Third Meeting of the EU Refining Forum Brussels, 22 May 2014
Toril Bosoni, International Energy Agency
Recent Developments in EU Refining and in the Supply and Trade of Petroleum Products
© OECD/IEA 2014
© OECD/IEA 2012 © OECD/IEA 2014
European Refinery Activity Recovers from 25-year Lows
But throughputs continue to contract year-on-year
• After hitting its lowest level since 1989 in October, regional refinery runs bounce back above 11 mb/d
• European throughputs nevertheless continue to contract annually, by 0.5 mb/d in 1Q14, compared with 1 mb/d in 2H13 (and 650 kb/d for full-year 2013)
10.0
10.5
11.0
11.5
12.0
12.5
13.0
13.5
14.0
Jan-08 Jan-10 Jan-12 Jan-14
mb/d OECD Europe Refinery Runs
© OECD/IEA 2012 © OECD/IEA 2014
-1.5
-1.0
-0.5
0.0
0.5
1Q09 1Q10 1Q11 1Q12 1Q13 1Q14
mb/dAnnual Change in European Demand
vs. Crude Runs
Demand Crude Runs
Regional Demand Slide Halted – For Now? Yet, Refineries Curb Runs Sharply
• After plummeting 1.7 mb/d in from 2008 to 2012, regional demand declines by a more modest 120 kb/d in 2013 and 50 kb/d forecast for 2014.
• Since mid-2013, regional throughputs are 850 kb/d lower on average
13.0
13.5
14.0
14.5
15.0
15.5
16.0
2000 2002 2004 2006 2008 2010 2012 2014
mb/d OECD Europe Oil Demand
© OECD/IEA 2012 © OECD/IEA 2014
Industrial Demand Sees Sign of Life LPG imports from Russia and US on the rise
• After years of decline, LPG and Diesel demand looks healthy
• Diesel is projected to expand by 2.8% in 2014 (after having posted 4.5% gains in 1Q14)
• LPG demand is expected to grow slightly in 2014 (+0.9%), after an 11% surge in 2013.
3,600
3,800
4,000
4,200
4,400
4,600
JAN APR JUL OCT JAN
kb/d Oecdeur: Diesel Demand
Range 09-13 2013
2014 5-year avg
800
850
900
950
1,000
1,050
1,100
1,150
JAN APR JUL OCT JAN
kb/d Oecdeur: LPG Demand
2011 2012 2013 2014
© OECD/IEA 2012 © OECD/IEA 2014
Refinery Margins Remain Weak April recovery proves short-lived
• Simple margins remain negative through most of 2013, keeping throughput rates low
• Cracking margins also fall through December, before posting a slight recovery in early 2014
• By mid-May, however, rates fall again as plants complete maintenance amid weak demand and high product imports
-7.5
-5.0
-2.5
0.0
2.5
5.0
7.5
10.0
12.5
15.0
Jan 08 Jan 10 Jan 12 Jan 14
$/bbl Refining Margins Northwest Europe
Urals (HS) Brent (HS)Urals (Cracking) Brent (Cracking)
-7.5-5.0-2.50.02.55.07.5
10.012.515.017.5
Jan 08 Jan 10 Jan 12 Jan 14
$/bbl Refining Margins Mediterranean
Es Sider (Cracking) Es Sider (HS)
Urals (Cracking) Urals (HS)
© OECD/IEA 2012 © OECD/IEA 2014
Weak Margins not Restricted to European Plants Simple refineries at worst level since 2008
• Global margins follow suit. Singapore simple margins firmly negative and US rates come off earlier highs
• Refiners with access to discounted crude and cheap refinery fuel (natural gas) fare better
• US Gulf Coast margins surge in 2014
-2.5
0.0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14
$/bbl Global Cracking Margins
NWE Brent MED UralsSingapore Dubai USGC LLS/HLS
-7.5
-5.0
-2.5
0.0
2.5
5.0
7.5
Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14
$/bbl Simple Refining Margins
NW Europe Urals NW Europe BrentMED Urals Singapore Dubai
© OECD/IEA 2012 © OECD/IEA 2014
US Crude Advantage moves South Gulf Coast Refinery margins surge in 2014 on crude glut
• Midcontinent refiners still enjoy the highest returns – at around $22/bbl on average in April 2014 (down from $28/bbl a year earlier
• Gulf Coast refinery margins averaged $11/bbl in April 2013 in comparison, up from $4.40/bbl the previous year
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14
$/bbl US Gulf Coast Refining Margins
Mars Cracking HLS/LLS Cra.
ASCI Coking Maya/Mars Cok.
