International Energy Prices and

Latin America LPG Markets

Presented to
XXI Congreso AIGLP – Colona, Uruguay
May 25, 2006

Presented by: S. Craig Whitley

Purvin & Gertz, Inc.

L P G
Today’s Presentation

¾ International oil and gas supply/demand

fundamentals responsible for high crude oil,
natural gas and LPG market prices
¾ Summary overview of Purvin & Gertz’ new
market publication, the Latin America LPG
Market Outlook

2
Current State of World Oil, Gas and NGL Markets

¾ Higher-than-expected growth in petroleum demand

¾ Crude production and refining rates at record highs
¾ Production hikes in Middle East has not lowered prices
¾ Hurricanes Katrina and Rita had a devastating impact on
petroleum and NGL markets.
¾ Declining oil and gas reserves in the U.S. and North Sea
¾ Mont Belvieu LPG prices are unusually high relative to
other foreign markets
¾ Supply-driven LPG market – with new supplies from
many new sources.

3
Skyrocketing oil and gas prices make headlines daily
Spot WTI Crude Oil Pricing, US$ per Barrel

80
$70.15
70 $63.36
60 $56.59

50
$41.49
40
$31.06
$30.37
30 $25.93 $26.16
$19.31
20

10

0
1999 2000 2001 2002 2003 2004 2005 1Q-06 Current

4
Why are crude oil prices so high?

¾ Strong Global Petroleum Demand

Growth Since 2003
¾ High Crude Oil Production Capacity
Utilization Worldwide
¾ Slowdown in Expansion of Non-
OPEC Supplies
¾ Impact of Atlantic Hurricanes on U.S.
Gulf of Mexico Crude Oil (and Gas)
Production in 2005
¾ Several Geopolitical Events
ƒ Iran Nuclear Conflict
ƒ Iraqi Insurgency
ƒ Nigerian Unrest
ƒ Venezuela and Bolivia Issues
ƒ Concerns About Middle East
Supply

5
A “big picture” issue serves as the backdrop for these
important global energy market drivers

¾ During the past 5 years worldwide oil

consumption has exceeded new oil
discoveries by a wide margin:
ƒ Consumed 27 billion barrels per year
ƒ Discovered 3 billion barrels per year

6
 Who has it? Who wants it?
REPORTED DEMAND
RESERVES 2004 2020
BBOE % MBD % MBD %

Saudi Arabia 259 23% 2 2% 2 2%

62% Other Mid East 437 39% 4 5% 6 6%
Canada (5 to 179) 92 8% 2 3% 3 3%
Latin America 86 8% 5 6% 6 6%
Africa 89 8% 3 3% 4 4%
Russia 60 5% 4 4% 5 4%
United States 22 2% 21 25% 25 24%
China 21 2% 6 8% 12 11%
Europe 17 2% 16 19% 16 16% 72%
Far East 18 2% 16 20% 21 20%
Mexico 16 1% 2 2% 2 2%
Eurasia 10 1% 1 1% 1 1%
Australia 4 0% 1 1% 1 1%
Total 1,132 100% 82 100% 105 100%

7
China Petroleum Supply and Demand

Million Barrels per Day

8
7 Net Imports
Supply
6 Consumption

5
4
3
2
1
Sources: IEA and EIA
0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

8
Since 1995, 33 million B/D of new crude oil
production was needed to satisfy demand . . .

Million Barrels per Day

80
Demand
Production
60 from New 33.0
Fields

40 Production
from 4% Decline
Existing
20 41.2
Fields

0
1995 2000 2005
Global Supply Challenge
9
At least 39 million B/D of new production will be
needed by 2015 to satisfy future growth . . .

Million Barrels per Day

100

80 Demand
Production
from New 39.3
60 Fields
Production
40 from
4% Decline
Existing
Fields 49.3
20

0
2005 2010 2015
Global Supply Challenge
10
Strong demand growth in 2004/2005 surprised the
market -- forcing crude prices up
Year-to-Year Change, Million B/D
2.5
China Other Asia
2.0 US Middle East
Europe Others
1.5

1.0

0.5

0.0

-0.5
2000 2001 2002 2003 2004 2005
Petroleum Market Overview
11
Demand surge in 2003/2004 has reduced OPEC
spare capacity to inadequate levels . . .

