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Market Reporting

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International Markets for

Crude, Refined Products and LPG

IPAA’s Annual Meeting – Napa, FL

Kristine Klavers

9 November 2017

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Market Studies

Due Diligence

Forecasts

Strategy Development

Supply, demand and price forecasts

Project feasibility studies & financial modeling

Due diligence for banks and equity investors

Process technology evaluations and comparisons

Quantitative risk analysis

Capital projects portfolio optimization

Transportation vehicle forecasts

Logistics analysis

Process technology development & licensing support

Operating cost reduction

Regulations analysis

Training


Population and energy demand growth

Supply will diversify

Demand will diversify and shift

Environmental pressure will continue

Trade flows will change

Shale oil and gas boom – New technologies

Geopolitical events


Global energy market in transition – International markets

Population keeps growing


0.0

0.5

1.0

1.5

2.0

2.5

0

3

6

9

12

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

pcbillion Population Annual Growth Rate (pc)

Population growth vs annual growth rate 1950-2050

Source: U.S. Census Bureau, International Data Base.

Rank by

populationCountry Population

Energy

consumption

kgoe per 1000

capita

1 China 1,379,302,771 2.2

2 India 1,281,935,911 0.6

3 United States 326,625,791 7.0

4 Indonesia 260,580,739 0.9

5 Brazil 207,353,391 1.5

6 Pakistan 204,924,861 0.5

7 Nigeria 190,632,261 0.8

8 Bangladesh 157,826,578 0.2

9 Russia 142,257,519 4.9

10 Japan 126,451,398 3.5

11 Mexico 124,574,795 1.5

19 Germany 80,594,017 3.8

22 United Kingdom 64,769,452 2.8

Source: World Bank

2010-2015 2015-2020

Russia and central Asia 3.7% 3.4%

Western Europe 2.5% 3.6%

Southeast Asia 5.8% 7.1%

North America 3.9% 4.0%

Middle East 4.5% 5.2%

China 9.7% 8.3%

India 8.5% 9.9%

Source: IMF, Argus Consulting

Global GDP PPP outlook


Review of market fundamentals for:

Crude

Refined products

LPG


Topics

Technology: Shale & Offshore

US is a growing oil exporter 2015

Oil peak demand?

Geopolitical events

Wildcards

• Demand diversity

• Environmental pressure:

o Cleaner fuels

o Fracking regulations, activities


Crude market dynamics

Annual historic crude price

0

20

40

60

80

100

120

140

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

$/bl


0

200

400

600

800

1,000

1,200

1,400

8.0

8.2

8.4

8.6

8.8

9.0

Q1-2014

Q2-2014

Q3-2014

Q4-2014

Q1-2015

Q2-2015

Q3-2015

Q4-2015

Q1-2016

Q2-2016

Q3-2016

Q4 -2016

Q1 -2017

Q2 -2017

Mill

ion

bb

ls

Bill

ion

bb

l/q

uar

ter

World Oil Demand, Supply and Cumulative Oversupply

Global oil demand (left axis)

Global oil supply (left axis)

Cumulative oversupply since Q1, 2014 (right axis)

July, 2017 Update Data Source: IEA

Calculations by Argus


Global oil supply, demand and cumulative oversupply

Rebalancing process has started


Opec will become key marginal supplier again

25

27

29

31

33

35

37

39

2011 2016 2021 2026

mn b/d


Continued growth, but a slowdown from 2030


US crude exports – More than 1mn b/d and climbing

— EIA monthly and weekly data

0

200

400

600

800

1000

1200

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2012 2013 2014 2015 2016 2017


