Outlook for US Ethane:

Always Climbing a Wall of Worry

Presented to the 2
nd
Platts NGL Conference



Sept 24, 2012
Hilton Houston Post Oak
Peter Fasullo
En*Vantage, Inc
pfasullo@envantageinc.com
2
Throughout its history ethane has posed concerns up
and down the NGL value chain

Introduction
Industry Player Historical Concern

Gas Producers &
Processors
Sufficient ethane extraction
economics to justify investments
in cryogenic plants.
Midstream Cos. Volume risks associated with
handling NGLs with high ethane
contents.
Petrochemical Cos. The long-term availability of
competitively priced ethane.
3
Basic Facts About Ethane
Ethane - most economically sensitive NGL, extraction can
be discretionary, and its price floor is set by natural gas.
Ethane has only one major end use ethylene feedstock.
The incentive to extract ethane is only as good as the
economic viability of the US petrochemical industry.
In the past 40 years, ethane frac spreads and cracking
economics have been materially impacted by:
Gas shortages - Late 1970s/Early 1980s; Early to Mid 2000s
Recessions - Mid 1990s; Late 2008/Early 2009.
Crude price collapses Late 1990s; Q4 2008 to Q1 2009.
4
The Biggest Worry Today
A chronic surplus of ethane will develop due to the drilling of
rich hydrocarbon shale plays.
Many believe ethane supplies will surge overtaking the
petrochemical industrys ability to crack ethane.
Predicting that ethane rejection could be widespread.
So are these concerns justified or are they overblown?
Lets examine the following areas:
Recent history
The factors that will drive ethane supply, demand and pricing.

5
Over the 2007 to 2011 Period
Over 9 BCFD of new
cryogenic processing
capacity was built.
NGL extraction climbed
570 MBPD - 310 MBPD
was ethane.
A global recession,
followed by sluggish
economic growth.
A major build out of
ethylene capacity in the
ME, China and SE Asia.
Incremental NGLs, mainly ethane
efficiently absorbed, except during
the recession in late 08/early 09.
Petchems enhanced ethane
cracking capability to 1.05 MM
BPD, exceeding processors ability
to extract ethane.
US became net exporter of NGLs.
Record NGL (ethane) frac spreads
occurred in 2010/2011.
One negative - NGL takeaway
bottlenecks in Mid-Continent
depressing Conway NGL prices.
6
US ethane prices declined and
frac spreads narrowed:
Ethane extraction up 100 MBPD year
over year to near 1 MM BPD.
Additional volumes would have been
efficiently consumed, but
Ethylene plant turnarounds
dropped ethane demand by 10%.
Lack of winter weather created
a propane surplus.
Conway ethane prices remain
depressed.
Global economic slowdown dropped
US polyethylene exports by ~14%.

What Happened in 1
st
Half of 2012?
Ethane Inventories
climbed to Record
Levels.
Ethane Rejection
mainly in Mid- Cont.
7
Majority of ethylene plant turnarounds completed.
Ethane cracking capability enhanced.
Ethane balances still very sensitive to plant outages.
More balanced Ethane Market for the
Remainder of 2012 and into 2013

US Ethane Inventories
(1000 Bbls)
10,000
15,000
20,000
25,000
30,000
35,000
40,000
J an-
01
J an-
02
J an-
03
J an-
04
J an-
05
J an-
06
J an-
07
J an-
08
J an-
09
J an-
10
J an-
11
J an-
12
Average
Actual Forecast
Ethane Days of Supply of Inventories
0
10
20
30
40
50
60
70
J an-
01
J an-
02
J an-
03
J an-
04
J an-
05
J an-
06
J an-
07
J an-
08
J an-
09
J an-
10
J an-
11
J an-
12
D
a
y
s
-
o
f
-
S
u
p
p
l
y
Average
Actual Forecast
8
The Relative Value of Natural Gas to Crude
Low gas-to-crude ratios combined with high crude prices is
providing a significant BTU price spread between gas and
crude, driving both the supply and demand for US NGLs.
Gas-to-WTI Price Ratio (On a Thermal Basis) vs
the BTU Spread between WTI and Gas
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
YTD
G
a
s
-
t
o
-
C
r
u
d
e

R
a
t
i
o


.
.
.
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
$20
$

p
e
r

M
M

B
T
U
Gas-to-WTI Ratio
BTU Spread Between WTI
and Gas
9
NGL Price Relationships and Frac Spreads
Ethanes floor value, set by gas,
has declined, allowing its market
value to crude to drop to remain
the preferred feedstock.
Heavy NGLs have maintained
their value relative to crude.

