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March 7, 2013

Port Association Of Louisiana. March 7, 2013. Dr. Loren C. Scott Loren C. Scott & Associates, Inc. www.lorencscottassociates.com. Natural Gas. A Key Driver In Louisiana & Its Ports. Logistical Issues. Each hydraulic fracking stage requires: 300,000 gallons of water 200 tons of sand

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March 7, 2013

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  1. Port Association Of Louisiana March 7, 2013 Dr. Loren C. Scott Loren C. Scott & Associates, Inc. www.lorencscottassociates.com

  2. Natural Gas A Key Driver In Louisiana & Its Ports

  3. Logistical Issues • Each hydraulic fracking stage requires: • 300,000 gallons of water • 200 tons of sand • Port of Caddo-Bossier – space for firms providing these products & services • 20-40% of fluid solids used in fracking flow back to the surface as hazardous waste and require transportation to other well sites or treatment and/or disposal sites

  4. Subsurface water contamination? • Significant distance between frac zone and aquifer • Proper casing & cementing and regulatory oversight are important

  5. Fracking and Contamination of Drinking Water • Hydraulic fracking is subject to both federal and state regulations • There have been no instances of fracking causing contamination of drinking water.

  6. Michael Economides in Offshore Engineer 11/11 • 2011: • 35,000 wells drilled in U.S. • 120,000 hydraulic fracturing treatments executed; 4 stages per well on average • Zero cases of drinking water contamination • 60 years of fracturing • 1.2 million wells • No scientific cases of drinking water contamination

  7. Energy’s Political Influence Has Widened Markedly

  8. Increased Demand For Port Services: #1 Boom in Manufacturing

  9. Manufacturing in general;Chemicals specifically Three Major Benefits to Chemical Producers

  10. Makeup in Louisiana

  11. Price of Major Input has Declined • Ammonia fertilizer • From natural gas liquids like ethane we get ethylene which is the foundation of • Food packaging, toys, house wares • Swimming pool liners, vinyl pipes • Pantyhose, clothing, carpets • Bottles, cups • Tires, foot ware, auto antifreeze • Clean burning boiler fuel

  12. 3rd: Naphtha v. Ethane • Ethylene made of • In Europe: • naphtha derived from oil • Oil @ $100 $1,400 to make ton of ethylene • In U.S. • Ethane, derived from natural gas • $730 to make ton of ethylene

  13. Baton Rouge: Chemical & Related Construction • Westlake Chemical: $466 mm chlor-alkali in Geismar – 100 new jobs, & expansion at site; Construction underway 7/12 • $300 mm upgrade at Georgia Pacific • Air Liquid – Ascension: • $85 mm capex; 5 jobs • DMC Carter Chambers – Baton Rouge: • $10 mm capex; 80 jobs

  14. Baton Rouge: Chemical & Related Construction • Methanex Corp-Geismar (7/12) • Moving idle methanol plant from Chile to Ascension Parish • $550 mm capex; 130 new jobs; Avg salary = $56,000; open late 2014; hiring starts before end 2012. • Fitch Rating says second, equal size, plant to be moved here as well (12/11/12)

  15. Baton Rouge: Chemical & Related Construction • Shintech – Plaquemine (4/12) • New $120mm plant to make key ingredient in latex paint; 30 new jobs • Avalon Rare Metals – Geismar • Feasibility study being conducted $300 million rare earth elements separation plant • Complete study 2013-II; +175 jobs

  16. Baton Rouge: Chemical & Related Construction • BASF • New $120 mm acid plant (7/12); 11 jobs; At engineering/ground prep phase; Ground breaking 10/12; Done by end 2013. • Two surfactant plants; $120 mm; groundbreaking spring ’12; end 2013-II • Several smaller projects totaling $100 mm; 50% chance • Less than 25% chance on couple of mega projects ($500 mm - $1 bill); competing with TX

  17. Baton Rouge: Chemical & Related Construction • Honeywell: $33 mm expansion (7/11) • Start 12/11; end 2013; 11 new jobs • Williams: $350-$400 mm to increase ethylene production at Geismar plant (9/11) • Huntsman – Geismar: (8/12) • Commissioned engineering design study to increase size of plant • ExxonMobil - Baton Rouge: (9/12) • $215 mm in facility upgrades • State-of-the-art synthetic aviation oil blending center in Port Allen • Facility in Port Allen to be largest producer of finished lubricants in the world

