Opportunities, challenges, and perspectives until 2030 for 3rd International Energy & Oil Conference

Transcription

1 Special Presentation Opportunities, challenges, and perspectives until 2030 for 3rd International Energy & Oil Conference Eugene Lindell 04 December 2017

2 Disclaimer All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements (including those depicted in graphical form) are statements of future expectations that are based on JBC Energy s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things statements expressing JBC Energy s expectations, beliefs, estimates, forecasts, projections and assumptions. These forward-looking statements are identified by their use of terms and phrases such as anticipate, believe, could, estimate, expect, intend, may, plan, objectives, outlook, probably, project, will, forecast, predict, think, seek, target, risks, goals, should and similar terms and phrases. All forward-looking statements contained in this speech/presentation are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Readers/audience should not place undue reliance on forward-looking statements. Each forward-looking statement speaks only as of the date of this presentation. Neither JBC Energy nor any of its subsidiaries undertake any obligation to publicly update or revise any forward-looking statement as a result of new information, future events or other information. In light of these risks, results could differ materially from those stated, implied or inferred from the forward-looking statements contained in this speech/presentation. Any persons acting on information contained in this presentation does so solely at their own risk. JBC Energy is not responsible for the accuracy of data collected from external sources and will not be held liable for any errors or omissions in facts or analysis contained in this presentation. JBC s third party sources provide data to JBC on an as-is basis and accept no responsibility and disclaim any liability relating to reliance on or use of their data by any party. Data sourced as SuDeP (JBC s in-house Supply-Demand-Price forecasting model) or JBC Derived Data may be partly based on EIA and various national statistical entities; JODI; the MODS, ADS or MGDS ( services developed by the IEA, OECD/IEA 2017; OPEC; and other industry sources, but the resulting work has been prepared by JBC Energy and does not necessarily reflect the views of the original data providers. To the extent that JBC Energy comments or opines on data obtained from third party sources, these comments or opinions shall be understood as JBC Energy s own comments or opinions unless a third party is quoted as their source. Monday, 04 December Slide 2

3 Products & Services Analytics 19 Market Publications Oil, Natural Gas & Alternatives Global Focus Daily, Weekly, Monthly, Quarterly & Bi-Annually Modelling In-House Supply, Demand, Pricing (SuDeP) Model Data by Country, by Region, by Sector Bottom Up Approach Standardised or Customised Modules Energy Consulting Audits Benchmarking Documentation Optimization Pricing Processes Risk Management Strategy Studies Client Initiated Expert Led Fundamental Driven Commercially Focused Powered by SuDeP & JBC s Extensive Databases Training Services Oil Market Fundamentals Pricing & Risk Management Oil Trading Public Courses & Single Client Options Monday, 04 December Slide 3

4 Agenda Opportunities, challenges, and perspectives for the development of the oil industry in Central Eastern and South Eastern Europe until Monday, 04 December Slide 4

5 Agenda Short-term (current to end-2019) Big Changes in Russian Crude More crude being shifted East Massive quality changes on the horizon Impact on Urals quality of separate Urals Heavy stream Mid-Term ( ) IMO spec change: Opportunities and Challenges The 3 million b/d bunker question Rise of the heavy sweets Long-Term ( ) European Transport Fuel Demand Under Attack Impact of Dieselgate scandal How serious is the EV threat? Monday, 04 December Slide 5

6 Big Changes in Russian Crude Monday, 04 December

7 Big Changes in Russian Crude Russia Crude & Condensate Output [million b/d] Assumed cuts from Oct-16 level Av Source: JBC Energy assessment based on modified* Russian Ministry data *main data adjustments: -individual conversion factors by company -separate Gazprom production estimates -correction factor for gas plant liquids Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Russian production has been capped for another year due to the cooperation with OPEC. This means that for 2018 we only see growth of 25,000 b/d, similar to that seen in This is of course not good news for refiners of Russian crude. Monday, 04 December Slide

8 Big Changes in Russian Crude 6,100 5,900 Figures from Nov-17 onwards are JBC Energy forecasts Russia - Crude Intake ['000 b/d] 5,700 5,500 5,300 5,100 4,900 Source: JBC Derived Data 5-Year Range 5-Year Avg ,700 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec At the same time, Russia crude intake is seen growing by 75,000 b/d, thereby trimming export availability further. Monday, 04 December Slide 8

