further investment in shipping capacity
Owner Yard # Vessels CBM Design Charterer Servicing
Hartmann / Jaccar Sinopacific Offshore & Engineering 5 85,000 Tri-lobe Type C Oriental Energy China
Reliance Industries Samsung Heavy Industries 6 87,000 Membrane Reliance Industries Jamnagar, India
Navigator Gas Jiangnan S.Y. 4 35,000 Bi-lobe Type C Borealis Stenungsund, Sweden
Ocean Yield Sinopacific Offshore & Engineering 3 36,000 Tri-lobe Type C Sabic Teesside, UK
Evergas Sinopacific Offshore & Engineering 6 27,500 Bi-lobe Type C Ineos Rafnes / Grangemouth
Evergas Yangzijiang Shipbuilding 2 27,500 Bi-lobe Type C Ineos Rafnes / Grangemouth
Section 1
Business Update Section III
VLGC Snapshot
VLGC rates still going strong while NB prices steady 2014 was a record year for VLGCs, with continued strength in the beginning of 2015
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Source: Clarksons, BW LPG analysis
Trailing Ten Year Monthly Nominal VLGC One Year Timecharter-Equivalent Rates ($ Per Day)
-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
January February March April May June July August September October November December
10Y High / Low 2013 2014 2015
2002 - 2015 YTD Monthly Nominal Newbuild VLGC Prices ($ MM)
-
$20
$40
$60
$80
$100
$120
$ M
M
VLGC fleet growth & rates; this time might be different?
Fleet age: 10.8 years
Orderbook: 85 vessels / 50% of delivered fleet
2015 Deliveries: 36 vessels
2016 Deliveries: 46 vessels
11 Source: Clarksons, BW LPG analysis
Annual VLGC Fleet Growth vs. VLGC TCE Rates
Fleet Growth Average Median Low High
Since 2009 4.0% 3.9% 0.0% 9.3%
Last Five Years 3.7% 2.4% 0.0% 9.3%
Last Ten Years 5.4% 4.7% 0.0% 19.0%
All Available Time 4.2% 3.6% (1.5%) 19.0%
5.3%
77,253
-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
(5%)
-
5%
10%
15%
20%
25%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Fleet Growth
Fleet Growth Forecast
TCE Rates
• Difference between 2008 & 2015 is that current fleet build-out is supported by strong trade outlook
underpinned by solid U.S. volumes and increasing Chinese & Indian demand
Version 2008
Version 2015
Section 1
Business Update Section IV
U.S. NGL Snapshot
U.S. LPG export terminal capacity will nearly double Enterprise, P66 & Occidental all confirmed LPG export projects in quarterly earnings call with analysts,
underpinned by term contracts
13 Source: Company data
US LPG Export Terminal Capacity Expansions
-
5
10
15
20
25
30
35
40
45
Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017
MM
TPA
Petrogas
Trafigura/Buckeye
DCP Midstream
Pembina
Sage Midstream
Occidental
Phillips 66
Sunoco
Targa
Enterprise
Consensus U.S. LPG production & export forecast Production CAGR of 7% over next two years, export growth ranges from 12% - 30% p.a.
14 Source: EIA, various investment banks’ research, BW LPG analysis
US LPG Production & Exports (mmtpa)
-
5.0
10.0
15.0
20.0
25.0
30.0
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
U.S. LP
G Exp
orts (m
mtp
a)LP
G P
rod
uct
ion
(mm
tpa
)
External Export Forecast Range
LPG Production (LHS)
LPG Production Forecast (LHS) (2014 - 2016 CAGR - 7.2%)
LPG Exports (RHS)
NGL prices are too high! NGL prices are too low! Prices must find the balance between keeping cargoes flowing and supporting U.S. production growth
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Source: Bloomberg, BW LPG analysis
NGL Barrel as % of Crude Oil (Trailing 5 Years)
-
20%
40%
60%
80%
100%
120%
140%% of Brent % of WTI
NGL Barrel as % of Crude Oil (2014 - Present)
-
10%
20%
30%
40%
50%
60%
70%
80%% of Brent % of WTI
Arb closes fol lowing OPEC
announcement
Arb opens on Jan 22
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Total rig count down by 38%, oil production still rising
Source: Baker Hughes, BW LPG analysis
• 38% decline in rig count since OPEC announcement
• Horizontal rigs now account for 75% of total, up from 72% pre-announcement
• Decline in vertical rigs has slowed down, while decline in horizontal rigs has accelerated
Total U.S. Rig Count (1192) By Trajectory
Rig Count Delta As % of Total
Trajectory Current 26-Nov-14 # Rigs % Current 26-Nov-14
Directional 120 194 (74) (38%) 10% 10%
Horizontal 895 1,371 (476) (35%) 75% 72%
Vertical 177 352 (175) (50%) 15% 18%
Total 1,192 1,917 (725) (38%)
-
1
2
3
4
5
6
7
8
9
10
-
250
500
750
1,000
1,250
1,500
1,750
2,000
2,250
2,500M
MB
PD#
Rig
s
Directional Horizontal Vertical Oil Prod (mmbpd)
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Horizontal rig count at major shale plays down 31%
Source: Baker Hughes, BW LPG analysis
• Horizontal rig count in major shale plays down 31% since OPEC announcement
• Largest declines in the Bakken and Permian plays due to wide differentials to coastal prices
Horizontal Rigs (660) By Major Shale Play