Low gas-to-crude ratios and high oil
prices caused record high NGL frac
spreads in 2011.
Ethane frac spreads lower this year.
Heavy NGL frac spreads remain high.
Mt Belvieu NGL Price Relationships to WTI Prices
0%
20%
40%
60%
80%
100%
120%
2006 2007 2008 2009 2010 2011 2012 YTD
Ethane Propane N-Butane I-Butane C5+
NGL Frac Spreads at Mt. Belvieu
($ Per MM Btu)
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
2006 2007 2008 2009 2010 2011 2012 YTD
Ethane
Propane
N-Butane
I-Butane
C5+
10
NGL Uplift Calculation for Typical Shale Play
* Mt. Belvieu NGL prices net of T&F fees of 12/gal.
Ethane
51%
27%
Shale Gas
with 5 gpm
of NGLs
Propane
Butane +
Cryogenic
Processing
Plant
Residue Gas
22%
NGL Barrel Extracted
Sep-2012 NGL uplift $1.75/MM Btu versus $3.25 in Jan-12
Assumes 90% ethane recovery
NGL Uplift for Average Shale Play
(Using Sept 2012 prices for Natural Gas and Mt Belvieu NGLs)
-$0.50
$0.50
$1.50
$2.50
$3.50
$4.50
$5.50
Natural Gas Gas +NGLs
Natural
Gas
C5+
Propane
N-Butane
I-Butane
Ethane
$/MM Btu
$2.73/MM Btu
$1.82
$0.79
$0.58
$0.14
$0.78
$0.37
Uplift w/ ethane extraction $4.48/MM Btu
$1.75
Assumes 32%
shrinkage plus
1% plant fuel
Uplift w/o
ethane frac
spread
$4.11/MM Btu
$1.38
11 11
Rich Hydrocarbon Natural Gas Plays

Rich Plays
NGL
(GPM)
Content*
Avalon/Bone Springs** 4.0 to 7.0
Bakken** 4.0 to 9.0
Barnett 2.5 to 3.5
Cana-Woodford 4.0 to 6.0
Eagle Ford*** 4.0 to 9.0
Granite Wash 4.0 to 6.0
Green River** 3.0 to 5.0
Niobrara** 4.0 to 9.0
Piceance-Uinta 2.5 to 3.5
Green River 2.5 to 3.5
Marcellus/Utica (Rich) 4.0 to 9.0
* gpm gallons of NGLs per 1000 cu. ft.
** Oil Shale Plays
*** Both an Oil and Gas Shale Play
Rich Shale Play Corridors
12
Outlook for Lower 48 State Gas Production
Expect Lower
48 natural gas
production
rising 17% from
2011 to 2020.
Shale gas
production
growth,
offsetting the
decline in the
conventional
gas plays.