9 Big Changes in Russian Crude 5,700 5,500 Figures from Nov-17 onwards are JBC Energy forecasts Russia - Crude Balance ['000 b/d] 5,300 5,100 4,900 4,700 4,500 Source: JBC Derived Data 5-Year Range 5-Year Avg ,300 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Consequently, the overall Russian crude balance is seen tightening by some 50,000 b/d. This is not that big a number, but Monday, 04 December Slide 9

10 Big Changes in Russian Crude Transneft's ESPO Trunk Crude Pipeline System: Export Infrastructure to the East to Samara KAZAKHSTAN Source: Transneft, various industry sources to Perm Zapolyarye-Purpe Pipeline Purpe Omsk refinery Pavlodar refinery Atasu Tomsk CHINA Achinsk refinerery Vankor-Purpe Pipeline Alashankou Kuyumba-Taishet Pipeline key bottlenecks to the Far East have been lifted and Transneft sees eastern exports increasing by a whopping 240,000 b/d! Taishet ESPO-1 expansion from 1.16 million b/d to 1.6 million b/d by 2020 Current capacity at 400,000 b/d (Russia) and 300,000 b/d (China); scheduled expansion to 600,000 b/d in Jan 2018 Skovorodino Mohe ESPO-2 expansion from 600,000 b/d to 1 million b/d by 2020 Daqing refinery CHINA Khabarovsk refinery Komsomolsk spur 160,000 b/d in 2018 Komsomolsk refinery Kozmino Kozmino port capacity expansion from 650,000 b/d to 730,000 b/d by late 2017 Monday, 04 December Slide 10

11 Big Changes in Russian Crude Reported Sulphur Content of Selected Urals Streams [% Sulphur] Transneft previously stated it would act if sulphur content of Urals exceeds 1.8% (may launch Urals Heavy stream) Transneft Forecast Source: ArgusMedia, Interfax Urals ex-primorsk Urals ex-novorossiysk Urals ex-ust Luga (& Druzhba) Q Q Q Q Q Q Q Q Q Q With better quality Russian crude being shipped east, Transneft expects a significant worsening of Russian Urals quality already in Especially CEE refiners on the Druzhba and buyers of Ust Luga crude have cause for concern. Worsening quality is paving the way for a new segregated Urals Heavy grade. Monday, 04 December Slide 11

12 Big Changes in Russian Crude 2.6 Reported Sulphur Content of Selected Urals Streams & Urals Heavy [% Sulphur] Forecast assumes the historical relationship of quality between Druzhba and Ust-Luga continues (i.e. no pipeline batching) Transneft Forecast JBC Urals Heavy Forecast Source: ArgusMedia, Interfax Urals ex-primorsk Urals ex-novorossiysk Urals ex-ust Luga (& Druzhba) Q Q Q Q Q Q Q Q Q Q After Urals Heavy The launching of Urals Heavy, maybe even before 2020, will severely impact Urals qualities. Druzhba refiners will be particularly concerned as (due to a lack of pipeline batching) their quality has historically matched that of Ust Luga. Monday, 04 December Slide 12

13 Big Changes in Russian Crude Urals Exports and Quality Estimates by Location [million b/d; %-Sulphur] 2.5 Urals Exports by Stream [million b/d] Urals Quality [% Sulphur] Druzhba Ust Luga Primorsk Novorossiysk Urals Exports Post-Urals Heavy Both falling supplies of Russian crude and changing crude qualities will present major challenges and opportunities for refiners in Central Eastern and South Eastern Europe. Crude procurement and buyers flexibility will remain key. Monday, 04 December Slide Primorsk Novorossiysk Druzhba Ust Luga 2017 ytd 2018 Post-Urals Heavy Source: Reuters, ArgusMedia, Transneft, JBC Energy estimate

14 IMO spec change: Opportunities and Challenges Monday, 04 December

15 IMO spec change: Opportunities and Challenges LNG Gas Oil 0.5% Fuel Oil 3.5% Fuel Oil Scrubbers Share LNG Share Bunker Fuel Mix [million b/d, %] 45% 41% 36% 32% 3 27% % 2 18% % 1 9% 0.5 5% 0 Source: JBC Energy Estimates We are convinced that fuel oil will remain the solution in the short-term (primarily LSFO) and also in the long run (return to increasing volumes of HSFO). 0% Monday, 04 December Slide 15

