Recent Developments in International Supply and Demand of Propane

1. Recent Developments in International Supply and Demand of Propane NPGA 2012 Winter Board of Directors Meeting Ron Gist January 30, 2012 Key West, FL

2. Several Key Industries Influence Both Regional and Global Propane Supply • Propane is a BYPRODUCT—It is not an “on-purpose” product like crude oil or petrochemicals. • Thus, supply of propane follows developments in three key segments of the oil & gas industry. • Propane is produced from: • Processing of associated gas (from crude oil wells) • Processing of non-associated gas (from gas wells) • Refining • Propane production will move up or down with changes in these industries. • For example, in 2009 world propane supplies declined with cutbacks in OPEC crude oil production rates and a slowdown in global refining activity, but supplies have now rebounded.

3. The Global Economy Impacts Many FactorsThat Affect Propane Supply/Demand • The economy • Consumption of refined products • Refined product prices • Refinery production of LPG • Demand for crude oil • Production of crude oil • Crude oil prices • LPG production from associated natural gas • The economy • Demand for natural gas • LPG production from non-associated natural gas • The economy • Consumption of LPG by all sectors • Residential/commercial • Autogas • Etc. • Consumption of petrochemicals • LPG demand as feedstocks

4. The Global Economy is Expectedto Continue to Grow • The global economy should grow by about 3% to 4%. • Thus, demand for energy should rise, which will increase LPG supplies (consumption must also increase). • There is some potential for lower economic growth. Year-Year Growth ---- 2008 ---- ---- 2009 ---- ---- 2010 ---- ---- 2011 ---- ---- 2012 ---- ---- 2013 ----

5. LPG Production from Gas Processing ShouldGrow Faster than Production by Refineries • LPG (total propane and butane) extracted from associated gas should rise by 3.8% through 2015 as crude oil production rates increase. • Rising production from non-associated gas is also a key factor in the expected growth in LPG supply (3.7% growth through 2015). • Refinery expansions are also leading to higher LPG production but at a slower growth rate of 2.0% through 2015). World LPG by Supply Source, Million Tonnes

6. Most of the Increase in Global LPG Supplies Should Come from the Middle East and Asia LPG Supply, Million Tonnes • Global LPG production expanded through most of the past decade. • However, the economic slowdown in 2009 reduced demand for oil which led to the drop in LPG production. • Future world LPG supply growth looks positive. • Supply is even starting to expand again in the U.S. due to shale gas development (but remains weak in Canada). • Very strong growth is expected in the Middle East.

7. In the Middle East, Most of the Increase Should Come from Iran, Qatar and the UAE • LPG production in the Middle East increased noticeably between 2000 and 2008. • LPG production declined in 2009 due to cuts in crude oil production rates. • Project delays in the region also contributed to a slowdown in the regional supply build. • Most of the future LPG production growth should occur in Iran, Qatar and the UAE. • Production should rise more slowly in Saudi Arabia and other countries in the region. Mideast LPG Supply, Million Tonnes

8. In Asia, LPG Production Will Continue to RiseDue to Growth in the Regional Refining Industry • LPG production in Asia has expanded by 4.7% per year since 2000. • Chinese LPG production is increasing particularly fast as the country’s refining industry expands rapidly to meet rising demand for petroleum products. Mideast LPG Supply, Million Tonnes

9. The Expansion of Global LPG Supplies is Primarily Occurring in the East of Suez Region • LPG supply should expand rapidly in the East of Suez region. • The most significant LPG supply expansion should occur in the Middle East where rising production of crude oil and natural gas is the key driver. • This rapid development of LPG production in the East of Suez region should increase East-to-West LPG trade. LPG Supply, Million Tonnes

10. Regarding LPG Demand, Consumption Is Rising Quickly In the Middle East and Asia • LPG demand growth has been strong in Asia and the Middle East. • Although Asia is already the largest LPG consuming region, it is still expanding. • The Middle East has become a significant LPG demand center due to the rapid expansion of the petrochemical industry and continued growth in the res/com sector. • Overall, demand in Europe and North America is reasonably flat but could increase if price-sensitive LPG supplies are available. • Demand will continue to expand slowly in Latin America due to rising consumption in the res/com market. LPG Demand, Million Tonnes