Source: EIA and En*Vantage
US Lower 48 Gas Production vs Demand
(Trillion Cubic Feet)
0
5
10
15
20
25
30
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
0
5
10
15
20
25
30
Non-associated onshore
Non-associated offshore
Associated w/ oil
Tight Gas
Coal Bed Methane
Shale Gas
Net Imports
Domestic Gas Demand
17%
8%
7%
7%
24%
29%
42%
22%
7%
7%
9%
12%
Source EIA AEO 2012
8%
1%
13
Primary Growth NGL is Ethane
Followed by Propane
Ethane/NGL %: 33%.........37%...................39%....................43%
Source: EIA and En*Vantage
US NGLs Extracted From Gas Processing
(Thousand BPD)
0
100
200
300
400
500
600
700
800
900
1,000
1,100
J an-
90
J an-
92
J an-
94
J an-
96
J an-
98
J an-
00
J an-
02
J an-
04
J an-
06
J an-
08
J an-
10
J an-
12
0
100
200
300
400
500
600
700
800
900
1,000
1,100
Ethane
Propane
Natural Gasoline
I-Butane
N-Butane
Periods of high gas-to-crude ratios
14
New Processing Plants
13 BCFD of new gas
processing capacity
being built by 2015.
40% in the TX Inland
and Gulf Coast
regions.
34% will be built in the
Marcellus/Utica
region.
Probable that another
4.9 BCFD would be
built between 2015
and 2020.
Announced Processing Capacity
(1000 CFD)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Rockies Bakken TX Inland TX GC Mid-Cont. SE NM Marc/Utica
15
Forecast of US NGL Extraction Capability
Gas processing industrys NGL extraction capability: 2.45 MM
BPD in 2011 to about 3.42 MM BPD by 2020.
Ethane extraction capability: 1.04 MM BPD in 2011 to 1.63
MM BPD by 2020.
Forecast Max NGL Extraction Capability
(1000 BDD)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Propane, Butanes,
Natural Gasoline
Ethane
Forecast
Ethane forecast
includes 240 MBPD
from Marcellus/Utica
post 2016.
NGL and ethane
supplies from the
M/U region could be
greater, depends on
economics and
logistics.
16
Potential Ethane Extraction in Marcellus/Utica
Potential Marcellus/Utica Ethane Extraction: 390 - 490
MBPD.
Fractionation Capacity to De-Ethanize Ethane ~200 MBPD.
Ethane Takeaway Capability will be 240 MBPD - ATEX (190 MBPD)
and Mariner West (50 MBPD) .
However, Marcellus/Utica ethane has high T&F fees to Mt.
Belvieu of 22/gal to 30/gal or $3.47 to $4 52/mm btu.
Basic question will there be the economic incentive to
bring more Marcellus/Utica ethane to market?
Depends on future ethane demand by the petrochemical industry.
If ethane demand is lacking then what?
Marcellus/Utica ethane gets blended in the gas stream, and/or
Producers have to throttle back rich gas production.
17
Distribution of Ethylene Capacity and Plants
in North America*
Sarnia
Alberta
Midwest
Gulf
Coast
* Excludes Mexico
12.5%
80.0%
3.3%
3.6%
0.6%
4 plants: 8.6 B Lb/Yr
2 plants: 2.3 B Lb/Yr 2 plants: 2.5 B Lb/Yr
1 plants: 0.4 B Lb/Yr
33 plants: 55.2 B Lb/Yr
N. America: 42 Plants: 69.0 Billion Lbs/Yr
% of total N.A.
ethylene capacity
Ethane Cracking Capability
1,2
US 1,050 MBPD (2011)
Alberta 250 MBPD
Sarnia 45 MBPD
Total NA 1295 MBPD
1
Includes refining ethane
2
Assumes 100% operating rate
Source: En*Vantage, Hodson, Industry Contacts
18
Ethane Cracking Can Soar in a
Low Gas-to-Crude Price Environment
Source: En*Vantage, Hodson, Industry Contacts
Since 2008, ethane has been the most preferred petrochemical feedstock,
driving its consumption to record levels ethane cracking above 1 MM BPD
when ethylene industry operates ~ 95% of capacity
-20
-10
0
10
20
30
40
50
J an-04 J an-05 J an-06 J an-07 J an-08 J an-09 J an-10 J an-11 J an-12
Ethylene Feedstock Margins
(Cents per Pound)
Ethane Feedstock Margins
Naphtha Feedstock Margins
Record High Crude Prices
Recession
Crude Price
Collapse
High Gas-to-Crude
Environment
Very Low Gas-to-Crude
Environment
U.S. Ethylene Feedstock Consumption - MBPD
(Jan-00 to April-12)
0
100
200
300
400
500
600
700
800
900
1000
J an-
00
J an-
01
J an-
02
J an-
03
J an-
04
J an-
05
J an-
06
J an-
07
J an-
08
J an-
09
J an-
10
J an-
11
J an-
12
I
n
d
i
v
i
d
u
a
l

F
e
e
d

V
o
l
u
m
e
s

(
M
B
P
D
)

.
.



0
100
200
300
400
500
600
700
800
900
1000
Ethane
Propane
Heavy Feeds
N-Butane
Source: Hodson Reports and
En*Vantage
Hurricanes
High Gas-to-Crude
Ratio Environment
Low Gas-to-Crude
Ratio Environment
Hurricanes
&
Recession
19
US Ethylene Industry Continuing to Enhance
Ethane Capability at Existing Plants
Capability to Crack Ethane at End of 2011 1.055 MM BPD
Ethane cracking capability is expected to increase - furnace conversions,
plant expansions and a plant restart:
Source: En*Vantage, Industry Contacts