0.0
10.0
20.0
30.0
40.0
50.0
Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14
$/bbl Refining Margins US Midcontinent
WTI Cracking WCS/Bakken Cr.Bakken Cracking WTI CokingWCS/Bakken Cok. Bakken Coking
Data Source: IEA/KBC
© OECD/IEA 2012 © OECD/IEA 2014
Pipeline Expansions Draw Crude out of Midcontinent
Underpinning better Gulf Coast Margins and high runs
6.0
6.5
7.0
7.5
8.0
8.5
9.0
Jan Apr Jul Oct
mb/d US Gulf Coast Refinery Runs
5-yr Average
2013 2014
Source: EIA
70
80
90
100
110
120
Jan Apr Jul Oct
mb US Weekly PADD 2 Crude StocksUS Mid-continent
Range 2009-2013 5-yr Average
2013 2014
Source: EIA
140
160
180
200
220
Jan Apr Jul Oct
mb US Weekly PADD 3 Crude StocksUS Gulf Coast
Range 2009-2013 5-yr Average
2013 2014
Source:
Source: EIA
• US crude stock surplus now sits on the Gulf Coast, rather than in the Midcontinent
• Reflected in US crude differentials
© OECD/IEA 2012 © OECD/IEA 2014
US Refinery Renaissance Support the OECD
• US refiners increased refinery runs by 750 kb/d year-on-year in first four months of 2014
• 2013 yearly gains of 315 kb/d
• Surging domestic liquids supply and better refinery profitability lead to increased downstream investment – 500 kb/d of new capacity likely by 2018
13
14
15
16
17
Jan Apr Jul Oct
mb/d US Weekly Refinery Throughput
5-yr Average
2013 2014
Source: EIA
-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
1Q12 3Q12 1Q13 3Q13 1Q14
mb/d OECD Crude ThroughputsAnnual Change
Americas Europe Asia Oceania
© OECD/IEA 2012 © OECD/IEA 2014
European Industry Restructuring Continues
Another 110 kb/d shut in 2014, taking total to 1.8 mb/d since 2008
• MOL shuts Mantova in 2014, Essar cuts capacity at Stanlow
• In addition, lot of ownership changes, with Russian, Chinese, Indian players entering the market, as well as trading companies (Vitol, Gunvor)
© OECD/IEA 2012 © OECD/IEA 2014
Plant Closures in France, Germany, Italy and UK
Refinery Closures to Date:
• France 585 kb/d
• Germany 400 kb/d
• UK 455 kb/d
• Italy 320 kb/d
• From 2007 to 2013, a total of 1.7 mb/d of capacity shut in total. Comparatively, demand fell by 1.9 mb/d
0
100
200
300
400
500
600
2008 2010 2012 2014
kb/d OECD Europe Refinery Closures
Czech Republic France Germany Italy UK
0.0
0.5
1.0
1.5
2.0
0.0
0.2
0.4
0.6
0.8
2008 2010 2012 2014
Th
ou
san
ds
mb/d
Th
ou
san
ds
Cumulative European Refinery Shutddowns
France Germany Italy
UK Total (RHS)
© OECD/IEA 2012 © OECD/IEA 2014
European Net Distillate Imports Surge Increasing volumes coming from US, Russia, India, and Saudi?
• Since September 2013, European Net Middle Distillate imports have averaged 1.3 mb/d, compared with 830 kb/d in 2012 and 1.1 mb/d in 2009.
• US overtakes Russia as main supplier in 4Q13, providing 4650 kb/d (compared with 430 kb/d from Russia)
• Russia takes back key European supplier spot in 2014
-200
0
200
400
600
800
1000
1200
1400
1600
Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
Net European Middle Distillate Imports (kb/d)
United States Russian Federation
India Saudi Arabia
Others
© OECD/IEA 2012 © OECD/IEA 2014
US Turns Gasoline Net-Exporter But Jones Act provides market for Europe on East Coast
• For the last four months (Nov13 – Feb14),US is net exporter of Gasoline
• The Jones Act, which prevents non US-flagged ships to sail within US waters, creates market for European gasoline on East Coast
0
200
400
600
800
1000
1200
1400
1600
Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
US Gasoline Imports (kb/d)
OECD Europe Others-200
0
200
400
600
800
1000
1200
1400
Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
US Net Gasoline imports (kb/d)
© OECD/IEA 2012 © OECD/IEA 2014
US Gasoline Exports Stay in the Americas But increasing share of Distillates coming to Europe
• Mexico and Latin America remains the key buyers of US gasoline surplus
• While Latin America is also main market for US middle distillates, increasing share is coming to Europe (over 30% on average in last six months through February
0
100
200
300
400
500
600
700
800
900
Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
US Gasoline Exports (kb/d)
Mexico Canada NonOPEC LatAm Others
0
200
400
600
800
1000
1200
1400
1600
Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
US Middle Distillate Exports (kb/d)
OECD Europe Others
© OECD/IEA 2012 © OECD/IEA 2014
Globally, Surplus Refining Capacity Still Exist
• Despite OECD refinery closures, surplus distillation capacity exist
• 3.8 mb/d of OECD capacity already shut since 2008 (including Valero’s 235 kb/d Aruba refinery)
• Another 670 kb/d scheduled for 2014, mostly in Japan
• Additions exceed projected demand growth to 2018
• Furthermore, biofuels, NGLs etc. meet larger share of demand
0
200
400
600
800
1,000
1,200
1,400
2008 2009 2010 2011 2012 2013 2014
kb/d OECD Refinery Closures
North America Europe Pacific Aruba
0.0
0.5
1.0
1.5
2.0
2.5
2012 2013 2014 2015 2016 2017 2018
mb/dRefinery Additions vs. Demand
Growth
Net Capacity Additions Demand Growth
© OECD/IEA 2012 © OECD/IEA 2014
Good News For Europe Global Refinery Investments Scaled Back
• Project delays, cancellations reduce new additions from year ago plans
• Chinese projects stalled due to concern over surplus capacity and pollution
• Slow progress in Brazil lead to further project slippage
– Less capacity reduction requirements for Europe and other mature markets
© OECD/IEA 2012 © OECD/IEA 2014
New Medium Term Outlook to be Released on 17 June 2014
Will include update on global investment outlook and new trade
balances – for Europe and the World