Refining 2021 Who Will Be in the Game? 6 th June 2012

Transcription

1 Refining 2021 Who Will Be in the Game? 6 th June 2012

2 Agenda Introduction to A.T. Kearney Global and Regional Refining Market Changes Operating Models for Refiners A Diverse Palette Value Drivers in Refining Maximizing Value Creation A.T. Kearney reference cases Contact details A.T. Kearney

3 A.T. Kearney is a leading strategic management consulting firm, focused on delivering high impact results A.T. Kearney s Global Coverage Americas Europe Atlanta Cambridge Chicago Dallas Mexico City New York San Francisco São Paulo Southfield Toronto Washington, DC Amsterdam Berlin Brussels Bucharest Copenhagen Düsseldorf Frankfurt Helsinki Istanbul Kiev Lisbon Ljubljana London Madrid Milan Moscow Munich Oslo Paris Prague Rome Stockholm Stuttgart Vienna Warsaw Zurich Founded in ,700 employees worldwide 58 cities in 38 countries Private, 100% Partner-owned Collaborative Working Style Collaborative, Authentic, Forward Thinking Source: A.T. Kearney Middle East & Africa Abu Dhabi Dubai Manama Riyadh Johannesburg Asia Pacific Bangkok Beijing Hong Kong Jakarta Kuala Lumpur Melbourne Mumbai New Delhi Seoul Shanghai Singapore Sydney Tokyo A.T. Kearney

4 Global Functional Practices Our network of functional and industry practices enables us to develop and deploy our know-how throughout the world A.T. Kearney Industry and Functional Practices Global Industry Practices Automotive Aerospace & Defence Consumer Goods & Retail Financial Institutions Communications & High- Tech Pharmaceutical & Health Care Energy & Process Industries Strategy Operations Transformation Sustainability Innovation & Complexity Mgt. IT Strategy Transaction Services On engagements A.T. Kearney combines the wealth of service experience with deep industry expertise Source: A.T. Kearney A.T. Kearney

5 A.T. Kearney has in-depth expertise along the entire Oil & Gas value chain A.T. Kearney s Oil & Gas Expertise Selection Exploration & Production Refining & Marketing Gas and Power M&A and market entry Operations transformation Maintenance improvement Supply Chain Transformation Refining strategy Post Merger Integration Organization strategy Operations improvement Investment strategy Reorientation of the long-term generation mix Supply chain strategy Source: A.T. Kearney A.T. Kearney

6 We invest heavily in developing intellectual capital and insights pertinent to the Oil and Gas industry Selected Publications Challenging the Integrated Oil & Gas Model In O&G, do specialist companies create more shareholder value than integrated companies? Chemical Customer Connectivity Index C3X Assesses the impact of the economic crisis, examines the current state of the European chemical market, and discusses how chemical companies are reacting to the post-crisis world Future of Natural Gas Supply in Europe (L. Dumarest, K Oswald) Source: A.T. Kearney Complexity in the Chemical industry How complexity management drives strategic goals Photovoltaics competing in the energy sector Solar photovoltaic technology has a proven track record in recent years that, but can it close the gap to reach the EU s target of 20% renewable energy sources (RES) by 2020 Zukunft der erneuerbaren Energien Erneuerbare Energien als Wachstumstreiber für die deutsche Energiewirtschaft? Zusammenfassung der Studienergebnisse Düsseldorf, Oktober 2007 Wolfgang Haag Jochen Hauff Horst Dringenberg Future of Renewables (Wolfgang Haag, Jochen Hauff, Horst Dringenberg) A.T. Kearney

7 Agenda Introduction to A.T. Kearney Global and Regional Refining Market Changes Operating Models for Refiners A Diverse Palette Value Drivers in Refining Maximizing Value Creation A.T. Kearney reference cases Contact details A.T. Kearney

8 Changes in demand and supply affecting the global refining market will determine structural changes of the industry Market Developments Summary Situation Oil consumption continues to rise in developing markets and fall (or remain static) in developed countries As a result refining capacity is increasing in developing markets. More than half of the refineries in Asia, the Middle East and Eastern Europe have been constructed or significantly upgraded during the past decade On the other side refining capacity in developed markets is shrinking influenced also by declining refining margins in the past few years Complication Over the next 10 years, operators at one in every three refineries in North America and Western Europe will need to reconsider their operating models and how they are integrated across the value chain Otherwise, they will struggle to keep up with changing global markets and compete with improving global standards in refining By 2021, refineries will need to restructure, strategically reposition their assets, or leave the market Overriding question What really creates value in the refining business and what operating model is best suited to maximize this value creation? By 2021, refineries will need to restructure, strategically reposition their assets or leave the market to survive the changing environment Source: A.T. Kearney analysis A.T. Kearney

