NPRA Annual Meeting 2006
Changing World Product Markets and Changing World Product Markets and Potential Refining Capacity IncreasesPotential Refining Capacity Increases
NPRA Annual Meeting
March 2006
Joanne Shore
John Hackworth
Energy Information Administration
NPRA Annual Meeting 2006
Changing World Product Markets and Changing World Product Markets and Potential Refining Capacity IncreasesPotential Refining Capacity Increases
• World Supply/Demand Cycles & Shifts in Demand
• Historical Regional Demand & Supply (Why capacity varies regionally)– U.S., Europe, Asia– Demand growth, product mix, trade
• Price Signals for Capacity Changes
• Capacity Change Outlook: Who, What, Where
• Over- or Under-Capacity Potential
NPRA Annual Meeting 2006
World Capacity & Consumption Changes World Capacity & Consumption Changes Result in Utilization IncreasesResult in Utilization Increases
-5,000
-4,000
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
4,000
5,00019
6619
6819
7019
7219
7419
7619
7819
8019
8219
8419
8619
8819
9019
9219
9419
9619
9820
0020
0220
04
Th
ou
san
d B
arre
ls P
er D
ay
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Uti
liza
tio
n
Capacity Consumption Utilization
Notes: World Excluding FSU
Source: BP World Statistical Review 2005
NPRA Annual Meeting 2006
World Distillates Growing More than World Distillates Growing More than Gasoline & Fuel Oil DecliningGasoline & Fuel Oil Declining
-2,000
0
2,000
4,000
6,000
8,000
10,000
12,0001
98
5
19
87
19
89
19
91
19
93
19
95
19
97
19
99
20
01
20
03
Th
ou
san
d B
arre
ls P
er D
ay
Cumulative Consumption Changes 1985-2004
Middle Distillate
Gasoline
Residual Fuel Oil
Notes: World excluding FSU; middle distillate is jet, kerosene, diesel and heating oil (No. 2) Source: BP World Statistical Review 2005
NPRA Annual Meeting 2006
Historical Regional Demand and SupplyHistorical Regional Demand and Supply
World Demand (MMB/D)
0102030405060708090
1965 1974 1983 1992 2001
Gasoline
Middle Distillates
Fuel Oil
Other
• Overview of regional demand differences
• U.S and Europe – Atlantic Basin partners
• Asia Pacific – Mixture, with total driven by large emerging countries
Notes: World Excluding FSU
Source: BP World Statistical Review 2005
NPRA Annual Meeting 2006
U.S., EU-25, and Asia-Pacific Regions U.S., EU-25, and Asia-Pacific Regions Represent 76% World Petroleum UseRepresent 76% World Petroleum Use
0
5
10
15
20
25
U.S. EU 25 AsiaPacific
Rest ofWorld
Mill
ion
Bar
rels
Per
Day
OtherGasolineMiddle Distillate
2004 Regional Petroleum Consumption
Note: European Union-25 (EU-25): former European Union-15 plus Estonia, Latvia, Lithuania, Czech Republic, Slovakia, Hungary, Poland, Slovenia (beginning in 1992/93), Cyprus, Malta
Source: BP Statistical World Review 2005
NPRA Annual Meeting 2006
Regional Consumption Growth Varied Regional Consumption Growth Varied
-200-100
0100200300400500600700800900
85-95 95-04 85-95 95-04 85-95 95-04
Other
Gasolines
MiddleDistillatesFuel oil
U.S. EU-25 Asia Pacific
Average Annual Product Change
2.9%
0.7%
Average Annual Growth
95-04:
1.6%
Source: BP World Statistical Review 2005
NPRA Annual Meeting 2006
U.S. Light Product DemandU.S. Light Product Demand
• Transportation main driver• Not likely to see any major shift from gasoline to
diesel in next 10 years• Hybrids and diesel likely to increase in next
decade, but little impact on demand during next decade
• Uncertain efficiency changes in all new vehicle sales, but slow impact regardless
NPRA Annual Meeting 2006
Imports Supplied About Half Gasoline Imports Supplied About Half Gasoline Demand Growth in Recent YearsDemand Growth in Recent Years
0
200
400
600
800
1000
120019
93
1995
1997
1999
2001
2003
2005
Th
ou
sa
nd
Ba
rre
ls P
er
Da
y Other
Other Latin America
Brazil
E Europe
Venezuela
W Europe
Virgin Islands
Canada
U.S. Total Gasoline Imports
Note: Total gasoline is finished product plus blending components.
