U.S. Diesel Demand Projected to Decline A5er 2015: Are You Ready?

Transcription

1 U.S. Diesel Demand Projected to Decline A5er 215: Are You Ready? Featuring: Ethan Groveman, Manager of Project Consul9ng at PIRA Energy Group Sponsored by: PIRA Energy Group The Long-Term Diesel Fuel Market: Demand, Supply, Trade, and Key Drivers Ethan Groveman NATSO Show 215 February 215 1

2 Why we re different WE TAKE THE TOTAL VIEW OF THE MARKET We Take an Objective View WE HAVE NO BIAS OR INTERESTS We Take an Integrated View WE TAKE A TOP DOWN AND BOTTOM UP VIEW We Take an Expert View SEASONED LEADERS AND INNOVATORS 3 Overview Long-term outlook for diesel requires taking many factors into account and dealing with considerable uncertainty Demand: driver behavior, economic growth, vehicle fuel selection, vehicle efficiency Supply: refinery economics, configurations Trade: global diesel supply/demand/economics 2

3 PIRA s U.S. Fuel Consumption Model Existing Vehicle Stock Hybrid Car/Truck Diesel Car/Truck Altern. Car/Truck Conven. Car/Truck By Age New Fleet + Additions By Vehicle Type (-) Function of Penetration, Overall Sales, Market Share Retirements By Vehicle Type, Age New Car Efficiency By Vehicle Type, With MPG Uplift Assumptions Fuel Consumption By Vehicle Type, Age Rolled Up Total Miles Driven By Vehicle Type Age of Vehicle, Including Natural Growth and Associated Fade Factor Fleet Survival Curves By Vehicle Type and Age U.S. Vehicle Profile-213 VMT Basis Fuel Consumed Basis Cars 54% Cars 41% Light Trucks 38% Light Trucks 37% Heavy Trucks 8% Heavy Trucks 22% 3

4 Technological Change Takes Time to Work Through Capital Stock Turnover Assume (U.S.): Light vehicle (cars + trucks) fleet of 25 million New light vehicle sales of 17 million/yr (pre-recession), now 16 million Retirement of million/yr or 5-6% of fleet/yr New technology provides 25-3% greater efficiency Penetrates new car sales at rate of 5%/year. (Note: Hybrid market share in U.S. ~3.2% in 213 after 14 years) Impact on average fleet fuel efficiency: Year 1:.1% Year 5: 1.2% Year 1: 4.1% Year 2: 15.1% Turnover much slower for industrial plant, structures Median age of power plant ~3 years (lower in emerging markets) Median age of house ~4 years LDV Diesel Demand Will Grow Rapidly; Natgas Substitution in HDV/Other Transportation Fuel Demand*, MMBOE/D HDV LDV Other diesel** Natural gas Diesel w/low NGVs *Demand includes biodiesel 4

5 World Energy Demand Model Structure Inputs GDP Population Brent Price Inflation Assumptions Efficiency Improvement Income Elasticity Population Elasticity Price Elasticity Inter Fuel Competition Changing Fuel / Product Shares Model Output Energy Demand by Fuel by Product by Sector Global Diesel Demand to Continue Rapid Growth Diesel Demand*, MMB/D Years Avg Y/Y Growth (MB/D) Transportation Non-transportation *Demand includes biodiesel 5

6 Vehicle Miles Traveled (VMT) Trends (Trillion Miles) Recession 12 mo VMT Y/Y Change Latest: Nov Y/Y Percent Change Jan-8 Jul-81 Jan-83 Jul-84 Jan-86 Jul-87 Jan-89 Jul-9 Jan-92 Jul-93 Jan-95 Jul-96 Jan-98 Jul-99 Jan-1 Jul-2 Jan-4 Jul-5 Jan-7 Jul-8 Jan-1 Jul-11 Jan-13 6% 5% 4% 3% 2% 1% % -1% -2% -3% -4% U.S. VMT Historically Matches Regression; Recent Unexplained Residuals Below Trend Ln(VMT/Capita) and Predicted Ln(VMT/Capita) from Regression Model Ln(VMT/C) Predicted Ln(VMT/C) Recent Unexplained Residuals Ln(VMT/C) = *Ln(DPI) -.65*Ln(GasPrice) *Unemp Jan-9 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan- Jan-1 Jan-2 Jan-3 Jan-4 Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 EIA, St. Louis Fed, BLS, VMT seasonally adjusted using US Census X13 program; Gasoline prices and DPI adjusted for inflation 6

