KBC IoE Webinar - Capitalizing on Shale Gas

© 2012 KBC Advanced Technologies plc. All Rights Reserved.

Capitalizing on Shale Gas in the Downstream Energy Sector Matthew Kuhl

24 April 2013

Agenda

• Why is US natural gas cheap?

• What are direct impacts to plants?

• Where are opportunities for operators?

24 April 2013 2 PROPRIETARY INFORMATION

0.00.5

1.01.5

2.0

2.53.0

3.54.04.5

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Powe

r Gen

erat

ion,

Bill

ion M

W-h

rs

Coal PetroleumLiquids

PetroleumCoke

NaturalGas

OtherGas

Nuclear HydroelectricConventional

OtherRenewable

HydroelectricPumpedStorage

Other

Source: EIA

Power Generation

Crude oil and natural gas no longer linked as interchangeable fuels for power generation

Power generation from liquid petroleum has almost disappeared


Natural Gas vs. Crude Oil

Natural gas and crude oil price disconnected in 2006 and has not looked back

0%

20%

40%

60%

80%

100%

120%

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

Henr

y Hub

($/m

mbt

u) / B

rent

($/m

mbt

u) Forecast

Ususal Range

Expected Range

Possiblerange if Natural Gas Vehicles gain traction

GlobalEconomic Disturbance

Major switch from coal to gas power generation

Source: KBC Energy Economics


2008 Natural Gas Production Cost

Prior to prolific shale gas, production costs increased as conventional gas became more scarce

$8.15

$-

$1

$2

$3

$4

$5

$6

$7

$8

$9

2000 2001 2002 2003 2004 2005 2006 2007 2008E

Natu

ral G

as P

rice,

US$

/mm

btu

2008 NA Natural Gas Breakeven: 10% Rate of Return

Source: Credit Suisse


$- $1 $2 $3 $4 $5 $6 $7

Powder River - Coalbed MethaneCotton Valley - Horizontal

Cotton Valley - VerticalHaynesville - NE TX

Granite WashPiceance

FayettevilleWoodford - Arkoma

Haynesville - CoreBarnett

Eagle Ford - DryPinedale

Horn RiverMarcellus - NEBarnett - Core

HuronMarcellus - SW

Barnett - Liquid-RichCana Woodford

Marcellus - Liquid-RichEagle Ford - Liquid-Rich

Natural Gas Price, US$/mmbtu

2012 Natural Gas Breakeven: 10% Rate of Return by Play

Source: Credit Suisse

2012 Natural Gas Production Cost

Current breakevens for unconventional plays are significantly below 2008 breakeven values

NGL value covers all well

costs


Natural Gas Supply Curve

25 bcfd of today’s production from unconventional resources breaks even at $4/mmbtu or less

Eagle Ford - Wet

Marcellus - Very Wet

Cana Woodford

Barnett - WetMarcellus - Wet

HuronBarnett - Core

Horn River Basin

Eagle Ford - DryPinedale

Woodford - ArkomaHaynesville - Core

BarnettFayetteville

Piceance Basin Valley

Granite Wash -Horizontal

Haynesville -Bossier

Cotton valley -Vertical

Cotton Valley -Horizontal

Conventional/Other

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1

2

3

4

5

6

7

8

9

10

- 10 20 30 40 50 60 70

Natu

ral G

as P

rice,

US$

/mm

btu

Natural Gas Production, Billion Cubic Feet per Day

KBC's US Natural Gas Supply Curve

Source: KBC Energy Economics


Forecast Sensitivities > Innovation brings oil production costs down the

same way it has for natural gas > Gas demand increase

– LNG exports – Rapid adoption of Natural Gas Vehicles – Ramp up of coal power plant closures and replacement

with natural gas-fired plants – New manufacturing facilities, especially methanol,

fertilizer and gas-to-liquids



> Case Studies

Utilizing low-cost fuel gas in plants

Direct impact on plants > Lower energy prices > Lower hydrogen manufacturing cost > Higher propylene prices > Higher butadiene prices > Reduced demand for naphtha as ethylene cracker feedstock

Case studies on Energy Efficiency, LPG Recovery, and Hydrogen Addition highlight these impacts