Asia is the growing destination for US exports

Source: EIA and US Customs data

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17

mn b/d

US crude exports

Canada Asia-Pacific Europe Other Prelim total


US crude accelerates relative decline of ME into China

Source: Argus China Petroleum


Source: EIA Drilling Productivity Report, Sept 2017

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

Jan

-07

Au

g-0

7

Mar-

08

Oct

-08

May-0

9

Dec-

09

Jul-

10

Feb

-11

Sep

-11

Ap

r-12

No

v-1

2

Jun

-13

Jan

-14

Au

g-1

4

Mar-

15

Oct

-15

May-1

6

Dec-

16

Jul-

17

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

Jan

-07

Sep

-07

May-0

8

Jan

-09

Sep

-09

May-1

0

Jan

-11

Sep

-11

May-1

2

Jan

-13

Sep

-13

May-1

4

Jan

-15

Sep

-15

May-1

6

Jan

-17

Sep

-17

Permian

Bakken

-

500,000

1,000,000

1,500,000

2,000,000

Jan

-07

Sep

-07

May-0

8

Jan

-09

Sep

-09

May-1

0

Jan

-11

Sep

-11

May-1

2

Jan

-13

Sep

-13

May-1

4

Jan

-15

Sep

-15

May-1

6

Jan

-17

Sep

-17


Eagle Ford

Permian is leading recovery in shale oil output growth

Prolific low cost Permian Basin driving US growth

0

50

100

150

200

250

300

350

400

450

500

wells/rigs

Permian drilled Permian wells completed


Don’t forget about the US offshore growth

515

344

310

17

0

100

200

300

400

500

600

Permian Federal offshore Eagle Ford Bakken Other

Forecast US crude output growth

(Jun '17 - Dec '18, in '000 b/d)


0

2,000

4,000

6,000

8,000

10,000

Jan-09 Jan-11 Jan-13 Jan-15 Jan-17

000 bpd

Canadian Oil Imports to US versus US Oil Production and Mexican and Venezuelan Imports

US Oil Production

Canadian Crude Imports

Mexican Oil Imports

Venezuelan Oil Imports

Alberta heavy oil import growth continues


Multiple export routes safeguard liquidity during storms


World has been turning back to WTI/US Gulf pricing

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

bn bl

Futures open interest

(combined Nymex and Ice contracts)

WTI Brent


Most likely scenario – Sticking in the shale band


Supply/production

Demand

Environmental pressure

• Sulfur regulations

• Biofuels/CO2

• Café – Corporate Average Fuels

Replacements

• Alterative fuels

• Battery


Refined product market dynamics

Global refining

0

15

30

2000 Now

North America

0

15

30

2000 Now

South America

0

15

30

2000 Now

Europe & Eurasia

0

15

30

2000 Now

Middle East

0

15

30

2000 Now

Africa

0

15

30

2000 Now

Asia & Pacific*

0

15

30

2000 Now

China

0

15

30

2000 Now

India

* less China & India


5,000

5,500

6,000

6,500

7,000

7,500

8,000

8,500

9,000

9,500

10,000

2000 2002 2004 2006 2008 2010 2012 2014 2016

US - Yearly Domestic Gasoline Component Demand and

US Refinery Oil-Derived Gasoline Production

Ethanol

Imports

US-produced oil derived gasoline for domestic use

Total gasoline (oil-derived) production

-Data from EIA. Calculations by Argus.

’000 bpd

2017 data through June

US gasoline demand


2,000

2,500

3,000

3,500

4,000

4,500

5,000

2000 2002 2004 2006 2008 2010 2012 2014 2016

US- Yearly Domestic Distillate Demand and

US Refinery Oil-Derived Distillate Production

Biodiesel Imports

US-produced distillate for domestic use Total distillate (oil-derived) production

-Data from EIA. Calculations by Argus.

’000 bpd

2017 data through June

US distillate demand


US refined products exports continue to increase

268528 587 656

8541007 1134 1101 1176 1190

1330

144

189210

336

526507

506 550618

761756

366

377391

449

499503

524 541538

574620

330

355415

405

424388

362 364326

288

304

103137

162 173181

185

197

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

kbpd

Major US Refined Product Exports(Year 2017 values are through June)

Jet fuel & other kero.

