Propane Supply and Logistics Overview Pennsylvania Public Utility Commission Winter Meeting November 09, 2006 Harry Hunter Hanger Jr. Manager of Imports and Risk Management Atlantic Energy Import Terminal Chesapeake, VA A UGI Energy Services Company
U.S. Propane Supply Domestic propane supplies are sourced from: 50% Natural Gas Processing 50% Crude Oil Refining 10-15% of U.S. supply is Imported from: Canada by rail or pipeline Waterborne Import Terminals Price Basis Locations: Mount Belvieu, Texas (Gulf Coast) Conway, Kansas (Mid-Continent) Pricing have generally followed crude values during the spring and summer and then followed demand fundamentals during the winter peak demand season (pricing increasingly more volatile) 2
Propane Value Relationship to Crude and NG 3
U. S. Propane Demand Petrochemical Feedstock Building blocks for plastics, fibers, and chemicals Retail Market (Highly Seasonal) Residential Customers Commercial space heating Industrial space heating and processes Agricultural crop drying Engine fuel (folk lifts) Grill Cylinders 4
Retail Market End Users Industrial 11.1% Agricultural 6.9% Engine Fuel 6.2% Residential 48.2% Cylinder Refill 4.9% Commercial 22.9% 5
Retail Marketing Companies Fragmented Market with 4,000+ Companies in the U.S. Large Multi-State Marketers Regional Independents Small Mom & Pop companies Broad range of sophistication and operating philosophy Largest multi-state marketer has +/- 10% market share Retail segment sells around 11 billion gallons annually 50% of annual sales are made during 4 winter months 6
Retail Marketers Portion of Sales (2003) AmeriGas 11% 9% 6% Ferrellgas Suburban Cenex Heritage Cornerstone Star Gas 6% Inergy 56% 1% 1% 1% 2% 3% 4% MFA Southern States Independent Marketers 7
U.S. Propane Storage Capacities Million Barrels 140 120 100 80 60 40 20 0 131.58 Underground (Pri mary) 5.35 Aboveground (Pri mary) 12.36 0.83 Ra ilcars Tra nsports 9.15 Deale r Bulk (Secondary) 1.69 Bobtai ls 111.25 Domestic Consum er (Tertiary) Million Barrels 131.58 5.35 12.36 0.83 9.15 1.69 111.25 8 October 16-17, 2000 NPGA Boar d Meeting - Minneapolis, MN Slide 11
Distribution Logistics Over 250 Distribution Supply Points across U.S. Major storage and pipeline terminal facilities (Belvieu, Conway, Hattiesburg, Sarnia) Refineries Natural Gas Plants and Fractionation Facilities Pipeline Terminals Rail Terminals Waterborne Import Terminals Truck transportation is required from these distribution supply points to the propane dealer s local bulk plant and then again to the end user tanks. 9
UNITED STATES LPG DISTRIBUTION SYSTEM LEGEND MAJOR LPG PRODUCT PIPELINE 3 3 MAJOR LPG PRODUCT IMPORT TERMINALS CO KA MAP KM MAP KM CO CO 5 5 TEP MAP PH CN TEP MA PH CN TEP MAP PH MAP KO TEP DIX DIX 1 2 3 4 5 MONT BELVIEU Hattiesburg Edmonton CONWAY/HUTCHINSON SARNIA RG
Transporting Propane High seasonal heating demand for propane results in competition for limited delivery capacity during the winter months. Demand ratios in PA area are 6 X 1 (winter vs. summer) with pipeline delivery capacity of a little over 2 X 1 and refineries production is about 1 X 1 These ratios require supplemental supply sources (storage/rail) Typical tank sizes for the various means of transportation: Ocean Going Ships ----------- Barges ----------------------------- Railcars ----------------------------- Transport trucks ---------------- Delivery Bobtails ---------------- 4 to 18 MG 420k to 1 MG 30,000 gallons 10,000 gallons 3,000 gallons 11
Residential Storage A residential home tank is sized based on propane appliances and types of usage (500 or 1,000 gallon tank) Generally, residential customers will need a delivery every 30 days and should be able to go 45 days assuming normal winter weather Deliveries are typically scheduled by a computer program that projects usage factoring in customer appliances, usage history, and actual Degree Days 12
Pennsylvania Sources of Propane Retail Demand of Around 350 Million Gallons per Year TEPPCO Pipeline Refineries Storage Terminal (Dubois, Greensburg, Eagle) (Del City and NJ refineries) (Schafferstown) Rail Cars directly to dealer bulk storage locations Rail Cars to Transshipment Terminals (6 locations) Import Terminals and Storage Facilities in surrounding states supplement supply in PA during peak demand 13
TEPPCO System Overview N. Little Rock Kingsland El Dorado Lemont/Joliet/Blue Island Cape Girardeau Dexter Fontaine Lebanon, IN Rock Island Griffin Seymour Princeton Creal Springs Calvert City W. Memphis Helena Watkins Glen DuBois Lima Greensburg Coshocton Lebanon Todhunter Oneonta Selkirk Hartford Mills Sch'town/Sinking Spring Providence Twin Oaks/ Marcus Hook Eagle Tyler Arcadia Mt. Belvieu Baytown Hastings Beaumont Marine TEPPCO TERMINALS SHIPPER TERMINALS 14 CENTENNIAL PIPELINE
Truck Transportation Delivery Costs Truck deliveries to retail dealer bulk plants are effected by: Distance from supply source Seasonal Demands Driver DOT on duty time limitations Customer faithfulness to a carrier during the slow season Road conditions Availability of loading space Performance of other trucks and rail transportation options In general, the Truck transportation Differential in PA is 4-8 CPG 15
Laid-In Location Differential Costs to PA Supply Points Effected by: Geographic area within state Method of delivery (pipeline, rail, refinery) Season (summer or peak winter 6X1 ratio) Demand (weather pattern/timing) Performance of other supply points Performance of truck and rail transportation In general Location Differentials at PA primary supply points: Summer 6-12 CPG Winter 14-25+ CPG 16
Component Costs of Retail Price of Propane in PA Market Basis Cost (current market value @ Mt. Belieu, TX) PLUS Location Differential (cost to deliver to particular market area) PLUS Transport Freight Cost (tractor trailer delivery to bulk plant) PLUS Bobtail Delivery Cost (final delivery to customer) PLUS Dealer margin to cover operating costs, etc. 17
Summary of Winter Propane Supply for PA U.S. overall inventory is at 2 nd highest levels since 1993 (72 million bb or over 3 billion gallons) PA inventories are at seasonal levels (proprietary information) TEPPCO has increase pump capacity to PA terminals by 300k gallons per day (an increase of +40% over last year) U.S. propane base value at MB has been very volatile and has ranged between 90.00 cpg and 1.15 cpg since last May Supply and transportation are positioned for normal weather patterns and demand Continued refinery propane production during peak demand is a crucial factor significantly influencing supply availability and pricing in this market Ultimately the most significant factor in the Mid-Atlantic propane market is the pattern and intensity of the cold weather 18