Study No. 130 July 2012 CANADIAN NATURAL GAS LIQUIDS IN ENERGY RESEARCH NORTH AMERICA: OVERVIEW INSTITUTE AND OUTLOOK TO 2035 Canadian Energy Research Institute | Relevant • Independent • Objective NATURAL GAS LIQUIDS IN NORTH AMERICA: OVERVIEW AND OUTLOOK TO 2035 Natural Gas Liquids in North America: Overview and Outlook to 2035 Copyright © Canadian Energy Research Institute, 2012 Sections of this study may be reproduced in magazines and newspapers with acknowledgement to the Canadian Energy Research Institute ISBN 1-927037-09-6 Author: Carlos A. Murillo Acknowledgements: The author wishes to acknowledge Rick Funk of Funk & Associates Inc. and Paul Kralovic of Kralovic Economics Inc.; as well as those involved in the production, reviewing, and editing of the material, including but not limited to Peter Howard and Megan Murphy. CANADIAN ENERGY RESEARCH INSTITUTE 150, 3512 – 33 Street NW Calgary, Alberta T2L 2A6 Canada www.ceri.ca July 2012 Printed in Canada Front cover photo courtesy of ATCO Midstream. Natural Gas Liquids in North America: Overview and Outlook to 2035 iii Table of Contents LIST OF FIGURES ............................................................................................................. v LIST OF TABLES .............................................................................................................. xi REPORT HIGHLIGHTS & SUMMARY ................................................................................ xiii INTRODUCTION ............................................................................................................. xix CHAPTER 1 NATURAL GAS LIQUIDS AND THE CANADIAN INDUSTRY ........................... 1 Natural Gas Liquids Overview ................................................................................... 1 Natural Gas Liquids in Canada .................................................................................. 15 CHAPTER 2 NATURAL GAS LIQUIDS SUPPLY AND DEMAND IN CANADA....................... 71 Canadian NGL Supply and Demand Forecast: Methodology ..................................... 71 Alberta NGLs Outlook and Analysis ........................................................................... 89 Canadian Outlook for Propane and Butanes .............................................................. 100 Summary and Conclusions ........................................................................................ 103 CHAPTER 3 NATURAL GAS LIQUIDS SUPPLY AND DEMAND IN THE UNITED STATES .... 105 Forecasting Methodology ......................................................................................... 105 PADD by PADD Overview and Forecast ..................................................................... 120 Summary and Conclusions ........................................................................................ 160 APPENDIX A PETROLEUM ADMINISTRATION AND DEFENSE DISTRICTS (PADD DISTRICTS) AND RELATED STATES ................................................. 165 APPENDIX B NATURAL GAS LIQUIDS INFRASTRUCTURE IN THE UNITED STATES ............ 167 July 2012 iv Canadian Energy Research Institute July 2012 Natural Gas Liquids in North America: Overview and Outlook to 2035 v List of Figures E.1 CERI’s Ethane Supply and Demand Analysis and Outlook, 2004-2035 .................. xv E.2 CERI’s Pentanes Plus Supply and Demand Analysis and Outlook, 2004-2035 ........ xvi E.3 CERI’s PADD I Ethane Supply and Demand Forecast ............................................ xvii E.4 CERI’s PADD III Propane/Propylene Supply and Demand ..................................... xvii 1.1 Methane and Other Paraffin Hydrocarbons ......................................................... 2 1.2 Isomers (top) and Naphthenes (bottom) ............................................................. 3 1.3 Natural Gas Liquids ............................................................................................. 5 1.4 Raw Natural Gas Composition ............................................................................ 5 1.5 Sample Raw Gas Compositions ........................................................................... 6 1.6 Canadian Crude Oil Samples, Light versus Heavy ................................................. 7 1.7 North American Natural Gas Liquids Fairways ..................................................... 8 1.8 Natural Gas Liquids in the WCSB and Alberta ...................................................... 8 1.9 From Hydrocarbons to End Products ................................................................... 9 1.10 Natural Gas Processing ....................................................................................... 10 1.11 Natural Gas Liquids Fractionation ....................................................................... 