U.S. Refined Product Exports Developments, Prospects and Challenges

John R. Auers, P.E.Executive Vice President

2017 EIA Energy ConferenceWashington, D.C.

June 27, 2017

U.S. Moves from Importer to Exporter*

2

1: Russia2: Kuwait3: Saudi Arabia4: Venezuela5: Algeria

2: Japan3: Spain4: China5: Indonesia

2: Russia3: Saudi Arabia4: UAE5: India

1: Japan2: Singapore

4: Australia5: Indonesia

2005Exporters

Importers Importers

2016Exporters

11: Mexico 6: Brazil

1: U.S.

1: U.S.

2455 MBPD

2487 MBPD

Source: EIA/IEA/Pemex/JODI

3: Mexico

*imports/exports on net basis

Global Refining Capacity Shifts 2005-2016

3

U.S.13748%

Latin America-187-2%

Middle East194227%

Asia/Pacific950639%

Russia69113%

Europe/Eurasia-2104-11%

Africa40413%

World1210714%

All Units in MBPD

OECD Asia-640-8%

Non-OECD Asia1014662%

Additional ~2 Million BPD under threat

Source: BP Statistical Review, EIA, Pemex, Others

Canada1206%

Highly Skilled, Flexible Workforce

Drivers of U.S. Competitiveness

4

Advantaged Crude Costs

Most Advanced, Complex Refineries

Low Energy Costs Low Capital/Operating Costs

Free Market Principles, Economically and Politically Stable

U.S. Refining Competitiveness

Tight Oil/Gas Benefits

Foreign Refinery Projects Have Been Troubled

5

Abreu e Lima (Grassroots)$16B over & 4 yrs. late

Comperj (Grassroots)Spent $15B & Indefinitely postponed

Premium I & II (Proposed/Grassroots)Delayed 5-6 yrs., $20B each

Trinidad & Tobago (ULSD)$500M+ over, 3 yrs. late

Talara (Expansion)$3.5B, >10 yr. project

Pacific RefineryAnnounced 2007, $13B est., no funding

Cartagena (Expansion/Upgrade)$4B over & 3 yrs. late

Ruwais (Grassroots)$10B, 2 yrs. late

Yanbu (JV/Grassroots)$4B over budget

Jazan (Grassroots)$2B over, 2-3 yrs. late

Al-Zour (Refinery)$5B over, 7 yrs. late

Jubail (JV/Grassroots)$6B over budget

Latin American Importers

Mideast Exporters

Global Refining Utilization2016

6

U.S.90%

Latin America72%

Middle East85%

China78%

Russia89%European

Union84%

Africa61%

World83%

Source: BP Statistical Review, EIA, Pemex, Others

Venezuela54%

Mexico61%

India107%

Other Asia Pacific

84%

US Refiners Take Advantage of LatAm Troubles

77

0

1000

2000

3000

4000

5000

6000

7000

800019

8019

8219

8419

8619

8819

9019

9219

9419

9619

9820

0020

0220

0420

0620

0820

1020

1220

1420

16

MBP

D

Consumption

Refinery Throughput

2016 Delta is 2.5 MMBPD

Imports from US >2.3 MMBPD

Source: BP Statistical Review, EIA, Pemex, Others

Mexican Reform Has Led to More Imports

8

Salina Cruz outage will result in elevated imports over near term

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

200.0

300.0

400.0

500.0

600.0

700.0

800.0

Mex

ico

Ref

iner

y U

tiliz

atio

n

U.S

. Exp

orts

to M

exic

o an

d M

exic

o Pr

oduc

tion

MM

BPD

Mexico ProductionU.S. Exports to MexicoMexico Refinery Utilization

Mexico Energy Reform at the end of 2014

* Gasoline and Diesel

**

Source: BP Statistical Review, EIA, Pemex, Others

U.S. Gulf Coast (PADD III) vs. Mexico Refineries

9

# of Refineries: 6

Total Capacity: 1540 MBPD

Total Coking: 156 MBPD, 10%

Total Upgrading: 579 MBPD, 37%

Average Size: 257 MBPD

Total Cracking: 423 MBPD, 27%

Total Hydrocracking: 0 MBPD, 0% Total Hydrocracking: 1260 MBPD, 14%

Total Cracking: 3095 MBPD, 34%

Total Coking: 1625 MBPD, 18%

Average Size: 213 MBPD

Total Capacity: 9140 MBPD

# of Refineries: 43*

Crude Runs: 943 MBPD

Yields: Gasoline 35%, Diesel 24%

Utilization: 61%

# of Employees/MMBBL: 28,000: *Refineries >35 MBPD

Total Upgrading: 5980 MBPD, 66%

Crude Runs: 8390 MBPD

Yields: Gasoline 52%, Diesel 32%

Utilization: 91%

# of Employees/MMBBL: 3000-7000

Mexico U.S. Gulf Coast

Source: EIA, PEMEX

Future Challenges• Market Issues

– Growing dependency on export markets– Market saturation in traditional markets; will have to extend reach to markets where

U.S. has fewer advantages/more competition– Risk of global refining capacity overbuilding

• Importing countries – Asia/LatAm/Africa and exporting countries - ME/India/Russia

• Demand Growth – Both Domestic and Global

• Competition From Alternatives– Direct substitutes – biofuels/CNG/LNG/CTL/GTL– Move to Electrical Vehicles (EV’s)

• Regulations – Stifle demand/increase costs/limit access/distort markets– Increased regulation in other regions can advantage U.S. refiners

• Tighter fuel specifications in developing countries provide opportunities• IMO LS Bunker rules (2020) will be a substantial boost

10

11

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017YTD

Expo

rts,

% o

f Die

sel P

rodu

ctio

n

Expo

rts,

% o

f Gas

olin

e Pr

oduc

tion

USGC Increasing Dependency on ExportsExports, % of Gasoline Production Exports, % of Diesel Production

Source: EIA

LatAm Market Approaching Saturation?