9 Oil consumption continues to rise in developing markets and fall/stagnate in developed markets Global Oil Demand Growth (2010/2011/2012, 000 barrels per day) Europe Former Soviet Union 472 North America Middle East Asia Latin America Africa Source: A.T. Kearney analysis; International Energy Agency A.T. Kearney

10 Refining capacity additions in Asia, the Middle East and Eastern Europe have changed the refining capacity distribution by region Refining Capacity by Region ( , % of total refining capacity) % 26% % 29% 29% 30% 31% 4% 8% 4% 8% 4% 8% 4% 8% 4% 9% 4% 8% 3% 8% 3% 8% 4% 8% 3% 9% 4% 9% 31% 30% 30% 30% 29% 29% 29% 28% 28% 2 2 8% 8% 24% 24% 24% 24% 24% 24% 24% 24% 24% 23% 23% Asia Pacific Africa Middle East Europe & Eurasia South & Central America North America Source: A.T. Kearney analysis; BP Statistical Yearbook A.T. Kearney

11 Declining refining margins in developed countries have led to major refinery shutdowns Refining Margin per Barrel in Developed Countries ( , US $) ,3 5,4 5,2 4,8 4,1 3,6 3,3 3,7 2,3 2,3 2,2 2,6 1,4 1,3 2,1 1,5-0,3 0,6-0,2-1,5-1,2-1,6-1,4-2, Bonny Light (Cracking) US Gulf Coast Brent (Cracking) Northwest Europe Dubai (Hydrocracking) Singapore Recent examples from US include the closure of ConocoPhillips' Trainer facility in Pennsylvania and Sunoco's Marcus Hook refinery in New Jersey Source: A.T. Kearney analysis; International Energy Agency A.T. Kearney

12 Agenda Introduction to A.T. Kearney Global and Regional Refining Market Changes Operating Models for Refiners A Diverse Palette Value Drivers in Refining Maximizing Value Creation A.T. Kearney reference cases Contact details A.T. Kearney

13 Four main operating models are currently in place in the industry with no single model dominating the market Operating Models in the Industry 1 Upstream integration A single source of crude oil accounts for more than 50 % of the upstream integrated refiner's supply; the crude source can be either equity crude or a longterm contractual arrangement. 2 Merchant refiner Lacking both upstream and downstream integration, the merchant refiner has the flexibility to react quickly to both crude and downstream supply opportunities and to adjust operations or integrate into a larger logistics hub. 3 Downstream integration Dedicated marketing channels take more than 50 % of the downstream integrated refiner's production. These trades are secured either through equity or long-term contractual arrangements. 4 Vertical integration Fulfilling the requirements for upstream and downstream integrated refiners at the same time, the vertically integrated refiner is able to capture value by making the most of advantages across the value chain. Source: A.T. Kearney analysis A.T. Kearney

14 Given local conditions, different operating models dominate different markets leading in EE is downstream and vertical Operating Models by Region (2011, % of refining capacity) 1 2% 12% 1% 18% 6% 12% 14% 41% 51% 59% 31% 82% 40% 36% 43% 16% 4% North America Asia Pacific Western Europe Eastern Europe Middle East Merchant refiner Upstream integration Downstream integration Vertical integration Source: A.T. Kearney analysis; Oil and Gas Journal; PFC Energy, Energy etrack A.T. Kearney

15 Factors such as product distribution infrastructure or proximity to crude, influence the choice of operating models Current Status: Different Operating Models for Different Regions North America The east coast of North America favors downstream integration where there is proximity to crude and a large retail market In the Midwest, upstream integration is the favored operating model for companies that have equity oil sands crude and can capture more value by refining or upgrading it than by selling on the open market Asia Pacific Prices are generally controlled by the government, distribution chains are owned by national oil companies, and downstream integration is the dominant model Merchant refiners are exposed to subsidies and need to be able to adapt to local conditions regarding supply versus export opportunities Western Europe Eastern Europe Middle East Source: A.T. Kearney analysis In Western Europe, downstream integration is the dominant model. Scale, complexity, and location are critical for ensuring a competitive edge and supply flexibility Asset-light strategies or pure trading under a strong brand are preferred because the region has both liquidity in petroleum products and good infrastructure Eastern Europe and Russia still see vertical integration as the highest priority. The Russian government continues intervening to support fuel oil exports, with refining being subsidized to encourage investment in modernizing assets Meanwhile, Eastern European refiners focus on serving local market needs, with local governments securing existing market positions While upstream integration continues to dominate in the Middle East, most new investment is going downstream, with the majority of refined products being exported The continuing trend is toward mega-refining and petrochemical integration, while forming joint ventures for local exports and target-market assets are increasingly becoming part of corporate strategies A.T. Kearney