Rig Count Delta As % of Total
Shale Play Current 26-Nov-14 # Rigs % Current 26-Nov-14
Bakken 119 187 (68) (36%) 18% 20%
Eagle Ford 143 203 (60) (30%) 22% 21%
Haynesville 37 37 - - 6% 4%
Marcellus 59 77 (18) (23%) 9% 8%
Niobrara 32 59 (27) (46%) 5% 6%
Permian 236 350 (114) (33%) 36% 37%
Utica 34 43 (9) (21%) 5% 4%
Total 660 956 (296) (31%)
-
200
400
600
800
1,000
1,200
Bakken Eagle Ford Haynesville Marcellus Niobrara Permian Utica
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International propane price differentials have narrowed
Source: Bloomberg, BW LPG analysis
Propane Prices ($ Per Ton)
($100)
-
$100
$200
$300
$400
$500
$600
$700
-
$200
$400
$600
$800
$1,000
$1,200
$1,400Asia - MB Spread Asia Propane Mont Belvieu
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Competitiveness of U.S. ethane over naphtha has eroded
Source: Bloomberg, BW LPG analysis
• Oil price drop has given way to “wait and see” approach for new projects
• U.S. ethane still makes sense for owners of existing ethane cracking capacity with feedstock switching capability
• Industry updates:
o Ethane rejection has risen to near record levels of between 350,000 – 500,000 bpd
o Enterprise states that 80% of 200,000 bpd Morgan’s Point facility has been sold out at 10 year contracts
In discussions with 3-4 other parties for the remaining 20%
o Targa still evaluating ethane export terminal investment
Ethane & MOPJ Prices ($ Per Ton)
-
$150
$300
$450
$600
$750
$900
-
$200
$400
$600
$800
$1,000
$1,200MOPJ - $503 Ethane - $136 MOPJ - Ethane Spread (RHS)
Section 1
Business Update Section V
Conclusions
• Lower oil price leads to lower naphtha price and narrower arbitrage
• Rig counts, and thus production, will decline
– Rig productivity has increased but average well productivity has decreased
– Production can only be maintained by drilling more wells, but rig count is declining
• Abundant U.S. propane export capacity will increase correlation between U.S. & global propane prices, keeping the arbitrage tight and limiting U.S. LPG export growth
• OPEC will maintain production for as long as is needed to curb U.S. output
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BEAR
Consensus bull & bear views on effect of oil price drop on
U.S. LPG exports
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• 45% of 2015 (and some 2016) production is hedged at profitable oil price levels
• Declines in production will come from high-cost fields with minimal LPG production
– Permian, Southern Bakken, Niobrara
– Stripper wells
• Majority of 2015 LPG volumes (16mt) traded under term contracts
• 2015 guidance suggests 10% production growth
• Cost reductions in upstream value chain will keep production profitable at lower oil price levels
• High grading shifts production focus to NGL-rich, wet-gas shale plays
• Re-fracking of ~50,000 wells
BULL
Source: Various investment banks’ research, EIA, Bloomberg
Market-based corrective measures for NGLs
Increased steam cracker consumption
Propane has been feedstock of choice till recently in U.S. helping to lower historically high inventories
Asian crackers have switched some capacity from naphtha to propane
Rejection
Ethane rejection at very high levels
Production growth rate decline
Current consensus of 7% production growth vs. ~15% consensus 2015 growth as recently as Q3 2014
Exports
Doubling of LPG export capacity, new ethane export capacity in U.S.
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STRICTLY PRIVATE & CONFIDENTIAL
SHIPPING
What is on the horizon?
NGL PRICES
NGL
PRODUCTION
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NGL EXPORTS
• >20% VLGC fleet growth p.a. over next two years
• Peak of new orders was in 2014
• Cargoes still coming to market, greater importance of long-term shipping coverage
• Doubling of U.S. LPG export capacity
• Sunoco & Enterprise begin exporting ethane, Targa still evaluating
• Majority of 2015 volumes on term commitments, some cargoes have been cancelled
• NGL prices could trade down to nat-gas equivalent levels in near-term
• Prices balanced to catalyze trade while also encouraging new production
• Contango in crude prices suggests stronger naphtha prices than implied by MOPJ curve
• 2015 U.S. production growth of 7%
• Algeria emerging as substantial long-term supplier of LPG
• Importance of Iran should sanctions be lifted?
The value of long term shipping partners Freight as a % of cargo is near all-time high, shipping coverage secured at favorable terms good for trading
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Source: Clarksons, BW LPG analysis
Spot Freight as % of CIF Asia Propane Price
Term Charter as % of Spot
-
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
-
50%
100%
150%
200%
250%
300%
350%
Thank You