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31% gasoline supplied by US

0%

5%

10%

15%

20%

25%

30%

0

500

1000

1500

2000

2500

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

U.S

. Exp

ort %

of T

otal

Latin

Am

eric

an C

onsu

mpt

ion

U.S

. Exp

orts

to L

atin

Am

eric

a (M

BPD

)

% of Total Exports to Latin America

30% diesel supplied by US

Source: BP Statistical Review, EIA, Pemex, Others

Global Demand Growth2016 to 2025

13

(1,000)

-

1,000

2,000

3,000

4,000

5,000

6,000

U.S. Mexico Centraland SouthAmerica

Europe AsiaPacific

Africa Rest of theWorld

MBP

D Other

Distillates

Gasoline

-0.1%*

0.3%*

1.4%*

-0.3%*

1.6%*

2.3%*

1.4%*

Source: TM&C forecast

*Average Annual Growth

Global Annual Growth (MBPD)

Gasoline Distillates Other Total %

2,751 5,466 1,293 9,510 0.9%

Impacted by Energy Reform

West Africa is potential New Frontier for U.S.

Alternate Fuels Impact Limited Thru 2025• Low oil prices have made alternatives less attractive

– Growth has/will be driven by regulatory action• Essentially all growth in the U.S. has been ethanol

– limited additional room due to “blend wall”• EV replacement of gasoline vehicles difficult to predict

– TM&C doesn’t expect significant penetration before 2025– Longer term, Autonomous Vehicle (AV) introduction could be

game changer

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0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Mill

ion

BPD

Alternative Fuels Forecast - U.S.

CTL/GTL

CNG/LNG/LPG

Biodiesel

Ethanol

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Mill

ion

BPD

Alternative Fuels Forecast - Total World

Actual Forecast Actual Forecast

Incremental growth of 100+ MBPD through

2025

Incremental growth of over 1.1+ MMBPD through 2025

Source: EIA, TM&C forecast, Others

Global Crude Capacity Additions 2017-2021(1)

15

0

5

10

15

20

25

0

4

8

12

AsiaPacific

FSU Africa MiddleEast

Europe LatinAmerica

Canada/Mexico

U.S. World Wor

ld C

apac

ity A

dditi

ons,

Mill

ion

BPD

Regi

onal

Cap

acity

Add

ition

s, M

illio

n BP

D

Probable Announced

Global productdemand increase(2)

Excess of 1.9 MMBPD

(1) Adjusted for utilization(2) Adjusted for non-petroleum fuels

Source: TM&C forecast

An Exception: Indian Refining Success

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2012 185 MBPD Essar Vadinar $1.9 billion

2021 1,200 MBPD IOCL / HPCL / BPCL Maharashtra $30 billion

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Capa

city

, MBP

D

India Refinery CapacityHistory Forecast Maharashtra

1999 660 MPD Reliance Jamnagar $6.0 billion2008 580 MBPD Reliance Jamnagar $6.0 billion

Source: TM&C forecast, Others

2020 LS Bunker Will Advantage U.S. Refiners

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U.S. Refineries – Limited FO production

Most refiners will benefit from: higher distillate

cracks/wider heavy crude discounts

Europe and Asia - greater fuel oil production/simpler

refineries. Impacts most significant for privately-owned

European plants

TM&C estimates that 1.2 to 2.0 Million BPD of fuel oil will

be displaced by lighter streams, especially distillates.

Significant bump in ULSD vs. HSFO margin

Widening heavy/light spread$0

$10

$20

$30

$40

$50

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Spre

ad ($

/BBL

)

ULSD - LLS ULSD - No. 6 FO (3% S) LLS - Maya

Significant bump in ULSD vs. HSFO margin

Widening heavy/light spread

Source: TM&C forecast

Final Words• U.S. Should Continue to Be World Leader in Refining

– Ability to maintain and grow product exports will be critical (esp. for USGC) – Challenged by new refining capacity in both importing/exporting countries– Important not to be handicapped by excess regulation– Benefits of domestic production growth are real; limited by removal of crude

export restrictions – Can expect more rationalization of capacity in OECD Europe/Asia

• Export Product Demand Growth will Continue but Slow– Market limitations/slowing world petroleum demand growth– U.S. Capacity/Throughput increases limited; based on export economics– With domestic demand declining, growth will be needed to sustain rates– Should capture incremental LatAm growth and compete for West African– Asian market will be a challenge due to competition and high transit costs– U.S. product exports can reach/exceed 6 million BPD by 2025

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PresenterJohn R. Auers, P.E.Executive Vice President• Univ. of Nebraska Chem. Engr.

• Univ. of Houston MBA

• Formerly with Exxon

• Industry studies/analysis, forecasting, modeling

• Leads Outlook team

• Contact Info – jauers@turnermason.com

Office – 214-754-0898; Cell – 214-223-8887

2100 Ross Avenue, Suite 2920

Dallas, Texas 75201

www.turnermason.com

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