Impact on Energy Efficiency

> Since 2008..... – Natural Gas price ↓

>50% – Import power price ↓

>30% – New equipment cost

steadily increased – Reduced economic

incentive for conserving fuel and electricity

0

20

40

60

80

100

120

140

160

180

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Co

st In

dex

Year

NG PricePlant CostsElectricity Price

NG and Electricity Cost relative to Plant Equipment Cost

To maintain and improve energy efficiency, plants must have an adequate Energy Management System (EMS)


Case Study: Implementing an EMS

> USGC refinery implementation > Opportunity to reduce energy consumption 8%

– 5% from operational changes and low investment projects – 3% requiring capital projects >$500,000 – Examples: minimize product give-away, optimize stripping steam,

optimize distillation, maximize hot feed to units

> Implement monitoring tools - Dashboards > Improve energy conservation culture

Energy efficiency focus has shifted from implementing large capital projects to implementing no/low cost projects


Opportunity: Utility Optimization

2008 (cents/kWh)

2012 (cents/kWh)

Import power 8.1 5.4 Generate Power using a Condensing turbine

13.7 4.3

ProSteam TM Utility Optimizer

• Facilities should routinely monitor and optimize internal power generation

• Online utility optimizers are proven to significantly reduce operating costs


0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2 3 4 5 6 7

Payb

ack

(yea

rs)

Natural Gas Price ($/MMBtu)

Import power price = 4 cents/kWh





At 2007 US Gulf Coast Prices

At 2012 US Gulf Coast Prices

Cogeneration – a capital intensive project for which the economic incentive has actually improved

Simple Payback time for a Cogeneration Plant

Opportunity: Cogeneration


> Increased price differential between LPG and its fuel value > Gas plants should be operated to maximize LPG recovery > It may be economic to install a cryogenic unit

2006 2007 2008 2009 2010 2011 2012

Value of C3/C4 ($MM/yr) 23.2 27.1 32.2 19.0 26.7 33.3 25.4 Fuel Debit ($MM/yr) 14.1 14.2 17.9 8.0 8.9 8.1 5.6 OPEX ($MM/yr) 3.0 3.0 3.0 3.0 3.0 3.0 3.0 Net Benefit ($MM/yr) 6.0 10.0 11.3 8.0 14.9 22.2 16.9 Installed Cost ($MM) 25.1 25.9 26.7 27.5 28.3 29.1 30.0 Payback (years) 4.2 2.6 2.4 3.4 1.9 1.3 1.8

Payback of 15 MMSCFD Cryogenic Recovery Unit

*Assumes 14 mol% LPG in Fuel Gas

Opportunity: Increase LPG Recovery


Hydrogen Price Impacts

> Impacted Areas – Hydroprocessing Units – Reformer Units – Hydrogen Generation or

Recovery Units

> Adding hydrogen to oil increases volume swell

> Chart is example of ULSD HDT gross margin impact vs H2 consumption

> Generated with Petro-SIM™


Short Term Operational

Options

OvertreatDiesel

Increase Gasoil HDT

Severity

HDC Rate vs

Severity

Gasoil –FCC vs

HDC

Adjust Purity

Targets

Adjust Reformer Rate and Severity

Increase SMR

Utilization

Review HDT feed cutpointtargets

Optimize feedstock

routing among HDTsMaximize

inexpensive hydrogen addition to swell volume of high-value fuels products


Capital projects justified by long-term forecast for low natural gas prices relative to expected crude oil prices

Long Term Investment

Options

Catalyst Formulations

Expand H2Compression

Capacity

Increase HDC Treat

and Quench Capacity

Improve HDT

FractionatorProduct

Recovery

Expand SMR

CapacityInstall Gasoil or

ResidHDC

Install Additional Reactors

Add Hydrogen Recovery

Units

Change Hydrogen

Distribution Network

Convert Gasoil HDT to MHC


Conclusions > US natural gas price expected to remain unlinked

from crude oil for long-term

> Energy efforts should focus mainly on low capital opportunities and be stewarded by an effective Energy Management System

> Strong economic incentive to drive inexpensive hydrogen into refined products


Closing > Questions? > Future webinar topics:

– Market conditions – Asset optimisation – Investment support – Sustainable workforce development

> We welcome suggestions for future topics – please email [email protected]

> Next webinar information will go out shortly. > Thank you for joining us!

24 April 2013 PROPRIETARY INFORMATION 20

mailto:[email protected]



KBC IoE Webinar - Capitalizing on Shale Gas

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