11. The Residential/Commercial and Chemical Sectors are the Dominant End-Use Markets for LPG • The residential/commercial market has been a high growth sector since 2000. • However, growth in the res/com sector has slowed somewhat due to higher prices & the economic downturn. • The res/com and chemical market sectors are the two largest market sectors—accounting for nearly 75% of total global LPG consumption. • Future LPG market growth is very dependent on these two large end-use markets. • Engine fuel markets also have high growth potential over the longer term. World LPG Demand, Million Tonnes

12. Demand Growth in the Res/Com & Chemical Sectors Will Have a Large Impact on Future LPG Markets • Over 85% of total LPG demand growth through 2014 is expected to occur in the res/com and chemical sectors. • Thus, global LPG market dynamics will be strongly influenced by these key market sectors. • If res/com growth slows, then more LPG will be directed towards the chemical feedstock market, which will change trade flows and likely put more downward pressure on prices. LPG Demand by End-use, Million Tonnes

13. Asia will Continue to Lead the Expansionof Global Res/Com Demand for LPG Residential & Commercial LPG Demand, Million Tonnes • Asia is clearly the largest user of LPG for residential & commercial applications at almost 60%. • Between 2009 and 2014, Asian res/com demand growth of about 10 million tonnes per year is expected. • Latin America is the second largest consuming region in this sector. • The Middle East is growing fairly fast, but from a small base.

14. LPG Consumption as Chemical Feedstock is Expanding Rapidly in the Middle East • Worldwide chemical consumption of LPG is expected to increase by about 17 million tonnes from 2009 to 2014. • The largest growth in chemical demand for LPG is expected to occur in the Middle East, with total growth of nearly 80% by 2014. • LPG consumption as chemical feedstocks will also increase in North America, Europe and Asia if global supplies expand as expected. Chemical LPG Demand, Million Tonnes

15. Global LPG Exports Are Expected to IncreaseDuring the Next Few Years • Global LPG exports ramped up between 2002 and 2008 but then declined as LPG supplies contracted in 2009. • The Middle East will have the biggest impact on global LPG trade during the next few years. • African LPG exports are not expected to increase very fast. • Total global LPG exports are expected to rise by around 10 million tonnes per year by 2014. Major World LPG Exports, Million Tonnes

16. Essentially All LPG from the Middle East Remained Within the East-of-Suez Region in 2010 3.0 5.3 0.3 0.4 2.2 Asia 1.2 0.6 3.0 0.8 2.0 1.4 2.9 0.3 0.5 3.5 2.5 0.5 2.0 3.7 0.3 0.5 0.7 19.7 0.4 (Million Tonnes of LPG per Year)

17. Approximately 1.5-2.0 Million Tonnes/Yearof LPG Could Move from East to West in 2015 3.0 3.3 0.4 0.2 1.2 Asia 1.2 0.6 3.1 2.7 2.5 2.5 1.7 1.4 1.3 5.5 1.8 1.2 2.4 7.1 0.6 0.4 0.9 20.6 0.5 0.6 0.6 0.6 (Million Tonnes of LPG per Year)

18. Propane Supplies Should Rise by About20 Million Tonnes Between 2010 and 2014 LPG Supply, Million Tonnes • Global propane production should reach about 144 MM tonnes in 2012, or roughly 4.9 MM BPD. • North America is currently the largest propane producer in the world. Production has started to rise due to the effects of shale gas production. • The Middle East is the fastest growing supply region, and should surpass North America this year. 75.5 billion gallons NOTE: 1 tonne of propane = 522 gallons

19. Asia and the Middle East Represent the Strongest Growth Markets for Propane Demand LPG Supply, Million Tonnes • North America is currently the largest consumer of propane. • However, demand in Asia is growing rapidly, and should surpass North America in about 2013 or 2014. • The Middle East is also becoming a large consumer of propane, and should surpass Europe by 2015. NOTE: 1 tonne of propane = 522 gallons

20. Price Spread Between NW Europe and Mont Belvieu Soared Last Winter and Again in December Cents Per Gallon

21. Waterborne Exports of Propanefrom the U.S. Soared in Mid-2009 Thousand Barrels per Month • Annual exports of propane totaled only 5.5 to 7.0 million barrels in 2007 and 2008. • Propane exports soared to over 25 million barrels in 2009, 34 million barrels in 2010 and 37 million barrels in 2011. • The primary driver behind this sharp jump has been low propane prices in the U.S. relative to the rest of the world. • Total annual exports of butane remained flat at 4 to 6 million barrels. • Several new export terminal projects have been announced.