Million Barrels per Day

50
Other OPEC Venezuela Iraq Saudi Arabia

40 Pinchpoint
Capacity
Production

30

20

10

0
1995 2000 2005 2010
Crude Oil Price Outlook
12
Refinery Operating Rates versus Capacity

100 Percent

90

80
Asia
70 Europe
US
60

50
1980 1985 1990 1995 2000 2005
13
Katrina made a direct hit on LA and MS
Gulf Coast refineries and offshore assets

14
Rita’s forecast shutdown TX Gulf Coast
refineries from Corpus to Houston

15
Although she missed her mark, Rita still struck Port
Arthur/Beaumont/Lake Charles

16
Double hit on USGC production and refinery
infrastructure with lasting impacts

 


  




 

 
 
 

 


 



17
U.S. gas plant propane production

Gas plant production has not fully recovered from impact of hurricane damage

Barrels Per Day

550,000

525,000

500,000

475,000
2004 - bpd
2005 - bpd
450,000 Prev 5-Yr Avg
2006 YTD
425,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

18
U.S. refinery propane production

Refinery production returning to average levels . . . .

Barrels Per Day

650,000

625,000

600,000

575,000

550,000

525,000

500,000
2004- bpd
475,000 Prev 5-Yr Avg
450,000 2005 - bpd
2006 - YTD
425,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

19
The Latin America LPG Market Outlook

20
First Study of its Kind

¾ 421 pages long

¾ Comprehensive supply and demand analysis and
forecasts for the 41 countries in Latin America through
2020
¾ Value chain price analysis
¾ Waterborne freight rate forecasts through 2020
¾ CIF price analysis and forecasts for all LPG importing
countries
¾ Netback price analysis and forecasts for all Latin LPG
exporting countries, as well as major waterborne LPG
suppliers around the world.

21
Major Conclusions of the Study
¾ LPG demand growth in Latin America has slowed
considerably since 2000
¾ LPG supply to the Latin marketplace is growing much
faster than demand
¾ South America is quickly moving to becoming a net LPG
exporter with new supplies from several sources
¾ Imports by Brazil and Mexico have dropped significantly
¾ Demand growth is being hurt by high prices, inter-fuel
competition with natural gas and maturing markets.
¾ Venezuela’s LPG production plans are very ambitious
¾ Significant differences exists in end-user prices despite
Mont Belvieu-related product costs values
¾ Improving economies should trigger new growth
opportunities for Latin LPG markets once prices drop

22
End-User LPG Prices in 10 to 13 kg Bottles
USA
Puerto Rico
Chile
Costa Rica
Uruguay
Honduras
Guatemala
Brazil
Mexico
Peru
Nicaragua
Argentina
Dominican Republic
Paraguay
Argentina-Social
Colombia
Panama
El Salvador
Bolivia Fourth Quarter 2005
Venezuela US$ per Metric Tonne
Ecuador

0 200 400 600 800 1000 1200 1400 1600 1800 2000 2200

23
A Sampling of Gross Margins Between End-User Bottled
Gas Prices and Ex-refinery Prices or Cost of Imports

United States
Puerto Rico
Chile
Costa Rica
Brazil
Argentina
Guatemala
Uruguay
Honduras
Peru
Argentina-Social
Fourth Quarter 2005
Mexico US$ per Metric Tonne
Bolivia

0 200 400 600 800 1000 1200 1400 1600

24
Latin America LPG Supplies By Country

Thousands of Tonnes per Year

35,000 Other Latin
Venezuela has big plans to expand
America
30,000 Venezuela

Peru
25,000
Mexico
20,000
Ecuador
15,000 Colombia

10,000 Chile

Brazil
5,000
Argentina
0
1990 1995 2000 2001 2002 2003 2004 2005 2010

25
Latin America LPG Demand By Country

Thousands of Tonnes per Year

30,000 Other Latin
America
Venezuela
25,000
Peru
20,000 Mexico

Ecuador
15,000
Colombia
10,000
Chile

5,000 Brazil

Argentina
0
1990 1995 2000 2001 2002 2003 2004 2005 2010

A 26.9 Million Tonne Market

26
Latin America’s Requirements for LPG Imports
Have Dropped and are Expected to Drop More

Thousands of Tonnes
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
-1,000
-2,000
-3,000
-4,000
1990 1995 2000 2001 2002 2003 2004 2005 2006 2010

27
Latin America 2005 LPG Demand
By End-Use Market

Residential/Com.