Source: EIA, Form EIA-814
Low-Sulfur Years
NPRA Annual Meeting 2006
Europe’s Light Product DemandEurope’s Light Product Demand
• General policy to reduce energy use and CO2 emissions;
• Petroleum demand growth has been small (annual 0.7% since 1995);
• Policies led to increased shift to diesel engines;
• Diesel demand is increasing while gasoline demand is declining;
• EU is major driver behind world shift to distillate versus gasoline
NPRA Annual Meeting 2006
Europe Is Unique In Degree of Shift to Europe Is Unique In Degree of Shift to Middle DistillateMiddle Distillate
40%
45%
50%
55%
60%
65%
70%19
85
1987
1989
1991
1993
1995
1997
1999
2001
2003
Distillate Share of Gasoline and Distillate Consumption
EU-25
World Excl FSU and EU-25
Source: BP Statistical World Review 2005
NPRA Annual Meeting 2006
E.U. Hydrocracking Growing, But Not as E.U. Hydrocracking Growing, But Not as Fast as Diesel Demand ShiftFast as Diesel Demand Shift
0
2
4
6
8
10
12
14
16
1819
90
1992
1994
1996
1998
2000
2002
2004
Per
cen
t o
f D
isti
llati
on
Cap
acit
y
FCC (Mainly Gasoline)
Hydrocracking (More Distillate)
EU-11 Capacity As Percent of Distillation
Note: FCC - Fluid Catalytic Cracking Source: EIA, Oil and Gas Journal
NPRA Annual Meeting 2006
Europe’s Growing Product ImbalanceEurope’s Growing Product Imbalance
-1000
-800
-600
-400
-200
0
200
400
600
800
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Th
ou
san
d B
arre
ls P
er D
ay
EU-15 Product Net Imports
Gasoline Net Exports
Middle Distillate Net Imports
Source: IEA
NPRA Annual Meeting 2006
Summary of European and U.S. BalancesSummary of European and U.S. Balances
-1000
-500
0
500
1000
1500
U.S.Gasoline
U.S. Dist + K/J
EU-15Gasoline
EU-15 Dist + K/J
Th
ou
sa
nd
Ba
rre
ls P
er
Da
y
Net ImportsChange
YieldChange
ThroughputChange
How Added Demand Was Met: 1995-2004
Source: EIA, IEA
United States European Union 15
NPRA Annual Meeting 2006
Asia-PacificAsia-Pacific
• Growth resumed after financial collapse• Much variation – China & India large growth
drivers, OECD Asia small growth• Product mix future?
– Non-highway use of petroleum in emerging Asian countries large
– Distillate use will continue to grow rapidly, but…– Light duty vehicle use will also grow, and China’s light-
duty fleet is gasoline
NPRA Annual Meeting 2006
Asia-Pacific’s Distillate-Gasoline SharesAsia-Pacific’s Distillate-Gasoline Shares
50%52%54%56%58%60%62%64%66%68%70%
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
Distillate Share of Gasoline & Distillate Consumption
Source: BP Statistical World Review 2005
NPRA Annual Meeting 2006
Price Signals for Capacity ChangePrice Signals for Capacity Change
• “Margins” and “differentials” drive refinery investment decisions – not price
• Since the turn of the century, margins and differentials point to need for more investment
• But views of the future vary
• Interesting distillate price signal in 2005
0
10
20
30
40
50
60
70
80
90
100
Jan-95 Jan-00 Jan-05
$/B
arre
l
No. 2 Heating Oil Gulf Coast
WTI Crude Price
Crude Oil & Distillate Fuel Prices
Source: Bloomberg spot prices
NPRA Annual Meeting 2006
Light-Heavy Product Price Differential & Light-Heavy Product Price Differential & Crude Oil Price Move TogetherCrude Oil Price Move Together
$0
$10
$20
$30
$40
$50
$60
$70Ja
n-9
5
Jan
-96
Jan
-97
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Do
llar
s/B
arre
l
GC No.2 - 3% S Resid
NWE No.2 - 3.5% S Resid
WTI Crude Price
Crude Price & Price Differentials
Source: Bloomberg spot prices – GC - Gulf Coast, NWE-Northwest Europe ARA Barge, WTI – West Texas Intermediate Cushing
NPRA Annual Meeting 2006
Light-Heavy Crude Price Differential Light-Heavy Crude Price Differential & Crude Oil Price Move Together& Crude Oil Price Move Together
$0
$4
$8
$12
$16
$20Ja
n-9
5
Jan
-96
Jan
-97
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Lig
ht-
Hea
vy D
iffe
ren
tial
$0
$14
$28
$42
$56
$70
Cru
de
Pri
ce
WTI-Maya
WTI Crude Price
Crude Price & Price Differential ($/Barrel)
Source: Bloomberg spot price
NPRA Annual Meeting 2006
Light-Heavy Price Differentials Move TogetherLight-Heavy Price Differentials Move Together
$0
$6
$12
$18
$24
$30
$36
$42
$48
$54Ja
n-9
5
Jan
-96
Jan
-97
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Pro
du
ct P
rice
Dif
fere
nti
al
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
Cru
de
Pri
ce D
iffe
ren
tial
Crude and Product Price Differentials ($/Barrel)
GC No. 2 - 3% Resid
WTI - Maya
Source: Bloomberg spot price
NPRA Annual Meeting 2006
Unusual Atlantic Basin 2005 Distillate Prices Unusual Atlantic Basin 2005 Distillate Prices
-40
-30
-20
-10
0
10
20
30
40Ja
n-9
5
Jan
-96
Jan
-97
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Cen
ts P
er G
allo
n
Spot Gasoline - Heating Oil Price Differences
U.S. Gulf CoastNorthwest
Europe
Source: Bloomberg Gulf Coast Conventional Gasoline, No. 2 Heating Oil; NW Europe 0.2% Heating Oil and Premium Gasoline
NPRA Annual Meeting 2006
If WTI Drops from $60 to $40, Will Differential Drop If WTI Drops from $60 to $40, Will Differential Drop by 33% ($15-$10)?by 33% ($15-$10)?