  18. Baton Rouge: Chemical & Related Construction • SNF Polymer Project: Iberville Parish • $362 mm capex over 5 years; 1st unit completed fall ‘11 • 500 direct jobs & 100 contract employees (100 in 2011; 100 each additional year) • Emerson Process Management - Gonzales • $10 mm expansion & regional HQ; +50 jobs • Make and refurbish valves for chemical industry

  19. Baton Rouge: Chemical & Related Construction • Cf Industries – Donaldsonville (11/12) • $2.1 bill to build nation’s largest nitrogen plant • Finish 2016; +93 jobs • Waller Marine – Port of Baton Rouge (3/13) • $200-$400 mm small LNG facility • Service supply vessels that have to start using cleaner-burning, low sulfur diesel fuels in 2015 • 45 jobs; operational by mid-to-late 2014

  20. Potentials • BioNitrogen Corp. – Pointe Coupe (3/13) • $1.25 billion in tax exempt bonds preliminarily approved by LA Community Development Authority; • letter of intent signed to buy 250 acres of land next to Pointe Coupe Parish Port • Build 5 plants to convert agricultural waste into fertilizer; 260 jobs • Start construction 2014; Open 2015.

  21. New Orleans MSA Construction • Dow: Restarting cracker in St. Charles Parish • $400 mm capex ; 64 jobs; start 2013-I • Dyno Nobel International – Waggaman (5/12) • Feasibility study for $800 mm ammonia production facility @ existing Cornerstone Chemical Company site. • +60 new jobs; decision early 2013

  22. Lake Charles Construction Potential • Sasol Gas-to-Liquids Facility • 96,000 bbls per day of diesel, naphtha & other chemical products; 2 stages of 48,000 each; 1st opens 2018; 2nd opens year later • Up to $11 -14 bill over 2013-17;Front End Engineering Design (FEED) started 12/12. • 700 jobs; $95 mm payroll; Feasibility study underway; due late 2012 • Sasol Ethylene Cracker & derivatives complex • $5-7 bill over 2013-17; • 528 Sasol jobs + 358 contract workers; $58.9 mm payroll • Feasibility study to be completed in late 2012.

  23. Lake Charles Construction Potential • G2X Energy (1/16/13) • $1.3 billion plant at Port of Lake Charles to turn natural gas into gasoline • Construction 2014-17; hiring complete by end of 2015 • 243 jobs @ $66,500 • Final decision by end of 2013

  24. Other non-MSA Developments • Mosaic – St James Parish (12/12) • FED being done on $700 mm ammonia plant • 53 new jobs @ $83,000 • Make decision mid 2013; Construction start – 2014; operation – 2016 • Zero Emission Energy – St. James (3/13) • $1.3 bill ethanol plant---largest in North America--- across from Nucor • 63 new jobs @ $66,500 • Construction start 2013-IV; end mid-2016

  25. Other non-MSA Developments:Potentials • Shell Gas-to-Diesel Refinery (4/12) • $10 billion plant; feasibility study underway: TX v LA • 2 years to develop detailed engineering plans to determine if feasible • Between LA & TX; One of two parishes in LA; abundant natural gas is key

  26. Manufacturing in general should gain worldwide market share Cheap energy off-setting cheap labor advantage Example: Benteler Steel $900 mm capex; 675 jobs Port of Caddo Bossier

  27. Potentials • Ozkan Steel USA – BTR MSA (1/13) • Looking at sites on River for $150 mm steel plant; 350 jobs • Phase 1 – facility to sort scrap metal (summer 2013) • Phase 2 – melting plant (June 2014) • Phase 3 – rolling plant (June 2015) • 300,000 tons of specialty steel for shipbuilders

  28. Potential Problem for Chemicals:European Shale Gas Plays

  29. European Barriers to Shale Development • Generally, mineral rights owned by government, not individuals. • Greens more influential with government than individuals • Lease & royalty payments make locals more tolerant of drilling activity • Little geological data on foreign shale deposits. • U.S.: tens of thousands of wells drilled with geologic data publicly available via state regulators • Little known about rocks overseas & whether characteristics make fracking possible • Once found little to no infrastructure in place to move product to market.