5% 1% Industrial
8%
5%
7% Engine Fuel

Chemicals

Refinery
74%
Other

26.9 Million Total Tonnes

28
Latin America LPG Demand Growth Rates

Percent
10.0%
8.2%
8.0% 7.5%
6.9% 6.6%
6.0% 4.7% 5.2%
4.5% 4.4%
4.0%
3.0%
1.5%
2.0% 1.1%
-1.7% -0.6%
0.0%

-2.0% -1.3%
Annual Growth - %
-2.8%
-4.0%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

29
Latin LPG Market Growth – 1990’s vs. 2000’s

Percent

2006-2010 2.1 Forecast

2001-2005 -0.1

1991-2000 4.8

-2.0 0.0 2.0 4.0 6.0

30
Latin LPG demand has leveled out

30 27.0
Million Tonnes 26.9

25
21.1
20 17.0

15

10

0
1990 1995 2000 2005

31
Latin LPG Market Share by Country

Percent of Total Latin LPG Market

40.0%
Mexico
35.0% Brazil
30.0% Venezuela
Caribbean
25.0% Argentina
Chile
20.0%
Ecuador
15.0% Cent. Amer.
Colombia
10.0%
Peru
5.0% Bolivia
Other S. Amer.
0.0%

71.4% 28.6%

32
 Residential/Commercial LPG Consumption

2005 Kilograms per Capita

Colombia
Kg/Capita
Peru
Central America
Argentina
Other South America
Caribbean
Bolivia
Brazil
Venezuela
Chile
Ecuador
Mexico

0 10 20 30 40 50 60 70

33
Per Capita Consumption has been hurt by natural
gas competition in Res/Com sector

Total Latin America Res/Com LPG Consumption per Capita

41 40.1
40 Kg/Capita
39.3
39 38.3
38
36.7 36.7 37.0
37
36.0
36
35
34 33.5
33
32
31
30
1990 1995 2000 2001 2002 2003 2004 2005

34
All regional LPG markets except Oceania have grown more
than Latin America over the past 5 years

Regional LPG Demand, Million Tonnes

70

60 2000 2005

50

40

30

20

10

0
Asia North Europe/CIS Latin Middle Africa Oceania
America America East

35
China LPG Supply and Demand

Thousands of Tonnes Per Year

30,000

25,000

20,000

15,000 Total Demand Line or t s

Imp
10,000

p pl ies
5,000
sti c Su
Dome
0
90

91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10
19

19

19

19

19

19

19

19

19

19

20

20

20

20

20

20

20

20

20

20

20
36
Essentially, all new growth in demand has taken place in
Res/Com, Chemical and Engine Fuel sectors

2000 2005
Global LPG MM % MM %
Demand Tonnes Tonnes
Residential/ 100.7 50.8 113.2 51.5
Commercial
Chemical 41.8 21.1 51.2 23.3
Industrial 21.5 10.9 20.4 9.3
Engine Fuel 15.0 7.6 17.1 7.8
Refining 12.2 6.2 12.5 5.7
Other Uses 6.8 3.4 5.3 2.4
TOTAL 198.0 100.0 219.6 100.0

37
10.9%, or 1 Japan
Disclaimer
This report has been prepared for the sole benefit of the client. Neither
the report nor any part of the report shall be provided to third parties
without the written consent of PGI. Any third party in possession of the
report may not rely upon its conclusions without the consent of PGI.
Possession of the report does not carry with it the right of publication.
PGI conducted this analysis and prepared this report 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.

38
S. Craig Whitley
Scwhitley@purvingertz.com
1-713-236-0318