22. Propane Exports from the U.S. Have Been High Because … 22 • Because the U.S. is a source of low-priced propane. • The global market has been tight, but the U.S. market has been well supplied. • Because: • Natural gas production rates has been rising rapidly. • And gas plant margins have been very attractive. • And because: • High cracking rates of ethane that have displaced some propane. • (Mild winter weather this year.)

23. Conclusions About the Global Propane Market 23 • Propane supplies are expected to start expanding at a faster rate in 2012. • These rising supplies should start to relieve some of the tightness in the market that has occurred recently and increase global trade. • Prospects for supply growth are dependent on several key variables: • Continued improvements in the global economy • Commissioning and ramp up of export projects in the Middle East. • Impact of political unrest in producing areas • More propane supply should accelerate new market developments in various market sectors, including: • Res/com demand in developing countries. • Engine fuel/industrial markets • Petrochemical feedstock markets

24. Some Things to Watch • The progress of the economic recovery • Crude oil prices – propane prices will tend to generally follow • Crude oil production and refined product demand • More oil production and higher refinery rates will lead to more propane production • More propane production should reduce prices • U.S. natural gas prices – low prices will lead to strong margins and high propane production • Ethylene production • A strong petchem market should result in higher feedstock demand • Global surplus of LPG should result in strong competition among feedstocks

25. Thank you. I look forward to your questions.

26. About This Presentation • This presentation has been prepared for the sole benefit of attendees at the NPGA 2012 Winter Board of Directors meeting. Neither the presentation nor any part of the presentation shall be provided to third parties without the written consent of IHS. Any third party in possession of the presentation may not rely upon its conclusions without the consent of IHS. Possession of the presentation does not carry with it the right of publication. • IHS conducted this analysis and prepared this presentation utilizing reasonable care and skill in applying methods of analysis consistent with normal industry practice. All results are based on information available at the time of review. Changes in factors upon which the review is based could affect the results. Forecasts are inherently uncertain because of events or combinations of events that cannot reasonably be foreseen including the actions of government, individuals, third parties and competitors. NO IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE SHALL APPLY.

27. Contact Information 27 Ron Gist (rlgist@purvingertz.com) +1-713-331-4000 Houston, Texas

28. Outlook for US Propane Supplies Presented to: 2012 Winter Board of Directors Meeting Key West, FL January 30, 2012 Peter Fasullo En*Vantage, Inc pfasullo@envantageinc.com

29. Introduction • Shale plays are transforming the outlook for NGLs: • Record NGL supplies from gas processing: + 375 MBPD or 21% increase in NGL extraction over the past 5 years. • Historical build out of midstream infrastructure. • A resurgence of the US petrochemical industry. • For the past 2 yrs - the NGL business has been very good for midstream players despite a sluggish economy: • Very firm prices and reasonable valuations relative to crude prices. • Record frac spreads and expanding markets. • Reasonably low days-of-supply of inventories. • Yet, propane retailers have faced challenges – a tepid economy, warmer than normal weather and high cost propane have caused lower retail sales and margins.

30. Introduction (cont’d) • Many are still predicting that a surplus of NGLs will occur: • Specifically looking at an oversupply of NGLs sometime between now and 2015. • Believe that the NGL markets, particularly the petrochemical market, can’t expand fast enough. • Can we count on a surplus of NGLs to occur? • And if a surplus of NGLs does occur how will it affect US propane supplies and pricing? • To address these questions we will cover the following: • US propane supply trends and the factors driving propane production from crude oil refining and gas processing. • The role that exports are playing on propane balances. • The outlook for US propane demand and pricing.

