Refinery Update. John C. Felmy Chief Economist American Petroleum Institute October 2006

Transcription

1 Refinery Update John C. Felmy Chief Economist American Petroleum Institute October

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3 Diesel, gasoline & crude oil prices $3.87 $ /16/2006 Diesel (EIA) $2.50 Retail Gasoline (EIA) $2.23 Crude Oil (NYMEX) $1.43 $2.58 $1.93 $1.29 $0.64 $0.00 Oct01 Oct02 Oct03 Oct04 Oct05 Oct06 price per gallon 3

4 EIA Crude Oil Price Forecast (Base Case and 95% Confidence Interval) October

5 EIA Natural Gas Price Forecast (Base Case and 95% Confidence Interval) October

6 EIA Price Forecast October 2006 Year Percent Change WTI Crude a ($/barrel) Gasoline b ($/gal) Diesel c ($/gal) Heating Oil d ($/gal) Natural Gas d ($/mcf) a West Texas Intermediate. b Average regular pump price. c Onhighway retail. d Residential average. 6

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8 Heating Bills EIA October ,600 1,400 1,200 1,522 1,265 Heating Oil Propane 1, All Fuels Electricity Natural Gas

9 Apparent 321 Spread Apparent 321 Spread NYMEX Cents per gallon 4/6/2001 7/6/ /6/2001 1/6/2002 4/6/2002 7/6/ /6/2002 1/6/2003 4/6/2003 7/6/ /6/2003 1/6/2004 4/6/2004 7/6/ /6/2004 1/6/2005 4/6/2005 7/6/ /6/2005 1/6/2006 4/6/2006 7/6/ /6/2006

10 Refiner Profit Rate Crack 321 Refiner Profit Rate Q Q405 Q106 Q305 Q102 Q202 Q302 Q402 Q103 Q203 Q303 Q403 Q104 Q204 Q304 Q404 Q105 Q205 Cents per gallon Cents per dollar CR321 Refiner Profit Rate

11 Refiner/Marketer Profits EIA Refiner/Marketer Net Income 14,000 12,000 10,000 8,000 Million $ 6,000 4,000 2,000 0 Q101 Q201 Q301 Q401 Q102 Q202 Q302 Q402 Q103 Q203 Q303 Q403 Q104 Q204 Q304 Q404 Q105 Q205 Q305 Q405 Q106 Q206 2,000 11

12 Fuels Timeline (Since 1990) 1991 Phase II Low volatility gasoline 1992 Winter Oxygenated gasoline 1993 Low Sulfur Diesel 1993 CARB Diesel 1995 RFG Phase I 1995 CARB RFG Phase II 2004 CARB Low sulfur gasoline 2006 RFS 2006 Removal of RFG Oxygenate Mandate 2006 Ultra Low Sulfur Diesel OnRoad 12

13 2006: The Year of the Fuel Spec EIA Full Tier 2 lowsulfur gasoline requirements Major turnarounds due to hurricane delays and fuel changes Elimination of oxygenate requirement and MTBE bans Renewable Fuels Standard Northern, Southern region equalization of RFG VOC standards Ultra lowsulfur diesel 13

14 Highway and Nonroad Diesel Timelines Highway 15 ppm (80%)* 15 ppm (100%) Part 89 Nonroad Diesel (NR) (Farm/Construction) 500 ppm 15 ppm Locomotive and Marine (L&M) 500 ppm 15 ppm With Credits NR (not in NE or AK) Small Refiner Nonroad Diesel (not in NE; with approval in AK) Transmix/InUse NR (not in NE or AK) Transmix/Inuse L&M (not in NE or AK) 5000 ppm 5000 ppm 5000 ppm 5000 ppm 500 ppm 500 ppm 500 ppm 500 ppm 15 ppm 15 ppm 15 ppm * 2006: Refinery June 1; Terminal September 1; Retail October 15 14

15 Oil & Natural Gas New Investments and Net Income New Investments Net Income 80 (billions $) Source: Ernst & Young 15

16 Refining Capacity Overview US demand growth has increased significantly in recent years US refining capacity continues to expand Expansions can help meet demand more quickly & costeffectively than building a new refinery 10 years for new; 3 years for expansion ~$17K per daily barrel for new; ~$912K for expansion Refineries operate in a global market; the market place is efficient and provides best means of supply/demand balance Refineries expand and upgrade units while spending billions to meet clean fuels and environmental regulations For domestic expansion: Improve permitting process Provide regulatory certainty Ensure reasonableness in regulations 16