  30. Thank God for France! • May 11, 2011 National Assembly voted to prohibit hydraulic fracing in the country • Bulgaria recently disallowed as well • 11/21/12: European Parliament implemented a Europe-wide moratorium on shale gas development

  31. #2 WatchPower producers EPA attacks on coal-fired power plants: an alternative low cost fuel is great

  32. Power Use of Natural Gas • Next 2-3 years little change • After that, between 35-75 gigawatts of coal-fired power plants will be shut down • Amount depends on how rapidly EPA regulations on cross-state pollution & mercury emissions are implemented

  33. Baton Rouge: Chemical & Related Construction • Trafigura: • Re-Opened Ormet’s Burnside terminal @ $100 mm as Impala Warehousing • State-of-the-art bulk terminal for coal, bauxite, and alumina • Adding $270 mm coal export terminal: design phase (7/12)

  34. Plaquemines Port: Doubling Coal Exporting • IMT Coal • $12 mm expansion • Ram Terminals: • $150 mm on new terminal • Oiltanking Inc. • $136 mm project

  35. #3 WatchLNG Exports

  36. Construction in Lake Charles Future:LNG • Re-Build for Export Terminal: Cheniere Energy • Sabine Pass LNG: $5.6 billion project for first 2 of 4 trains – convert import/export terminal; started construction 8/12; • Now has four 20-year contracts for 10.5 bcf annually. (1/12); BG Group – Britain; Gas Natural Fenosa – Spain; GAIL – India; KOGAS; • 2nd train $4.5 bill contract let to Bechtel 12/12. • FEED & Permitting work started on 3rd train 12/12. • Construction of 3rd and 4th units determined by demand. New agreement with Total Gas & Power (9/12) will allow for 5th train to be built. • Approval from DOE given to export LNG (5/11) to non free trade partners of U.S. (valuable asset); Japan & Spain not free trade partners & import 4.12 tcf per year.

  37. LNG Retrofit • Re-Build for Export Terminal • Cameron LNG (Sempra) asked FERC for 2-year authority to re-export; Inked deals w Mitsubishi and Mitsui Corps to work together in exchange for 1.7 bcfd (620 bcf annually) of export capacity to Japan. Plus GDF Suez of France agreed to about 0.4 bcfd. Total 657 BCF annually. Start construction late 2013; operate 2016. $6 billion project; 130 jobs. Asked FERC for permission to begin building 12/12 • Lake Charles Exports, LLC (Trunkline) • Received DOE permission to export domestic gas from its terminal 7/11; 2 bcfd for 25 years (8/11) • Applied to FERC to start construction by 2014; ship by 2018 (4/12) • Financial support from BG Group & Southern Union • Note: LNG export price - $18 mmbtu

  38. Huge Construction Potential • Magnolia LNG (1/18/13) • $2.2 bill natural gas liqufaction plant at Port of Lake Charles; • Final decision late 2014; start construction 2015 • 45 jobs @ $75,000 • Australian company • Careful! Who will head EPA & DOE?

  39. Impact of GOM Recovery on Ports along Southern Coast:

  40. The Recovery • Pre-spill: 33 rigs in deep waters • Post-spill: 11 rigs • 11 deepwater drill ships left the GOM after spill • As of 5/12---24 rigs in deep waters • Good news: 9 new drill ships or semi-submersibles on way & in place by 2013-II

  41. GOM Deepwater Expected Rig Count: ISI • 2013: 36 • Mid 2014: 50 • 2015-17: 60+

  42. Benefits of the Gulf? • Elephant finds • Chevron St. Malo Field, lower tertiary: 13,000 bbl/d (Bakken: 1,000 b/d) • Straddles world’s biggest consumer • Politically stable area (Argentina alarm) • Cost of taxes, royalties, and regulations among lowest in world • Lots of opportunities from small, low risk prospects to giant targets in extreme conditions • Vast network of pipelines & refineries

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