11 1.12 Midstream Processes and Facilities ..................................................................... 12 1.13 Refinery Processes, Configuration, and Products ................................................. 13 1.14 Underground and Above Ground NGLs Storage Facilities .................................... 14 1.15 Canadian Natural Gas Liquids Productions by Source (mb/d) and Raw Natural Gas Production (MMcf/d), 2000-2010 ............................................. 16 1.16 Canadian Raw Natural Gas Production by Province (MMcf/d) and Average Monthly Natural Gas Price @ AECO ($/GJ), 2000-2010 ............................ 18 1.17 Economics of Dry versus Liquids-rich Natural Gas (Montney), Supply Costs, 2011 .............................................................................................. 19 1.18 NGLs Production (mb/d) and Raw Natural Gas Production (MMcf/d) in Canada, 2002-2010 ............................................................................................. 19 1.19 Canadian Refinery Production of LPGs (mb/d), Refineries Crude Slate (md/b & percent) 2000 to 2010, and 2010 Refined Petroleum Product Breakdown (mb/d & percent) ............................................................................. 21 1.20 Synthetic Crude Oil Production and Capacity by Project (mb/d), Oil Sands Mined & Processed (mt/d), and Off-Gas Production from Upgraders (MMcf/d) and Use (percent), 2008-2011 ............................................................................. 24 1.21 Illustration of Williams’ Fort McMurray Extraction Plant ..................................... 25 1.22 NGLs Supply and Demand ................................................................................... 27 1.23 Petrochemical Production in Canada ................................................................... 28 July 2012 vi Canadian Energy Research Institute 1.24 Ethane Supply and Demand Balance (mb/d) and Natural Gas Production, Export, and Demand Trends in Alberta (MMcf/d), 2002-2Q2012 ......................... 30 1.25 Ethane Supply Sources and Gathering and Delivery Systems in Alberta, 2012 ...... 31 1.26 Ethane Production in Alberta by Source, 2002-Q122012 ...................................... 32 1.27 Propane Supply and Demand in Canada, 2000-2010, Supply and Demand Balance and Propane Production in Alberta, 2002-2011, (mb/d) ......................... 36 1.28 Propane Production in Alberta by Source, 2002-Q12012 ..................................... 37 1.29 Butanes Supply and Demand in Canada, 2000-2010, Supply and Demand Balance and Butanes Production in Alberta, 2002-2011 (mb/d) ............. 38 1.30 Butanes Production in Alberta by Source, 2002 to Q12012 .................................. 39 1.31 Canadian Supply/Demand Balance for Pentanes Plus and Condensate, Condensates and Pentanes Plus Charged to Canadian Refineries (mb/d), 2000-2010, and Pentanes Plus Production in Alberta by Source, 2002-Q12012 .... 41 1.32 Increasing Diluent Needed for Oil Sands Operations ........................................... 42 1.33 Alberta Supply/Demand Balance for Natural Gas Liquids Mix, and NGL Mix Production in Alberta by Source (mb/d), 2002-Q12012 ....................................... 44 1.34 Canadian NGLs Pricing $/GJ (top) and $/bbl (bottom) ......................................... 46 1.35 NGLs Prices as a Percentage of Crude Oil (top), NGLs Gross Frac Spread (middle), and Crude Oil Price to Natural Gas Price Ratio (bottom) ........... 48 1.36 NGLs Economics (top) and Common Gas Processing Contract Structures ............. 49 1.37 Major NGL Infrastructure in Canada .................................................................... 50 1.38 Alberta Straddle Plants and Locations ................................................................. 52 1.39 NGLs Infrastructure in Alberta ............................................................................ 54 1.40 Map of William Energy’s Alberta Assets .............................................................. 55 1.41 Refining Capacity (mb/d) and Number of Refineries in Canada, by Region, 2011 .................................................................................................. 56 1.42 AEGS Pipeline System ......................................................................................... 57 1.43 Cochin Pipeline Reversal Project ......................................................................... 58 1.44 Empress-Kerrobert and Enbridge’s Mainline and Southern Lights Pipelines ......... 58 1.45 Spectra Energy and the Empress System ............................................................. 59 1.46 Plains Midstream Pipelines ................................................................................. 59 1.47 Vantage