31. Major US NGL Supply Sources and End Uses US NGL Market – 2011 avg: 2.675 Million BPD of which Propane was 37% NGL Supply Sources NGLs Supplied ¹ NGL End Uses NGLs Consumed ² Ethane -- 42% Propane – 28% Normal Butane – 7% Iso-Butane – 9% Natural Gasoline – 14% Primary Petrochemicals Ethane -- 98% Propane -- 36% N-Butane – 26% Natural Gaso - 11% Gas Processing 55% (1,455 MBPD) 80% (2,150 MBPD) Space Heating & Other Fuel Uses Propane – 54% 19% (500 MBPD) Ethane – 2% Crude Oil Refining Ethane – 12% Propane – 71% Mixed Butanes – 17% N-Butane – 66% Iso-Butane – 100% Natural Gaso – 72% Motor Gasoline & Blendstocks 15% (390 MBPD) 19% (510 MBPD) Ethanol Denaturing Overland & Waterborne Imports Propane – 77% Mixed Butanes - 15% Pentane Plus – 8% Natural Gaso – 7% <1% (20 MBPD) Propane – 10% N-Butane – 7% Natural Gaso - 10% (diluent) 5% (135 MBPD) Fuel Exports 6% (190 MBPD) ¹ %’s represent the composition of NGL mix from primary sources. ² % of a NGL supplied that is consumed by a market.

32. US Propane Supply Trends • US propane supplies have been declining -- lower imports and declining refinery production offsetting rising supplies from gas processing. • From its peak in 2007, refining propane production down 19% or 63 MBPD to 267 MBPD. • Propane from gas processing up 20% or 100 MBPD since 2007 to 608 MBPD. • Imports down 53% or 86 MBPD from 2007 levels.

33. What’s Happening to Refinery Propane Production? • US refinery capacity has been shutting down: • Over the past 2 yrs 36% (576 MBPD) of East Coast refining capacity has shutdown - another 330 MBPD of the region’s capacity could close by this July. • Small refineries have also shutdown in California and the Southwest. • US refining capacity is expected to increase by 350 MBPD in 2012 - could accelerate the shutdown of additional high cost capacity. • Refinery propane yields have been trending down while propylene yields have been trending upward: • As gasoline demand declines and ethanol blending increases, refiners are changing their fluid cat cracker operations to produce less propane and more propylene. • Consequently, propane yields on refinery crude oil inputs have declined from 2.2% in 2007 to 1.8% in 2011 - equivalent to 58 MBPD of propane.

34. Refinery Propane vs Propylene Production • Refinery propane production has been on a downward trend since 2007, while propylene production has increased. • Based on our outlook for the US refining industry it is likely that refinery propane production remains between 250 to 300 MBPD.

35. Factors Driving NGL Supplies from Gas Processing and Demand Greater Gas Production Shale and Unconventional Gas Plays • Expansion of NGL Markets • US markets gaining confidence that NGLs will be available and competitively priced. • NGL consumption rising with plans to add more US petrochemical capacity to consume NGLs, particularly ethane and propane. • Export markets for US LPGs expanding as global NGL demand grows. Gas Surplus Production capability exceeding demand Low Gas Prices Relative to Crude and NGLs Drilling Rich Gas Plays Value Uplift from NGLs and Condensates Greater NGL Extraction Build Out of Processing Plants and NGL Infrastructure

36. Common Mistakes MadeWhen Forecasting NGL S&D Balances • Forecasting NGLs from the amount fractionation capacity being built: • Ignores the dynamics upstream of the gas processing plants. • Lends itself to overestimating NGL production. • Not considering that gas demand can be a limiting factor to gas production and hence NGL extraction. • Not taking into account that legacy or conventional gas that is being processed is in decline. • Underestimating the ability of domestic and export markets to absorb competitively priced NGL supplies. • Not realizing that NGL “surpluses” in the past occurred during recessions and/or when gas prices were high relative to oil.

37. Rich Hydrocarbon Natural Gas Plays Rich Shale Play Corridors

38. Announced Gas Processing Plants in US • About 8.7 BCFD of new processing capacity has been announced. • West of the Mississippi – 6.85 BCFD, Marcellus Shale Region – 1.85 BCFD • Highly probable that an additional 3 BCFD of processing capacity will be built between 2015 and 2020.

39. Forecast of US Propane Extraction Capability • Propane extraction capability of the US processing industry should increase from 600 MBPD in 2011 to 800 MBPD by 2017. • Major drivers – Eagle Ford, Marcellus, Bakken, Rocky Mtn Basins, and Granite Wash. • Avg propane content of the US NGL barrel should remain around 28%.

