IEA Refinery Outlook European Recovery in Sight?

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1 IEA Refinery Outlook European Recovery in Sight? Platts 6 th Annual European Refining Markets Conference Brussels, September 2012 Toril Bosoni, International Energy Agency

2 Subdued Global Oil Demand Growth Persists Demand is forecast to post sub-1 gains in 2012 & 2013 Global Oil Product Demand Y-o-Y Chg 90 4% % % 80 1% % % 70-2% World: Oil Demand Growth by Product, , m b/d 3.0 Global oil demand is forecast to grow at a steady 0.8 (0.9%) in both 2012 and 2013, restrained by the weak economic backdrop and high prices, the growth forecast is roughly on a par with those carried in the OMR all year. Demand is forecast to average 89.8 in 2012 and 90.6 in Strong distillate demand remains a feature of the outlook through 2013, as the construction and manufacturing sectors gradually become more robust. Global gas/diesel oil demand is set to rise by 1.1% in 2012, to 26.4, and by 1.4% in 2013 to (0.5) () 2.0 () (2.0) Gasoline Distillates LPG & Naphtha Other Fuel Oil Total (RHS) -

3 Emerging Markets & Japan Dominate Growth Twin support that will wane through the forecast World: Total Demand, Y-o-Y Growth OECD Non-OECD World Q09 4Q09 3Q10 2Q11 1Q12 4Q12 kb/d 5,400 5,200 5,000 4,800 4,600 4,400 4,200 Japan: Total Oil Product Demand Having risen by 1.2 in 2Q12, demand growth globally will ease back to 0.8 in 2H12, as decelerations strike Japan, Korea and many emerging markets. The precarious macroeconomic backdrop, the partial return of nuclear capacities in Japan and government efforts to lower import dependencies combine to restrict demand.

4 European Demand Outlook Negative Recession and downbeat manufacturing sentiment 16.5 OECD Europe: Total Oil Product Demand Jan Apr Jul Oct Jan Range year avg % 6% 5% 4% 3% 2% 1% 0% -1% -2% European GDP: (Year on year %change) Source: Eurostat, Italy 2Q12 est. 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 Germany UK France Italy Spain Euro Area European demand down 0.5 so far this year The euro zone entered a second, or double dip, recession in 2Q12, as GDP fell by 0.2% over 1Q12 3Q12 indicators remain downbeat with euro zone PMI (manufacturing sentiment) at 37- month low of 44 in July and 45.1 in August Eurozone Manufacturing PMI 52 Note: 50=contraction/expansion threshold. Source: Markit Oct11 Dec11 Feb12 Apr12 Jun12 Aug12

5 European Capacity Rationalisation Continues Venice 80 kb/d European refinery closures completed or announced since the start of the financial crisis in 2008 amount to more than 1.7 of capacity 530 kb/d shut in 2011, 350 kb/d so far this year, with another 150 kb/d later in 4Q12 In addition, lot of ownership changes, with Russian, Chinese, Indian players entering the market

6 Other OECD Regions also Cut Capacity Cumulative European Refinery Shutdowns France Germany Italy UK Total RHS OECD Refinery Closures , North America Europe Pacific Aruba Total refinery capacity reductions in the OECD now amount to more than 3.9 since Valero s 270 kb/d Aruba refinery in 2013 North America and Europe shut 1.3 and 1.7, respectively. Pacific scheduled so far This includes recently announce refinery conversion of Eni s Venice plant and Petroplus Petit Couronne from next year. Petit Couronne currently operating under tolling agreement with Shell and is still looking for buyer, but so far without positive results

7 Global Refinery Profitability Improves in 2012 European Margins Improve to levels not seen since 2008 $/bbl Global Cracking Refining Margins Jan-06 Jan-08 Jan-10 Jan-12 NWE Brent MED Urals Singapore Dubai USGC Mars $/bbl Refining Margins North West Europe Jan-06 Jan-08 Jan-10 Jan-12 Brent Cracking Urals Cracking Brent HS Urals HS Refinery Margins has improved in all major refining centers in 2012 Simple margins in Europe regain positive territory, (net of operating costs, depreciation and amortization), with Brent hydroskimming positive for 5 th consecutive month in September. Even allowing for variable costs, simple margins were positive in June Refinery consolidation starting to pay off, by tightening product markets and lifting gasoline and distillate crack spreads Higher margins lead to welcome rise in regional crude runs

8 European Crude Runs Surge in July and August But Still weak compared to historical trends OECD Europe Crude Throughput 11.5 Jan Mar May Jul Sep Nov Jan Range Average est European Crude Runs Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Preliminary July and August data show European refiners responding to market signals raising runs sharply Increase sharper than expected given continued regional economic and oil demand weakness and recently completed capacity rationalisation Low product inventories, and outages in other regions help lift export demand and product cracks however Regional refinery runs down almost 1.8 since 2005

