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Hot Issues in the Global LPG Markets April 26, 2018 1st Middle East LPG Regional Summit

Four Seasons Hotel, Beirut, Lebanon

Dr. Walt Hart Vice President, NGLs

Walt.Hart@ihsmarkit.com +1 832 679 7240

Confidential. Š 2017 IHS MarkitTM. All Rights Reserved.


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Parting thoughts‌ What are some of the hot issues in the global LPG markets?

LPG

Is there enough demand? Can crackers and PDH units consume LPG not used by premium markets?

LPG

Is there too much demand? Will LPG for power generation or bunkers grow too fast?

Butane

Will butane-rich South Asian demand leave the global butane market too tight?

Propane

Trump Tariffs: What happens if the Chinese go through with 25% propane tariffs?

Confidential. Š 2018 IHS MarkitTM. All Rights Reserved.

Photo: https://commons.wikimedia.org/wiki/File:%22LPG_flame%22.JPG


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Most global LPG growth is driven by a few regions that already have more LPG than they need

Incremental waterborne exports are from gas-based sources, typically propane-rich Confidential. Š 2018 IHS MarkitTM. All Rights Reserved.


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Global LPG demand growth will continue to be led by Asia – driven by chemical feedstock and residential / commercial demand

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Residential / commercial LPG demand is growing steadily but chemicals demand clears the market

Confidential. Š 2018 IHS MarkitTM. All Rights Reserved.


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The residential /commercial sector drives the demand growth in many Asian markets, with new markets continuing to emerge Per Capita Residential / Commercial LPG Demand in Asia, 2017 Estimate Illustration of res/com LPG market penetration in Asia, 2017 60 Japan

kg per capita kg per person

50

Malaysia

Taiwan

40

Brunei

30

Thailand Indonesia

South Korea

20 Philippines

Vietnam

China

India

10

Pakistan Bangladesh, Myanmar 0 0

10000

20000

30000

40000

50000

60000

70000

80000

volume Cumulative Residential / Commerical Demand, kt Source: IHS Markit

Many of these Asian res/com markets are butane-rich Confidential. Š 2018 IHS MarkitTM. All Rights Reserved.

Š 2017 IHS Markit


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Growing, butane-rich South Asian residential /commercial markets being met by a more propane-rich waterborne LPG pool

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Large amounts of propane are available for chemical feedstock demand, but incremental butane will mostly be consumed by residential / commercial markets

Confidential. Š 2018 IHS MarkitTM. All Rights Reserved.


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LPG increasingly important to the Olefin equation as Crackers shift to Ethane Global Ethylene production by feed type (KTA ethylene by feed) 3.5 MMTA Ethylene ~ 9 MMTA LPG

LPG, 13,383

Other, 22,891

Propane

9,812

Ethane, 69,629

Source: IHS Markit

Confidential. © 2018 IHS MarkitTM. All Rights Reserved.

63,832

100% 80% 60%

21,706

57,481

Propylene production by feedstock

2017 (inner) Production = 143 MMTA

40%

2022 (outer) Production = 173 MMTA

20%

More ethane for ethylene more propane for propylene

0% 2000 2003 2006 2009 2012 2015 2018 2021 Naphtha, 66,669

Gasoline (FCC) Nat Gas Butane © 2018 IHS Markit

Source: IHS Markit

Naphtha Ethane Coal

Gas Oil Propane Other © 2018 IHS Markit


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Not enough LPG demand?

Too much LPG demand?

• US propane production likely to continue to increase rapidly following shale development

• Asian residential / commercial demand butane rich – is there enough butane?

• India and Indonesia growth eventually will level off – what is the next big growth country? • China sensitive to LNG competition

>LNG glut on the way

• Chemicals potentially entering a “super cycle”? • How many large LPG for power generation projects will progress? • Will LPG be used extensively for bunker fuel?

>Tariffs a specter

Continued res/ com and chemical demand should be sufficient to clear the global market - watch for big power projects Confidential. © 2018 IHS MarkitTM. All Rights Reserved.


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A relatively large fraction of China’s waterborne propane imports comes from the US, but those exports are a small part of the overall US propane exports

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South Korea and Japan would benefit from a drop in US propane prices but already have the majority of their waterborne propane supply from the US

Confidential. Š 2018 IHS MarkitTM. All Rights Reserved.


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Even if there are Chinese tariffs, US propane exports will need to continue and global markets would need to rebalance • US propane production likely to continue to increase following oil and gas >Propane would be one of many moving parts in the economy • Larger initial effect while propane trade rebalances >Less US propane to China - more to other Asian countries (other regions too) >Existing contracts would need to be honored >Likely lower contract volume nominations and more spot transactions • Downward pressure on Mont Belvieu prices – not likely the whole 25% >Upward pressure on Middle East prices • Good opportunities for traders and Middle East / Australian producers Confidential. © 2018 IHS MarkitTM. All Rights Reserved.


Thank You! Dr. Walt Hart Vice President, NGLs +1 832 679 7240 tel +1 713 591 2399 mob Walt.Hart@ihsmarkit.com

Confidential. Š 2018 IHS MarkitTM. All Rights Reserved.

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