40. Profile of US Propane Imports and Exports The availability of competitively priced NGL supplies and strong worldwide demand has resulted in the US being a net exporter of propane. Source: EIA

41. LPG Export Destinations - 2011 Canada: 21 MBPD NW Europe: 27 MBPD North East Asia 5 MBPD • LPG exports comprised of 83% Propane and 17% N-Butane • 65% LPG exports going to Latin America. • Enterprise announced it will expand its export capacity by the 2nd half 2012 for propane and other NGLs at its import/export terminal on the HSC – 3 MM bbls/mo to about 4.5 MM bbls/mo. • Targa announced it will enhance its export capabilities at its HSC import/export terminal. • ConocoPhillips/TransMontaigne/Oxy announced they are considering to build an import/export facility on Houston Ship Channel. • Vitol looking at an export terminal in Beaumont. Mexico: 37 MBPD Dom. Rep. 15 MBPD Central America: 15 MBPD South America: 31 MBPD US waterborne export capacity for propane on the Gulf Coast could expand between 250 MBPD and 600 MBPD. Source: EIA

42. Outlook For US Propane Supplies Propane supplies will grow mainly from the processing of shale gas, with refining production staying at 2011 levels at best. Imports should decline.

43. Outlook For US Propane Demand • It is expected that ethylene feedstock demand for propane will be about 350 MBPD. • Fuel demand for propane staying flat at around 550 MBPD. • Propane dehydrogenation will increase to produce propylene as ethane cracking continues to rise. • The export market will compete for the incremental propane barrel.

44. Mt. Belvieu Propane’s Price Relationship to Crude • Propane’s price relationship to crude has been falling over the past 10 years with the decline in the gas-to-crude ratio. • Since 2008, propane’s relationship to WTI has averaged around 60%, with wide swings from 50% to over 70%. • This past summer when WTI prices detached from Brent, propane prices were being influenced more by Brent prices. • Expect propane at Mt. Belvieu to maintain that 60% ratio to WTI for next several years.

45. Mt. Belvieu Propane to Conway Price Spread • The premium between Mt. Belvieu propane and Conway has been widening caused by – greater supplies in the Mid-Continent, lack of sufficient takeaway capacity out of Conway, and a warmer than normal winter. • The Belvieu premium or Conway discount should significantly narrow in 2014 as major NGL takeaway pipelines from the Mid-Cont. to Mt. Belvieu are completed.

46. In Summary Unlikely there will be a long-term surplus of propane developing in the US provided there is not a global recession or significant global warming. Propane from gas processing will increase but refining production of propane will be flat at best and could show further declines. Propane imports should continue to fall, especially on the East Coast as Marcellus propane extraction increases. Propane dehydrogenation will be a growing market for propane with heating and ethylene feedstock demand remaining flat. Gas prices should remain low relative to crude with Mt. Belvieu propane prices trading between 50% to 70% of WTI price. This price relationship for propane should encourage propane exports as Gulf Coast propane export capability expands. Export markets will compete for the incremental propane barrel. Expect the Conway discount for propane to narrow as major pipeline capacity to Mt. Belvieu is completed by 2014.

47. Description of En*Vantage • Founded by Terry Ciliske and Peter Fasullo in 1999. • Both Principals have worked 36 years in the energy sector. • Executive Management Experience in the Midstream Sector • Primary Focus - Natural Gas, NGLs, Refined Products and Primary Petrochemicals. • Provide strategic planning, project due diligence, market analysis, and price risk management services to a wide range of energy companies and investment firms. • Publish a weekly energy report -- analyzes the drivers influencing natural gas, crude oil, refined products, and NGLs supply/demand and pricing.

48. Impact of Shale Liquids on Regional Propane Supply Board of Directors Meeting Key West Marriott Beachside Hotel January 30,2012 Source of volume balances and forecasts: The Great NGL Surge! from BENTEK Energy and Turner, Mason and Company.

49. Impact of Shale Liquids on Propane • Growth in natural gas and crude oil production will increase U.S. NGL supplies +950 Mb/d by 2016 • Propane supplies will grow 200 Mb/d • The propane supply/demand balance impact will vary significantly from PADD to PADD • Offshore exports of propane from PADD III will balance the market • Propane prices will decline relative to crude oil but will remain well above natural gas PADDs I II V IV III

50. Massive Growth in Natural Gas Production Current Residue Gas Production Levels At All Time Highs 16.2 Bcf/d Incremental Growth Source: BENTEK