Natural Gas Liquids Fundamentals - NOVEMBER 2022 - cloudfront.net
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Natural Gas Liquids Fundamentals NOVEMBER 2022
Legal Disclaimer
This presentation includes “forward-looking statements.” Such forward-looking statements are subject
to a number of risks and uncertainties, many of which are beyond AR’s control. All statements, except
for statements of historical fact, made in this presentation regarding activities, events or developments
are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. All forward-looking statements speak only as of
the date of this presentation. Although AR believes that the plans, intentions and expectations
reflected in or suggested by the forward-looking statements are reasonable, there is no assurance that
these plans, intentions or expectations will be achieved. Therefore, actual outcomes and results could
materially differ from what is expressed, implied or forecast in such statements. To the extent a
forward-looking statement contained in this presentation speaks as of a period covered by prior
guidance, the information in this presentation is intended to supersede, and investors should not rely
on, such prior guidance.
AR cautions you that these forward-looking statements are subject to all of the risks and uncertainties,
most of which are difficult to predict and many of which are beyond the AR’s control, incident to the
exploration for and development, production, gathering and sale of natural gas, NGLs and oil. These
risks include, but are not limited to, commodity price volatility, inflation, lack of availability of drilling and
production equipment and services, environmental risks, drilling and other operating risks, regulatory
changes, the uncertainty inherent in estimating natural gas and oil reserves and in projecting future
rates of production, cash flow and access to capital, the timing of development expenditures, and the
other risks described under the heading "Item 1A. Risk Factors" in AR’s Annual Report on Form 10-K
for the year ended December 31, 2021.
2
NGL Price Recovery Expected in 2023
NGLs today are globally priced commodities, with the pricing outlook benefiting
from moderate supply growth and strong demand, particularly from Asia
U.S. NGL Market Overview and Outlook
Demand
• Resilient domestic and international demand from petchem and residential/commercial
sectors
• New LPG demand expected to continue, including over 500 MBbl/d of new PDH demand
expected in China through 2023, which represents 5% global demand growth
Supply
• U.S. supply growth to be offset by global declines (led by OPEC+ cuts), resulting in just
3% global supply growth expected in 2023 and an undersupplied market
• Producer capital discipline and maintenance level capital programs result in a low
growth outlook
Outlook
• Global markets are expected to be undersupplied in 2023, led by the reopening of China
• New PDH plant buildouts combined with normalized PDH plant utilization rates are
expected to be the primary driver of strong demand growth
Sources: Platts Analytics
3
Global NGL Production vs. LPG Export
+3% +11%
US AND WORLD C2+ NGL GROWTH IN LPG
PRODUCTION GROWTH FORECAST EXPORTS in 2023 YOY
FOR 2023
World C2+ NGL Production Forecast (MBbl/d)* U.S. Waterborne LPG Exports (MBbl/d)
14,000 2,100
12,000 1,900
1,700
10,000 US 2023E:
8% growth YOY
US 1,500
8,000
1,300
6,000
1,100 Resumed export
World 2023E: growth in 2023/2024
4,000 Rest of World -2% decrease YOY following slowdown
900
in Q2/Q3 2022
2,000
700
0
500
*Note: Includes recovered ethane only.
Source: Platts Analytics data as of 10/31/2022. 4
Propane Storage Rebuilt to 5-Year Average
Despite rising US propane storage inventories, propane days of supply remains
below the 5-year average.
U.S. Propane Inventories (MMBbls) Propane Days of Supply (Days)
120 100
90
100
80
70
80
60
MMBbls
2021
Days
60 50
40
40
30
2022
20 2021
20
10
2022
- -
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
5-Year Range 2022 2021 5-Year Average 2017-2021 5-Year Range 2022 2021 5-Year Average 2017-2021
Source: Energy Information Administration (EIA) as of 11/09/2022. 5
NGL Price Relative to Crude Oil
Domestic and international LPG prices have weakened relative to crude oil
primarily due to the sharp reduction in China demand in 2022
C3+ NGL Prices & % of WTI (1) Far East Index (FEI) Propane Prices & % of Brent
($/Bbl) % of WTI MB C3+ NGL ($/Bbl) ($/Bbl) % of Brent FEI Propane ($/Bbl)
C3+ Price as FEI Propane Price
$70 100% $80 100%
Historical MB % of WTI as % of Brent
C3+/WTI% FEI Propane Price
5-year avg: 90% 90%
$70
$60 ~63% C3+ NGL Price
80% 80%
$60
$50 69% 68% 70%
70%
$50 58%
57% 60% 60%
$40 56% 54% 56% 54% 54%
51%
50% $40 50%
$30
40% 40%
$30
30% 30%
$20
$20
20% 20%
$10 $10
10% 10%
$0 0% $0 0%
1Q22A 2Q22A 3Q22A 4Q22E 2023E 1Q22A 2Q22A 3Q22A 4Q22E 2023E
6
Source: ICE data Mont Belvieu, Far East Index, WTI and Brent strip pricing as of 11/10/2022.