Year
End
Increases in C2
Cracking Capability
Cumulative Increase in
C2 Cracking Capability
Total Industry C2
Cracking Capability
(MBPD) (MBPD) (MM BPD)
2012 100 100 1.155
2013 35 135 1.190
2014 85 220 1.275
2015 18 238 1.293
2016 25 263 1.318
Assumes 100% operating rates at plants maximizing ethane as a feed
20
New World-Scale US Ethylene Plants
Announced or Under Consideration
~18.7 billion lbs/yr of new ethylene plant capacity has been announced or
being considered, representing 526 MBPD of ethane cracking capability.
High probability for 4 new plants -- 320 MBPD of ethane cracking capability.
Fair chance that Sasol will build a new plant in Lake Charles.
Foreign petrochemical companies are also doing feasibility studies to build new
ethylene plants in US.
Company Location Est. Cap
B Lb/Yr
Ethane Cracking
Capability (MBPD)
Est. to be
Online
Probability
Formosa Pt Comfort, TX 1.763 53 2016 High
Exxon Baytown, TX 3.300 95 2016 High
Dow Freeport, TX 3.300 77 2017 High
CP Chem Cedar Bayou, TX 3.300 95 2017 High
Sasol Lake Charles, LA 3.300 95 2017 Fair
Shell Western PA 2.600 78 2018 Unknown
Oxy/Mexichem Ingleside, TX 1.102 33 2018 Unknown
Total 18.665 526
21
Lets Not Forget Canada
In total, 90 to 100 MBPD of US Ethane is expected to be
exported to Canada.
Alberta ethane crackers facing a 40 to 80 MBPD ethane
supply shortfall over the next ten years.
Will import 40 to 50 MBPD of ethane from the Bakken Shale through the
proposed Vantage pipeline (late 2013).
Sarnia ethylene plants can crack about 45 MBPD of ethane.
The Mariner West project (mid-2013) will send Marcellus ethane to Sarnia.
Likely that Nova will expand Sarnia ethylene plant.
Kinder Morgan transporting 10 to 15 MBPD of E/P mix to
Nova in Sarnia via their Cochin pipeline.
Sourcing E/P mix from Conway via Enterprises MAPL system.
Only a bridge for Nova until Mariner West is completed.
22
Maximum Demand for US Ethane
Max ability to crack US
ethane is expected to
grow from 1.05 MM
BPD in 2011 to ~ 1.75
MM BPD by 2018.
Enhancements to existing
ethylene plants - 265 MBPD of
ethane cracking capability.
Ethane exports to Canada -
100 MBPD by 2015.
High probability new ethylene
plants - 320 MBPD of ethane
cracking capability by 2017.
Source: En*Vantage, Industry Contacts
Max Cracking Capability for US Ethane
(1000 BPD)
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Low Probability New Plants
Fair Probabilty New Plants
High Probability New Plants
US Ethane Cracked in Canada
Converisons/Expansions/Restarts
Base C2 Cracking Capability
If Sasol builds new ethane cracker, max demand for US ethane
approaches 1.85 MM BPD. If low probability plants are built,
max ethane demand reaches 2 MM BPD by 2019.
23
Max US Ethane Supply Capability vs
Max Ethane Cracking Capability
Through 2013, close
balance between ethane
supply and demand.
From 2014 to 2015
ethane supply overhang is
likely, but can be resolved
by rejecting ethane in the
Marcellus/Utica.
Post 2015, more ethane
needed to support 4 to 7
world-scale ethane
crackers. Incremental
ethane will come from the
Marcellus/Utica.
Source: En*Vantage, Industry Contacts
Max US Ethane Supply vs Max Ethane Cracking Capability
(1000 BPD)
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
Low Probability New Plants
Moderate Probability New Plants
High Probability New Plants
US Ethane Cracked in Canada
Converisons/Expansions/Restarts
Base C2 Cracking Capability
Max C2 Supply
Additonal C2 Supply from Marcellus
24
Outlook for Ethane Frac Spreads
Source: En*Vantage, Industry Contacts
Ethane Frac Spreads
$0.00
$0.05
$0.10
$0.15
$0.20
$0.25
$0.30
$0.35
$0.40
$0.45
$0.50
$0.55
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
C
e
n
t
s

P
e
r

G
a
l
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$

P
e
r

M
M

B
T
U
Forecast Actual
Mt Belvieu
Conway
25
In Summary
Expect ethane balances to improve for the remainder of the
year and into 2013 - need the ethylene industry operating at
above 90% of capacity.
Marginal frac spreads for ethane in 2014 and 2015 to
regulate the flow of ethane from the Marcellus/Utica and
keep ethane markets balanced.

Post 2015, full ethane extraction is needed as world-scale
ethylene plants come on line.
Ethane imbalances will occur, but they wont be chronic.
Ethane will always be very susceptible to ethylene industry
swings.
Biggest threats to ethane - a global recession, a collapse in
crude prices, and/or a spike in gas prices.