16 IMO spec change: Opportunities and Challenges Approximate Contributing Factors to 0.5% Fuel Oil Production in 2020 [million b/d] Sample Text Sample Text Sample Text Sample Text Sample Text Sample Text Sample Text Sample Text Sample Text Sample Text Sample Text Cutter stock factor illustrates lower requirements for such blending components due to the relative increased use of straight run fuel oil streams for CBFO supply Total 0.5% fuel oil demand of some 3.18 million b/d in 2020 will be met by drawing stocks of approximately 150,000 b/d (from builds in previous years) 0.0 Source: JBC Energy estimates Suitable FO components Redirected SRFO (ARES) Residual desulphurisation Higher refinery intake Optimised crude slate Implied decline in cutterstock use Total When it comes to supplying low-sulphur bunker fuel, we believe that straight-run material will have to price out of the secondary feedstock pool. To replace the missing feedstock volumes, refiners will find it economical to run HSFO (particularly suitable for cokers) Monday, 04 December Slide 16

17 IMO spec change: Opportunities and Challenges Vacuum Residue HVGO LVGO Sulphur in Atmospheric Residue -Right Scale Sum of stacked bars = Atmospheric Residue Yield Vacuum Distillation Yields of Selected Crudes [%] Source: Haverly Brent Ekofisk (Forties) Qua Iboe Girassol Maya Dalia Doba Urals NWE Eagle Ford Rabi Light Duri Bakken Oman Arab Light WTI Dubai 0 Residue-rich crudes with a sulphur content in atmospheric residue of less than 0.5% S (i.e. heavy-sweets) will be sought after to make 0.5% bunker fuel. Monday, 04 December Slide 17

18 IMO spec change: Opportunities and Challenges Dtd. Brent MGO 0.5% CBFO HSFO LS SRFO JBC Energy Price Forecast - NWE [$/bbl] Source: JBC Energy Price incentives will emerge to facilitate the transition. Plummeting HSFO values will motivate scrubbers uptake and higher powergen demand. Slide 18

19 IMO spec change: Opportunities and Challenges Gross Product Worth of Crudes vs Brent (Forties Blend) [$/bbl] Ekofisk Maya Urals NWE Eagle Ford Dubai Oman WTI Girassol Rabi Light Source: JBC Energy Estimate From a GPW perspective, the big changes in spreads are seen for heavier sweet grades which in some cases will even be valued at a premium to Brent in comparison to the historical normal. Slide 19

20 European Transport Fuel Demand Under Attack Monday, 04 December

21 Road Transportation Fuel Perspectives Major car manufacturers are planning to electrify their future models. Is this a black swan event? Monday, 04 December Slide 21

22 European Transport Fuel Demand Under Attack Car drivetrain definitions Powered by hydrocarbons Gasoline Diesel 5-15% Hybrid electric vehicle (HEV) Mild hybrids (48V system) 10-90% Powered by battery Plug-in hybrid electric vehicle (PHEV) External source Hydrogen Battery electric vehicle (BEV) 100% Pure electric capable Need internal combustion engine (ICE) Fuel cell electric vehicle (FCEV) Monday, 04 December Slide 22

23 European Transport Fuel Demand Under Attack Policy drivers Price Environmental policies Consumer preferences Health concerns Weaker connection Driven also by politics Stronger connection Emphasized by city regulations Monday, 04 December Slide 23

24 European Transport Fuel Demand Under Attack Automotive Battery Prices [$/kwh] Cells Pack Historic prices DOE estimate 2010 Bloomberg survey 2012 Current industry estimates Nissan Renault Tesla GM (Bolt) Audi Hyundai Chevrolet $100/kWh for battery cells (plus some $25/kWh for the pack) is seen as the tipping point at which EVs have a price advantage compared to combustion engines Source: various Battery prices are key and will dictate the economics and hence penetration of electric vehicles. But prices are very close to reaching competitive levels (i.e. $125/kWh) versus ICE vehicles. Slide 24

25 European Transport Fuel Demand Under Attack 80% 75% 70% 65% New Car Sales - Diesel & Gasoline Share [% 3MMA] France Italy Sweden Austria Germany UK Spain Europe* Diesel Share Dieselgate 70% 65% 60% 55% Italy Germany Spain France Gasoline Share Austria UK Europe* 60% 50% 55% 45% 50% 40% 45% 35% 40% 35% *based on monthly sales from selected countries, representing roughly 75-85% of European market Source: JBC Energy calculations based on Statistik Austria, CCFA, KBA, SMMT, UNRAE, BIL, DGT 30% Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 30% 25% 20% Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 The diesel share of new car sales has plummeted by almost 10pp since January 2016 and that for gasoline has surged. Chart covers around 80% of the European market. Monday, 04 December Slide 25