1) Based on Antero C3+ NGL component barrel consists of 56% C3 (propane), 10% isobutane (Ic4), 17% normal butane (Nc4) and 17% natural gasoline (C5+).The Impact of the U.S. Shale Revolution
The Shale Revolution dramatically changed the NGL landscape, turning the U.S. into
a net exporter after decades of importing NGL products
U.S. NGL Production (MBbl/d) (1) U.S. NGL Exports / (Imports) (MBbl/d)
7,000 2,500
6,000
2,000
Driven primarily by
shale oil development
5,000
with high oil prices
1,500
4,000
MBbl/d
MBbl/d
1,000
3,000
Pentane Net importer of NGLs
500
2,000 Isobutane
Butane
-
1,000 Propane
Ethane(1)
0 (500)
1984 1990 1996 2002 2008 2014 2020 1984 1990 1996 2002 2008 2014 2020
7
1) Includes recovered ethane volumes and natural gasoline (C5).
Source: U.S. Energy Information Administration 1984-2022. 2022 YTD data through August. NGL exports/imports includes ethane, propane, normal butane, isobutane and natural gasoline.LPG Exports
Recently announced OPEC+ cuts will limit OPEC LPG production and exports
LPG Exports: U.S. versus Middle East
1,800
The U.S. is the incremental
1,600 supplier for growing world
demand.
1,400
1,200
MBbl/d
1,000
800 Supply from Middle East nations flat,
OPEC policies limit growth potential
600
400
200
0
US Qatar UAE Saudi Arabia Kuwait Iran
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Source: Platts.
Notes: Propane and Butane exports only based on cFlow ship tracking data. U.S. Exports do not include exports via land to Canada and Mexico. 2022 YTD through September 2022. 8U.S. NGL Demand
US NGL demand growth driven primarily by exports of LPG (propane/butane)
U.S. C3+ Demand by Sector (MMBbl/d) Estimated U.S. C3+ Demand – 2023
5.0
4.5
4.0 Petrochemical
3.5 11%
MMBbl/d
3.0 Refining/
Exports 2021-2023 Change: +8% Exports Blending
2.5
53% 19%
2.0
1.5 Refining/Blending 2021-2023 Change: +8%
Residential/
1.0 Commercial
Residential/Commercial 2021-2023 Change: +6%
17%
0.5
Petrochemicals 2021-2023 Change: -4%
0.0
2016 2017 2018 2019 2020 2021 2022 2023
Source: S&P Global Platts as of 10/31/2022 9China LPG Demand
China’s LPG demand growth driven by the petrochemical industry, fueled by PDH
and steam cracker buildout
China LPG Demand by Sector (MMBbl/d) Forecast China LPG Demand – 2023
2.5 Transport
Own Use (Refinery)
2%
2.0 Transport 2021-2023 Change: +1% 7%
MMBbl/d
Own Use (Refinery) 2021-2023 Change: 0% Industrial
1.5 Res/Comm
Industrial 2021-2023 Change: -2% 13%
46%
Petrochemical 2021-2023 Change: +49%
1.0
Petrochemical
0.5
Res/Comm 2021-2023 Change: -2% 32%
0.0
2016 2017 2018 2019 2020 2021 2022 2023
Source: S&P Global Platts as of 10/11/2022 10Macroeconomic Indicators
Chinese economy still impacted by Global Supply Chain Pressure
“COVID-zero” policy in 2022 but return Index is reflecting a return to
to growth expected in future years normal - potentially positive for
petrochemical producers
Quarterly China GDP YoY% NY Fed Global Supply Chain Pressure Index
China GDP YOY % NY Fed GSCPI Index
20 ‘Post-COVID’ Rebound 5
4 Supply Chain
15
Constraints
3
10
China path to
recovery? 2
5
1
0
0
-5
-1
COVID
-10 -2
Source: Federal Reserve Bank of New York Global Supply Chain Pressure Index (GSCPI), Bloomberg
The index is normalized such that a zero indicates that the index is at its average value with positive values
Source: China National Bureau of Statistics, Bloomberg as of 10/31/2022
representing how many standard deviations the index is above this average value (and negative values
representing the opposite). 11China PDH Utilization Rates to Rebound on Re-opening
Supportive Fundamentals
China LPG demand has been negatively impacted by Covid lockdowns and supply chain
constraints. A re-opening is expected to increase demand and support LPG prices.