16 Agenda Introduction to A.T. Kearney Global and Regional Refining Market Changes Operating Models for Refiners A Diverse Palette Value Drivers in Refining Maximizing Value Creation A.T. Kearney reference cases Contact details A.T. Kearney

17 In such a diverse landscape, it is clear there can be no onesize-fits-all approach to business Maximizing Value: Different Strategies for Different Regions North America Asia Pacific Western Europe Eastern Europe Middle East Source: A.T. Kearney analysis North America has seen a significant challenge to the conventional wisdom of the integrated operating model with planned divestments by BP, Sunoco, and others, and the recent divorcing of ConocoPhillips and Marathon into separate upstream and downstream companies Marathon Oil's spin-off of its refining operations pushed the company's stock price up 20% higher than that of integrated oil companies Asia Pacific is the region with the highest activity in terms of numbers of refineries opened and closed, even as small, polluting, and less efficient refineries are being closed and world-scale state-of-the-art facilities are coming on line In this highly attractive market, international oil majors are becoming much more involved in joint ventures to build petrochemical plants, attracted by relatively high economic growth in many countries Western Europe is facing a strong challenge to the traditional integration model, with Exxon, Shell, and BP all announcing divestments. Regional leaders such as Austria-based OMV have also announced asset-light strategies and are considering significant divestments in refining Eastern European and Russian refiners are investing in technologies and scale to overcome the limitations of their dated structures and to pursue asset excellence However, infrastructure and output issues around the still-underinvested and not yet upgraded refining technology landscape are hindering integration with the local market and are favoring fuels export instead The Middle East has seen more refineries open since 2005 than any other region. Many joint ventures have been formed to integrate refining, petrochemical, and chemical plants. Local companies are partnering with international players to gain technical expertise, guaranteed offtake, and reduce exposure to geopolitical risk. A.T. Kearney

18 In the face of such rapid regional and global change, refiners need to reexamine what really creates value in their industry Refinery Value Drivers Crude fungibility: Trading & hedging: Energy imports: Blending components: Input Local or regional balances Pipeline or imports by ship Feedstock Products Electricity Steam Gasoline Biofuel Multiple asset optimization Currency Gas to liquids Assetrelated Scale and technology: World-scale or sub-scale Distillation and conversion Technology Fiscal and regulatory: Tax Regulation Environment Supply chain management: Location Logistics infrastructure Working capital optimization Slate flexibility: Dedication of technology Ability to change baskets Operational flexibility Fuel and energy: Specialties: Petrochemicals: Lubricants: Output Merchant only vs. retail Export vs. local sales Specialist markets (marine, aviation etc) Brand quality Which value chain Joint venture or sole ownership Base oil plant Blending plant and storage Export versus local sales and ensure that their operating models are able to maximize value creation given their asset portfolio and regional specific trends Source: A.T. Kearney analysis A.T. Kearney

19 Using proven methodology, A.T. Kearney can identify what really drives business value of a particular refinery A.T. Kearney Refinery Health Checker A Output L B A.T. Kearney's Refinery Health Checker is a tool for use in benchmarking individual assets against the required success criteria and value levers for refiners in 2021 J K I Fuel and energy H Fiscal and regulatory Lubricants G Asset related Energy imports F C E D Input A.T. Kearney's Refinery Health Checker provides a means of assessing whether an asset is at risk and how that asset compares with the ideal Best in class Average of sample Worst in class and spot the critical areas that need to be addressed, while also planning future strategic investments Source: A.T. Kearney analysis A.T. Kearney

20 Agenda Introduction to A.T. Kearney Global and Regional Refining Market Changes Operating Models for Refiners A Diverse Palette Value Drivers in Refining Maximizing Value Creation A.T. Kearney reference cases Contact details A.T. Kearney

21 Our Unique Value Proposition in the region The right outcome, just for you! We have the commitment our broad network of local offices and staff since more than 20 years. We have the experience senior local and international consultants with executive industry background. We have the results locally successful clients are our reference. CONTACT DETAILS: A.T. Kearney Management Consulting S.R.L. 45, G-ral Mathias Berthelot Street , District 1, Bucharest Romania Michael Weiss, Partner Office Fax Nikolay Kolev, Principal Office Fax A.T. Kearney