7 Demographic Factors Suggest Lower VMT Growth Aging Population Plus Younger Drivers Driving Less VMT Per Licensed Driver () by NHTS Survey Year 2 18 Millenials Driving Less 16 Aging Boomers to 19 2 to to to All Ages NHTS Summary of Travel Trends Light Trucks Grew in Sales Share vs. Cars to 24; Stable Sales Share in Recent Years Vehicle Sales Share 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Car Lt Truck Med/Hvy Truck 7

8 Light Duty Vehicle Diesel Sales Share Expected to Grow Considerably to 23 Annual Light Duty Vehicle Sales Share 1% 95% 9% 2% 3% 4% 5% 1% 13% 14% 85% 8% 75% 7% 65% 6% 97% 96% 94% 91% 83% 76% 69% Gasoline Hybrid Electric/Other Diesel Diesels Grow to 9% of LDV Fleet by 23 Light Duty Vehicle Fleet Share 1% 95% 9% 85% 8% 75% 7% 65% 6% Gasoline Hybrid Electric/Other Diesel 8

9 U.S. Diesel Car/SUV Sales and Model Availability Diesel Car/SUV Sales (Thousand Units) Avail. Models 22 Avail. Models 24 Avail. Models Others Mercedes GL-Class Volkswagen Golf 8 Audi Q5 6 4 BMW X5 BMW 3-Series Volkswagen Passat 2 Volkswagen Jetta Historical Sources of off-road U.S. Diesel Demand Diesel Demand*, MMB/D Off-Highway Farm Railroad Residential Commercial Industrial Vessel Bunkering Other *Demand includes biodiesel; Source: EIA 9

10 European New Vehicle Sales Roughly Half Diesel Diesel Share of New Vehicle Sales 9% 8% 7% 6% 5% 4% 3% 2% EU-15 France Germany UK Italy Spain 1% % PIRA Assumes Substantial Fuel Efficiency Improvements in Diesel Vehicles New Diesel LDV MPG* Diesel Fleet MPG* Cars Light Trucks Cars Buses Combo Trucks Light Trucks Heavy Trucks *Real-world MPG 1

11 EV and PHEV Sales Growing; Battery Cost Declines Critical to Mass Market 14 US Sales (Thousands) Others 14 Europe Sales (Thousands) Total/Others Ford Fusion Energi Ford C-Max Energi Toyota Prius Plug In Tesla Model S Chevrolet Volt Nissan Leaf Tesla Model S Reanult Twizy Renault Kangoo ZE Renault Zoe Mits. Outlndr. PHEV Nissan Leaf Most Other Large Fuel Consumers Tax Diesel Less Than Gasoline 213 Gasoline and Diesel Taxes ($/Gallon) 6 5 Diesel Gasoline U.S. Germany UK France Italy Spain China Japan 11

12 MPG of New Vehicle Sales Declining over Last 3 Months But Still High by Historical Standards MPG Average US MPG & Fuel Prices MPG US Retail Mogas Price (RHS) $/Gal Hybrid Sales Share Declining; EV/PHEV Sales vs. 214 Flat Despite Greater Model Availability Sales Share 4.% 3.5% 3.% 2.5% 2.% 1.5% 1.%.5%.% Alternative Vehicle Sales & Fuel Prices HEV Sales EV/PHEV Sales US Retail Mogas Price (RHS) $/Gal