Resid fuel oil

Pet. coke

Gasoline & blendstocks

Distillate


Gasoline – Regional surplus and established trade flows

North America

Middle East & Africa

FSU

South America

ChinaNortheast Asia

Southeast Asia

Europe

Indian

Subcontinent

Trade Flow

Structural Surplus


Middle Distillate – Regional surplus and established trade flows

North America

Middle East & Africa

FSU

South America

ChinaNortheast Asia

Southeast Asia

Europe

Indian

Subcontinent

Trade Flow

Structural Surplus


• Two main sources of growth

◦ Domestic demand and exports demand

• High level of uncertainty going forward

◦ US refined products demand growth rates

◦ MARPOL VI & the Light-Heavy spread

◦ RFS (RINs) and Cafe regulations (and octane requirements)

◦ Export growth outlook

◦ Oil prices

◦ Effects of Alberta distillate surplus

◦ G/D demand ratio shifts

◦ Border taxes

Prospects for growth in US refining?


Global market ~300mn t/yr…. Expected 360mn t/yr by 2027

US production has grown 25% since 2010

US produces 25% of global production, at 67mn t/yr+

China and Saudi Arabia produce close to 10% each

US consumes about 20% of global production

China is the next largest consumer and the fastest growing market

US became exporter in 2012

US largest global exporter; almost double to over 50mn t/yr by 2027

Consumption growth will depend on the energy and petrochemical markets, prices of

competing feedstock like naphtha and ethane, and also subsidy regimes in Asia

Global overcapacity expected until 2020


LPG market dynamics

Nomenclature – Gas, LPG, NGL, propane, butane, etc.

— International Energy Agency


Methane (C1H4)

Ethane (C2H6)

Propane (C3H8)Butane (C4H10)Isobutane (C4H10)

Pentanes (C5H12)NaphthaNatural gasolineCondensate

Non-hydrocarbon gases such as: CO2, H2O, H2S, N2, etc.

Natural gases

NGLs

Dry gas or “natural gas”

LPG

Heavier fractions


US LPG production

mn t

0

10

20

30

40

50

60

2010 2011 2012 2013 2014 2015 2016 2017

Gas Processing Refining

0

25,000

50,000

75,000

US Europe Middle East Asia-Pacific Russia and Central Asia

'000t2016 2017 2018

— Argus


Regional LPG production

US LPG export market


mn t

0

10

20

30

40

50

60

2012 2017 2022 2027

Global LPG consumption

0

50

100

150

200

250

300

350

2010 2011 2012 2013 2014 2015 2016

mn tAfrica Asia Pacific Europe

Latin America Middle East North America

Russia and Central Asia

Growth area


0

50

100

150

200

250

300

350

2010 2011 2012 2013 2014 2015 2016

mn t Residential Agricultural

Industrial Commercial

Transport Refinery fuel

Petrochemical Other non-energy Consumption

— Argus Consulting

Notes: 2016 data is provisional


Global LPG consumption by sector

Growth areas

297

238

286

239

0

50

100

150

200

250

300

201620152014

mn t

2013201220112010

Total Consumption

Total Production

— Argus Consulting

Notes: 2016 data is provisional


Global LPG balances

• Production growth will continue to come from US, but other regions will also increase.

• Demand growth will be concentrated in Asia, in both the petrochemical and energy markets.

• Structural supply will outstrip demand globally – the world will be long LPG until 2025.

• The additional length in LPG must find a home, and will price lower relative to other oil products as a result.

• Despite a significant divergence in the net position of each region, the global surplus will prevent sustained arbitrages emergence.

• Trade flows will follow seasonal/temporary patterns.

• Post 2025 should see a rebalancing, which might effect LPG pricing.

Prospects for LPG marketd


Continued growth in demand, of all products

Shift in demand centers and trade flows

Peak demand

China

MARPOL

Petrochemicals

In summary


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