China PDH Utilization Rates (2020 - 2022)
100% Utilization rates
expected to
Power Rationing and
95% increase as
Initial COVID Pre-Olympics
Outbreak and Emissions Control China re-opens
90% Lockdowns Omicron
Lockdowns
and Supply
85%
Chain
Constraints
80%
75%
70%
84% 86%
83%
65% 81% 80%
75%
60% 72% 70% 71%
67%
55% 61%
50%
1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22* 4Q22E
Source: S&P Global Platts, *3Q 2022 through Aug 22 12China Crackers and PDH Plant Outlook
China is adding more than 506,000 Bbl/d of new PDH capacity in 2022 and 2023 with
86,000 Bbl already online in 2022. This represents ~5% of global demand.
2022 New PDH 2023 New PDH
Capacity Capacity
159,000 Bbl/d 347,000 Bbl/d
Source: Argus as of October 2022 13LPG Export Capacity: Unconstrained Outlook
LPG exports unconstrained in the USGC and Northeast, resulting in a positive outlook
for Mont Belvieu pricing relative to international pricing
Northeast LPG Supply vs. Demand & Takeaway
U.S. Gulf Coast LPG Exports vs. Capacity
Capacity (Excluding Rail)
PADD 3 Existing Capacity Targa Expansion LPG Export Forecast
500
2,000
450
1,800
400
1,600
350 Northeast LPG
1,400 Supply
300 Mariner East
System
1,200
MBbl/d
MBbl/d
250
1,000
200
800
150
600
100
400 Regional Demand
200 50
- 0
2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024
Source: S&P Global Platts as of 10/31/2022. Source: S&P Global Platts, Antero Company Estimates. 14Northeast NGL Producers are Advantaged
Producer Disadvantaged: Producer Advantaged & Unconstrained:
E&Ps in Permian, Rockies, Mid-Con & Bakken Antero Resources in Appalachia
AR is the largest C3+ producer
with the most international
exposure in Appalachia
Mariner East Anchor shipper on ME2
FROM ROCKIES Conway Who Captures the Arb at Marcus Hook?
Answer: AR and other Appalachian E&P’s
• Direct sales to most attractive international
(ARA & FEI) & domestic markets
• Fixed terminal rates
• Local fractionation & marketing to sell purity
products in-basin for local demand
Results in “Mont Belvieu plus” pricing
netbacks captured “at the dock” by AR
Mont
Belvieu Who Captures the Arb at the Gulf Coast?
Answer: Midstream & LPG off-takers (not E&P’s)
• No direct E&P access to international markets (i.e.
producers only receive Mont Belvieu linked pricing)
• No local fractionation to sell marketable purity
products in-basin
Results in “Mont Belvieu Minus” pricing
“before the dock”
15C3+ NGLs: Northeast Market Dynamics and Supply
Antero’s C3+ blended differential to Mont Belvieu has improved with Mariner East 2
export takeaway and ability to access international markets
Northeast C3+ NGL Supply Northeast C3+ NGL Takeaway
600
Pentanes Midwest/
500 Conway
400
MBbl/d
IsoButane Cornerstone
300
Normal Butane TEPPCO
200 Export
Propane Markets
100
0 Mariner East 2
~275+ MBbl/d
~202 MBbl/d of Northeast C3+ demand vs.
U.S. Gulf Mariner East 2, placed in
~454 MBbl/d of Northeast supply in 2021 Coast service at YE 2018 and fully
- Resulted in 44% of production consumed locally completed in 2022, provides
- Remainder moved primarily by rail and exported additional baseload demand
and access to international
Differentials to Mont Belvieu LPG markets
tightened in 2019 with Mariner East 2
coming online
Source: S&P Global Platts as of 10/31/2022. 16Ethane: Northeast Market Dynamics & Supply
Antero’s ethane has a natural gas value pricing floor; pricing improvements from
additional petrochemical and takeaway demand is all “Upside”
~210 MBbl/d of ethane current rejected in Northeast Ethane Takeaway and Capacities
Northeast (~39% of potentially recoverable ethane)
Antero is an anchor supplier to Shell’s Mariner West
Shell Cracker
105 MBbl/d (2022)
cracker expected in-service in 2022 Utopia 50 MBbl/d
50 MBbl/d
Antero ethane firm sales contracts ~50%
gas-linked and ~50% Mont Belvieu-linked.