R2 = 0.761
$0
$5
$10
$15
$20
$25
$0 $10 $20 $30 $40 $50 $60 $70
WTI
WT
I-M
aya
Sp
read
WTI Price Versus WTI-Maya Spread 1/91-12/05
NPRA Annual Meeting 2006
If WTI Drops from $60 to $40, Margin Relationship If WTI Drops from $60 to $40, Margin Relationship Less CertainLess Certain
R2 = 0.467
$0
$5
$10
$15
$20
$25
$0 $10 $20 $30 $40 $50 $60 $70
WTI
3-2-
1 P
rice
Sp
read
WTI Price Versus 3-2-1 Spread (1/91-1/06)*
Note: Three hurricane months excluded (Aug-Oct 2006) Source Bloomberg Gulf Coast product spot prices and WTI Cushing.
NPRA Annual Meeting 2006
Looking Ahead to Refinery Capacity GrowthLooking Ahead to Refinery Capacity Growth
• Where: U.S., Europe, Asia, Middle East
• What type
• Who are the companies investing, and what is driving their decisions?
“When one admits that nothing is certain one must, I think, also admit that some things are much more nearly certain than others.” Bertrand Russell, 1947
NPRA Annual Meeting 2006
Current Regional Downstream Capacity Current Regional Downstream Capacity Reflects Different NeedsReflects Different Needs
US
EU
-6A
sia-
6M
idd
le E
ast
0%
10%
20%
30%
40%
50%
60%
70%
80%
Coking FCC Hydrocracking Hydrotreating
2004 Downstream Capacity Percent of Distillation
Note: Asia-6: China, India, Indonesia, Japan, Singapore, South Korea; EU-6:France, Germany Italym, Netherlands, Spain, and U.K., Middle East: Bahrain, Kuwait, Saudi Arabia, and UAE. Source: Oil and Gas Journal
NPRA Annual Meeting 2006
Regional Distillation Capacity Changes Regional Distillation Capacity Changes 2005-20102005-2010
0
500
1000
1500
2000
2500
3000
3500
4000
U.S. Europe Middle East Asia Pacific
Th
ou
san
d B
arre
ls P
er D
ay
Sources: Oil and Gas Journal, FACTS, Company Presentations
NPRA Annual Meeting 2006
U.S. Capacity Changes 2005-2010 (KB/D)U.S. Capacity Changes 2005-2010 (KB/D)
CDU Coking FCC/RCC HDC
AZ Clean Fuels 150 ? ? -
BP 100
Coffeyville 15
ConocoPhillips 230 105 - -
Frontier 10 - - -
Marathon 193 70 40 60
Motiva 325 90 - 60
Sunoco 100 - ? -
Valero 406 30 19 107
Others 70 152 31 85
Creep-Closings 250 - - -
TOTAL 1,749 557 90 312
Note: “?” denotes plans that mention a type of unit, but no capacity volumes. CDU: Crude distillation unit; FCC: Fluid catalytic cracking; RCC: Residual catalytic cracking; HDC: Hydrocracking. Sources: Oil & Gas Journal, company presentations, Industrial Information Resources
NPRA Annual Meeting 2006
Europe’s Capacity Changes 2005-2010 (KB/D)Europe’s Capacity Changes 2005-2010 (KB/D)
CDU VDU CokingFCC/
RCCHDC
Croatia - - - - 42
Finland - - - - 47
France - - - 2 48
Greece - - 50 - 37
Italy - - - - 25
Lithuania - - - - -
Romania - - - - 25
Spain 30 - 20 - 50
TOTAL 30 - 70 2 274
Note: “?” denotes plans that mention a type of unit, but no capacity volumes. CDU: Crude distillation unit; VDU: Vacuum distillation unit; FCC: Fluid catalytic cracking; RCC: Residual catalytic cracking; HDC: Hydrocracking. Sources: Oil and Gas Journal, company presentations.