26 European Transport Fuel Demand Under Attack EU28 New Car Sales Scenarios [million units] Diesel Gasoline Gasoline Hybrid Diesel Hybrid LPG CNG Full Electric Base Case Low Gasoline Case High Gasoline Case High EV % 4% 4% 10% 15% 15% 6% 3% 30% 2% 4% 3% 8% 15% 12% 12 60% 66% 10 45% 53% 11% 74% % 33% 69% 15% 61% 8% 37% SuDeP 2% 0 0% Nevertheless, it is still much too early to talk of the end of the internal combustion engine (ICE). Our base case only sees 15% of new EU car sales being hybridised or fully electric by In fact, even if our low gasoline case (>41%) proves accurate, it wouldn t be the end of the ICE-age because Monday, 04 December Slide 26 35% 22% 14% 5% 13% 20% 84% 72%

27 European Transport Fuel Demand Under Attack EU28 Car Fleet Composition Scenarios [million units] 350 Diesel Gasoline Gasoline Hybrid Diesel Hybrid LPG CNG Full Electric Base Case Low Gasoline Case High Gasoline Case % 0.8% 1.3% 3% 4% 7% High EV 0.9% 6% 21% 0.7% 3% 0.4% 0.7% 1.3% 2.3% 4% 5% 200 7% % 49% 55% 59% 48% 47% 38% 51% 61% 69% % 47% 39% 29% SuDeP it will take several years for rising non-ice sales to meaningfully impact fleet composition given an EU-wide fleet of >250 million cars. Only 11% of the fleet would NOT be running on gasoline/diesel. Moreover, hybrids still consume some gasoline/diesel. Monday, 04 December Slide 27 48% 42% 33% 46% 33% 20%

28 European Transport Fuel Demand Under Attack 4.8 Components of EU-28 Transport Diesel Demand [million b/d] Additional use for biodiesel (energy adjusted) -30,000 b/d Increase in passenger travelling: +190,000 b/d Increased tonne-km in Freight: +350,000 b/d Efficiency gains in Freight and Busses: -520,000 b/d Efficiency gains in Diesel engines: -150,000 b/d -14% SuDeP Efficiency gains in Freight and Busses includes electrification assumptions Shift to gasoline and PHEV/BEV vehicle sales: -400,000 b/d Diesel demand overall is seen dropping by 14% over the 15 year period. Changes in the freight sector have the most impact on diesel demand given that it accounts for more than 50% of diesel demand in Europe. Monday, 04 December Slide 28

29 European Transport Fuel Demand Under Attack 2,400 Europe Gasoline and Diesel Demand Scenario Analysis ['000 b/d] Low Gasoline Case = High Diesel Case: Strong BEV market penetration with strong shift away from Diesel 4,600 2,200 High Gasoline Demand Case = Low Diesel Case: Low BEV market penetration with slow shift away from Diesel 4,400 2,000 4,200 1,800 4,000 1,600 3,800 1,400 3,600 1,200 Low Gasoline Case 3,400 High Diesel Case High Gasoline Case Low Diesel Case SuDeP Gasoline Base Case Diesel Base Case 1,000 3, The difference between the high and low gasoline scenarious to the base case by 2030 is a relatively mild ,000 b/d. On the diesel side, the low case is still less than 300,000 b/d lower than the base case. Monday, 04 December Slide 29

30 Conclusions Russian Crude More crude being shifted East will deteriorate Urals quality Lower availability of Russian crude to boost Urals prices, but worsening quality may offset this New Urals Heavy stream looks more-and-more likely (pre-2020!) Flexibility of crude slate for CE/SE refiners will be an even greater asset IMO Spec Change We see 0.5%S fuel oil, not distillate, as the replacement for HSFO Heavy sweet crude, once a niche market, could go mainstream Topping margins with heavy sweet crude should be healthy Heavy-sour grades like Basrah Heavy and Maya will be clearly disadvantaged Conversion margins for heavy-sour crude should be v healthy Transportation Demand Impact even of high EV penetration scenarios is not severe given an existing fleet of 250+ million cars Ongoing efficiency changes are still the biggest drivers behind declining road transportation demand The difference between our aggressive scenarios (i.e EV penetration, gasolinisation) and our base cases are relatively mild +/ ,000 b/d Monday, 04 December Slide 30

31 Thank you!