Mariner East 2X:
~70-200 MBbl/d
Northeast Ethane Supply (MBbl/d)
800 Full Ethane Recovery
ME2X
700 Actual Ethane Recovery
600
500 Shell Cracker
MBbl/d
400
300 Utopia
Mariner East
200
Mariner West
100
ATEX
0
Source: S&P Global Platts. 17Summary
NGLs today are globally priced commodities, with the pricing outlook benefiting
from moderate global supply growth and strong demand, particularly from Asia
Propane days of supply at 5-year lows could result in
an undersupplied U.S. market in 2023
Inelastic global NGL demand growth driven by
improvements in living standards and subsidies
U.S. NGL differentials have tightened vs. global prices as
exports provide uplift with premium Brent-linked pricing
Price outlook for U.S. LPG exports is strong as global
demand grows and export supply growth
from the Middle East subsides
Appalachian producers are geographically advantaged vs.
U.S. Gulf Coast producers – captures the international
pricing uplift by selling at the export dock (Marcus Hook)
18Appendix
Natural Gas Liquids Primer
Natural Gas Liquids “NGLs” are contained in the rich natural gas stream, but after
processing, condense into liquid form for storage, shipping and consumption
Purity Products
Y-Grade De- Ethane
Ethane*
ethanization
Wellhead
Gas Propane*
Processing C3+ Raw
NGLs Butane*
Rich Gas
(>1100 Btu) Fractionation Isobutane
Pentane
Dry Gas
LNG and
Pipeline Export
Markets
Natural Gas Domestic Export
Dry Gas
Dry Gas Pipeline Consumption Markets
(Natural Gas Liquids Primer
NGLs play an essential role in the domestic and international industrial, residential,
commercial and transportation industries
Gas Linked Pricing Crude Linked Pricing
Iso-
Methane Ethane Propane Butane Butane Pentane
Natural Gas C2 C3 C4 IC4 C5
Industrial
Primary Chemical Residential Industrial
All Industrial Transportation
Sectors Industrial Commercial, Transportation
Chemical
Heating,
Ethylene Winter Alkylate feed
Primary Crop drying, Gasoline blend
Power Production Gasoline to produce
Uses Commercial, and diluent
(For plastics) Blending gasoline
Propylene
Higher Heating Value
1000 Btu 4000 Btu
21Appendix and Supporting Information
This material is intended for benchmark pricing estimates only and does not reflect Antero actual contracted prices
Key Terms and Definitions:
• ARA – “Amsterdam-Rotterdam-Antwerp.” ARA is a port and refining area in the Belgian-Dutch region of Europe.
• CIF - “Cost, Insurance, Freight.” CIF means that the seller delivers the goods on board the vessel or procures the goods already so
delivered. Note that the CIF ARA LPG prices represent a delivered cargo into Europe.
• FEI – “Far East Index.” The Argus Far East Index is the average of the Argus Japan CFR propane quotation and the Argus South China
CFR propane quotation. Note that the FEI LPG prices represent a delivered cargo into Asia
• CFR - “Cost and Freight.” CFR means that the seller delivers the goods on board the vessel or procures the goods already so delivered.
• Baltic Index - The Baltic LPG Index is a shipping cost estimate based on a voyage from Ras Tanura, Saudi Arabia to Chiba, Japan round
trip, laden (full) on the outbound journey and ballast (empty) on the return trip, carrying a fully refrigerated cargo of 44,000 MT (+/-
5%) propane, butane, or a mixture. The index is published by the Baltic Exchange.
Intercontinental Exchange (ICE) provides the benchmark pricing Information used in this presentation. For more information, visit
https://www.theice.com/energy/natural-gas-liquids
ICE DEFINITION
ANTERO LABEL HUB PRODUCT
ARA C3 CIF ARA Propane Argus Futures
ARA C4 CIF ARA Butane Argus Futures
FEI C3 Far East Propane Argus Futures
FEI C4 Far East Butane Argus Futures
MB C3 MT.B-ENT Propane OPIS Futures
MB C4 MT.B-ENT Normal Butane OPIS Futures
Relevant Conversions:
• Propane = 521 gallons per metric ton
• Butane = 453 gallons per metric ton
Antero Internal Shipping Estimates are derived by Antero using several sources, including Baltic LPG Index Futures and broker estimates.
• Rates are adjusted based on travel time from Marcus Hook, PA to Northwest Europe (Amsterdam-Rotterdam-Antwerp Region) and
Marcus Hook, PA to Asia (Chiba, Japan).
• Antero’s actual shipping rates may differ from these estimates.
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