13 Long-haul Trucking Economics Yield Attractive Payback Assuming an Oil Price Recovery Diesel Fuel Natural Gas (LNG Trucks) Diesel Btu/Gallon 128, LNG Btu/Gallon 75, Diesel Wholesale $3.15/gal Gas Wholesale $.5/dge Federal Excise Tax $.243/gal Federal Excise Tax* $.413/dge Retail Pump Price $4./gal Retail Pump Price** $2.64/dge Assumptions: Fuel Efficiency 6.5 miles/dge Gallons/Yr. ~18,5 Miles Traveled/Yr. 12, Fuel Cost/Yr. ~$75, Fuel Cost/Yr. ~$49, Current premium for an LNG truck is ~$4-45k *LNG currently taxed on volumetric rather than energy content basis. Results in a 7% FET mark-up versus diesel. **Source: DOE Alternative Fuels Data Center, Alternative Fuels Price Report, Dec. 214 Entrance of Critical Mass of Engines Delayed: Large-Scale Adoption Pushed Back Market penetration in 214, 3-5% natural gas» To change scale of consumption, market needs more engines for user choice and higher annual sales to lower incremental cost New generation engines expected to market have been delayed and some abandoned, pushing back the timeline for large-scale adoption» Volvo proprietary 13L LNG engine canceled after delays» Westport 15L engine ended manufacture in 214» Cummins temporarily abandoned plans for 15L engine Incremental cost relative to diesel trucks will decline dramatically» Current incremental ~$4, USD (~75% engine cost, ~25% third-party tank installation)» At ~1, units annual production, engine incremental should narrow dramatically and tank installation should become assembly line process 13

14 CNG Becoming More Competitive in LNG Space for Trucking Tanks technology advances make CNG storage more efficient» Chart Industries, a leading tank manufacturer, now offers: Standard tank 4.5% smaller, same capacity as predecessor, lower price Bonus tank same size as industry standard 26-inch but ~6% more capacity Newest engine Cummins Westport 12L available in CNG or LNG» Latest orders roughly 5-5 split» Prior to 12L egnine, most powerful option was LNG-only Westport 15L The Westport 15L no longer manufactured» Power Solutions International (PSI) 8.8L and 11.1L engines available in CNG Far more CNG than LNG stations: availability can dictate use» Public and private stations: ~1,4 CNG vs. 1 LNG LNG-CNG choice will depend on use and region» LNG best suited to more powerful engines, heavy payloads, difficult terrain Changing Shape of the World Barrel Gasoline Jet/kero Diesel Fuel Oil Other 1% 9% 8% 7% 6% 5% 4% 26.3% 29.4% 29.5% 29.1% 29.5% 28.9% 3% 2% 1% %

15 Advantaged Economics Are Driving U.S. Refinery Utilization* Rates Higher % Utilization Total East Gulf West 65 6 *Gross input to atmospheric distillation vs. operable capacity U.S. Shifts to Net Product Exporter ( Mid Distillate = Diesel + Jet) MB/D 4, Product Imports MB/D 5, Product Exports 3,5 3, 2,5 4,5 4, 3,5 3, 2, 2,5 1,5 1, 5 2, 1,5 1, 5 Unfinished Oils Pet Coke Other LPG Fuel Oil Mid Distillate Gasoline 15

16 US Diesel Exports Total 2-25% of Production; Imports Have Declined to Negligible Share MB/D 3% 25% US Gasoil/Diesel Export Share of Production Exports/Production Imports/Production 2% 15% 1% 5% % Jan-4 Jul-4 Jan-5 Jul-5 Jan-6 Jul-6 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 The U.S. Is a Large and Growing Diesel Exporter MB/D 1,6 1,4 1,2 1, US Exports of Gasoil/Diesel Other Africa West Europe Latin America Jan-4 Jul-4 Jan-5 Jul-5 Jan-6 Jul-6 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 16

17 The U.S. Becomes a Growing Exporter of Diesel U.S. Diesel Trade Balance (MMB/D) *Other production = GTL + biodiesel Refinery Production Other Production Demand Net Exports Even Under a Low-NGV Scenario, the U.S. Remains a Large Net Diesel Exporter U.S. Diesel Trade Balance (MMB/D) *Other production = GTL + biodiesel Refinery Production Other Production Demand Net Exports 17

18 Conclusions U.S. diesel demand growth slowing and potentially facing competition from natural gas in heavy vehicle applications Natural gas substitution facing some headwinds and may happen slower than expected due to delays and current low oil prices Global diesel demand growth expected to be strong, supported by emerging markets and tighter shipping emissions standards over the long term U.S. well supplied with diesel and will continue to be a large exporter to global markets due to strong refinery economics Oil price drop already influencing vehicle purchases, but eventual price recovery should move consumption patterns back towards trend Thank You! 18