NPRA Annual Meeting 2006
Asian Capacity Changes 2005-2010 (KB/D)Asian Capacity Changes 2005-2010 (KB/D)
CDU VDU CokingFCC/
RCCHDC
China 1,966 680 135 142 242
India 1,015 275 50 198 228
Indonesia 250 - - - -
Pakistan 150 60 - - 50
Other 233 - 33 184 40
TOTAL 3,614 1,015 218 524 560
Note: “?” denotes plans that mention a type of unit, but no capacity volumes. CDU: Crude distillation unit; VDU: Vacuum distillation unit; FCC: Fluid catalytic cracking; RCC: Residual catalytic cracking; HDC: Hydrocracking Sources: Oil and Gas Journal, FACTS, industry media reports.
NPRA Annual Meeting 2006
Middle East Capacity Changes 2005-2010 (KB/D)Middle East Capacity Changes 2005-2010 (KB/D)
CDU CokingFCC/ RCC
HDC
Bahrain - - - 60
Iran 896 - 171 2
Iraq 370 - 90 35
Kuwait 410 ? ? ?
Oman 131 - 75 -
Qatar 145 ? ? ?
Saudi Arabia 400 80 100 200
UAE - - - -
Yemen 185 - - 20
TOTAL 2,537 - - -
Note: “?” denotes plans that mention a type of unit, but no capacity volumes. CDU: Crude distillation unit; VDU: Vacuum distillation unit; FCC: Fluid catalytic cracking; RCC: Residual catalytic cracking; HDC: Hydrocracking Sources: Oil and Gas Journal, FACTS, industry media reports.
NPRA Annual Meeting 2006
Who Will Expand: Outlooks/Plans VaryWho Will Expand: Outlooks/Plans Vary
Group RegionsFuture Market Expectations
Refinery Investment Strategy
Super Majors AllMargins revert to
historic
Maintain top-quartile
performance , little expansion need
Majors with Large Downstream
U.S. & EuropeImproved margins
with cycles
Heavy crude projects & cautious
expansion
Independent Refiners
U.S."Golden Age of
Refining"Expand distillation
& conversion
Export Refiners
Middle East Tight capacity & high light-heavy
Expand for export, add bottoms upgrading
State & Private
India & ChinaHigh demand growth, better
margins
Rapid expansion existing & grassroots
Sources: Trade press articles, company presentations and press releases.
NPRA Annual Meeting 2006
Over or Under Capacity PotentialOver or Under Capacity Potential
• Putting demand and capacity together regionally
• Postulating potential for over- or under-capacity
0
2
4
6
8
10
12
14
16
18
20
Ja
n-8
1
Ja
n-8
4
Ja
n-8
7
Ja
n-9
0
Ja
n-9
3
Ja
n-9
6
Ja
n-9
9
Ja
n-0
2
Ja
n-0
5
Mill
ion
Ba
rre
ls P
er
Da
y
U.S. Refining Capacity & Inputs
Gross Inputs
Capacity
Source: EIA
NPRA Annual Meeting 2006
Capacity and Consumption ChangesCapacity and Consumption Changes2005-20102005-2010
0
500
1000
1500
2000
2500
3000
3500
4000
U.S. Europe Middle East Asia Pacific
Distillation Capacity Demand
Th
ou
san
d B
arre
ls P
er D
ay
Sources: Capacity see previous slides; Demand: EIA, BP World Statistical World Review 2005, FACTS, IEA
NPRA Annual Meeting 2006
Potential for Over/Under Expansion?Potential for Over/Under Expansion?
• The potential for under-capacity is probably greatest in the next year or two, before all new expansion plans come online.
• If the world does not experience any major demand shocks, over-expansion potential is small.
• The most likely areas where overexpansion has and may again occur are Asia and the Middle East.
NPRA Annual Meeting 2006
Product Market & Price Outlook SummaryProduct Market & Price Outlook Summary
• Demand growth keeps capacity tight to 2010;
• Light-heavy price differentials and higher margins will result in increased bottoms upgrading capacity;
• Mixed views on margin outlook will prevent significant overbuilding – with Middle East and Asia being most likely areas for overbuild;
• Gasoline-diesel price differential will stay close and possibly invert more often as in 2005.
NPRA Annual Meeting 2006
Summary of Capacity OutlookSummary of Capacity Outlook
• Capacity expansion announcements growing with continued price strength;
• U.S. capacity could even keep up with demand growth;
• Europe’s gasoline surplus will continue, but new hydrocracking capacity may slow growth in Europe’s diesel imports;
• Middle East gearing up to meet growing Asian and European needs;
• Asia’s growth driven largely by China and India;• Continue to watch distillate mix – Particularly in
Europe, our Atlantic Basin partner.