9 Within Europe: Contrasting Pictures Both amongst products and countries OECD Europe: Motor Gasoline Demand 7.0 OECD Europe: Gasoil Demand Jan Apr Jul Oct Jan Range year avg kb/d German: Total Oil Product Demand 2,900 2,700 2,500 2,300 2,100 Jan Apr Range Jul Oct Jan 5-year avg Jan Apr Jul Oct Jan 5-year avg kb/d 1,900 Italy: Total Oil Product Demand 1,800 1,700 1,600 1,500 1,400 1,300 1,200 Jan Apr Jul Oct Jan Range year avg Largest demand contractions seen for fuel oil, motor gasoline Diesel and heating oil holding up better Country wise, France/Germany (stronger in 2012 than Italy/Spain

10 Strong US Runs Despite Declining Demand m b/d US Weekly Refinery Throughput Source: EIA 13.5 Jan Apr Jul Oct Range yr Average Annual Change in North American Demand vs. Crude Runs Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 Demand Crude Runs While US demand continues to contract on annual basis (since 2Q11), runs hold up North American crude runs 125 kb/d higher year-on-year last 12 months. Product exports and cheap crudes supportive Refiners on East Coast, and latest US Virgin Islands & Aruba, struggle and see closure US Oil Product Exports () Jan/02 Jan/04 Jan/06 Jan/08 Jan/10 Jan/12 Gasoline Distillates Fuel Oil Other

11 Non-OECD still Drives Growth Global Crude Throughputs Annual Change Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q OECD vs. Non-OECD Crude Runs Americas Europe Asia Oceania China Other Asia Middle East Latin America Other 3 1Q2004 1Q2006 1Q2008 1Q2010 1Q2012 OECD Non-OECD Non-OECD Asia post strong growth since 2Q12 on expanded refinery capacity Expected rebound in Chinese demand and refinery runs later this year underpin high growth in 4Q12 Return of shut capacity in Africa (Libya and Algeria) boost regional throughputs The start-up of Saudi Arabia s 400 kb/d Jubail refinery at the end of this year (will full runs in 3Q13) will boost ME growth

12 Demand and New Capacity Support Runs China slowdown dents growth Non-OECD Total Crude Throughput 33 Jan Mar May Jul Sep Nov Jan Range Average est. Russia Crude Throughput Jan Mar May Jul Sep Nov Jan est. China Crude Throughput Jan Mar May Jul Sep Nov Jan Range Average est India Crude Throughput 3.0 Jan Mar May Jul Sep Nov Jan est. Despite weakness in Chinese throughputs, non-oecd refinery runs supported by robust demand and record-high Indian and Russian runs

13 Non-OECD Refinery Expansions set to Continue m b/d 2.0 Crude Distillation Additions kb/d 1 Cumulative CDU Expansions OECD China Other Asia Middle East Latin America Other Non-OECD Net Additions OECD China Other Asia Middle East Latin America Other Non OECD Non-OECD Asia accounts for more than half of additions. Middle East also significant contributor to growth. Latin American downstream investments scaled back with new management at Petrobras. FSU investments primarily to improve product quality and light product yields. Refiner y expansion plans outpace expected demand growth Other Asia 18% Regional Share of CDU Expansions Middle East 23% OECD Capacity contracts by Latin America 7% Other Non- OECD 7% China 36% FSU 9%

14 European Refiners Finding new Feedstock 1.5 Selected European Crude Suppliers 0.5 Jan-10 Jul-10 Iran Jan-11 Jul-11 Jan-12 Libya Iraq Syria Saudi Arabia Libyan supplies almost back to pre-war levels Iranian crude shipments to Europe near zero Imports of Iranian oil estimated at 1.1 in August versus low of 0.9 in July, Europe takes 100 kb/d US sanctions & EU embargo will continue to restrict sales in 2H12 (by ~1??), albeit exports might edge slightly higher in September & October

15 Saudi & Iraqi Barrels Helping to Offset Lower Iranian Volumes 1 Saudi Arabia Crude Production 3.2 Iraq Crude Production Jan Mar May Jul Sep Nov Jan Jan Mar May Jul Sep Nov Jan Saudi Arabia consistently producing around 10 since early Iraqi supplies reach highest level in more than 3 decades at 3.07 and despite seemingly worsening relations between KRG & Baghdad one to watch Non-OPEC supplies grow 0.6 in 1H12. US, Canada, Brazil

16 Looking Ahead Continued demand contractions in Europe and other mature markets in Medium-term New, sophisticated large-scale capacity in developing markets coming online Supply disruptions and feedstock challenges - not over Further capacity shutdowns needed in coming years Increased distillate import requirements or gasoline surpluses Difficult times not over yet!

17 Thank you Toril Bosoni, Senior Oil Market Analyst, Refining Oil Industry & Markets Division International Energy Agency