17 Refining Capacity: Global Market Industry operates in global market There is spare global refining capacity Gaps filled by imports since WWII Most US product imports from Canada, Europe & Virgin Islands Response of global market to hurricanes shows that markets work As global economies expand, there will be increased competition for imports 17

18 Number of refineries declines but capacity expands barrels per day Number of refineries Refining capacity ,500,000 17,000,000 16,500,000 16,000,000 15,500,000 15,000,000 14,500,000 14,000,000 13,500,000 13,000,000 12,500,000 18

19 Producing more gasoline with fewer refineries Billions gallons 250 Gasoline production Number of refineries Source: EIA 19

20 Refining Capacity: Expansions Equivalent of 12 new 200,000 BD refineries built last decade Expansions can help meet demand more quickly & costeffectively than building new Refineries expand and upgrade units, while: spending billions to meet clean fuels and environmental regulations $47.5 billion from (largely due to sulfur reduction in gasoline & diesel) Future plans Based on publicly available data, nearly 1.3 million barrels/day of additional refinery capacity projects are either planned or under strong consideration for the years Such expansions will boost domestic refining capacity to over 18.5 million barrels per day near the alltime high for U.S. operable refinery capacity 20

21 Considerations for Building New Refineries Federal, State and local permit process Crude supply and product pipeline access Electrical, water, natural gas, etc. access Community acceptance Cost ~ $2.5 to $3 billion for 150,000 B/D Average rate of return ~ 6.2% ( ) Will not help meet demand in near term (3 to 10 years) Policies are needed to create a climate conducive to investments to expand domestic refining capacity: Improve permit process Complete NSR reforms Align Ozone NAAQS deadlines 21

22 World Capacity & Consumption Changes Result in Utilization Increases 5, % Thousand Barrels Per Day 4,000 3,000 2,000 1, ,000 2,000 3,000 4,000 5,000 Capacity Consumption Utilization 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Utilization Notes: World Excluding FSU Source: BP World Statistical Review

23 World Distillates Growing More than Gasoline & Fuel Oil Declining Thousand Barrels Per Day 12,000 10,000 8,000 6,000 4,000 2, ,000 Cumulative Consumption Changes 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

24 Imports Supplied About Half Gasoline Demand Growth in Recent Years Thousand Barrels Per Day U.S. Total Gasoline Imports LowSulfur Years Other Other Latin America Brazil E Europe Venezuela W Europe Virgin Islands Canada Note: Total gasoline is finished product plus blending components. Source: EIA, Form EIA814 24

25 E.U. Hydrocracking Growing, But Not as Fast as Diesel Demand Shift Percent of Distillation Capacity EU11 Capacity As Percent of Distillation FCC (Mainly Gasoline) Hydrocracking (More Distillate) Note: FCC Fluid Catalytic Cracking Source: EIA, Oil and Gas Journal 25

26 Europe s Growing Product Imbalance Thousand Barrels Per Day Source: IEA EU15 Product Net Imports Middle Distillate Net Imports Gasoline Net Exports

27 Summary of European and U.S. Balances Thousand Barrels Per Day How Added Demand Was Met: United States European Union 15 U.S. Gasoline U.S. Dist + K/J EU15 Gasoline EU15 Dist + K/J Net Imports Change Yield Change Throughput Change Source: EIA, IEA 27

28 LightHeavy Crude Price Differential & Crude Oil Price Move Together $20 $16 $12 $8 $4 $0 $70 $56 $42 $28 $14 $0 28 Jan95 Jan96 Jan97 Jan98 Jan99 Jan00 Jan01 Jan02 Jan03 Jan04 Jan05 Jan06 LightHeavy Differential Crude Price Crude Price & Price Differential ($/Barrel) WTIMaya WTI Crude Price Source: Bloomberg spot price

29 LightHeavy Price Differentials Move Together $54 $48 $42 $36 $30 $24 $18 $12 $6 $0 Crude and Product Price Differentials $18 $16 $14 $12 $10 $8 $6 $4 $2 $0 Jan95 Jan96 Jan97 Jan98 Jan99 Jan00 Jan01 Jan02 Jan03 Jan04 Jan05 Jan06 Product Price Differential Crude Price Differential WTI Maya GC No. 2 3% Resid Source: Bloomberg spot price 29

30 Current Regional Downstream Capacity Reflects Different Needs 80% 70% 60% 50% 40% 30% 20% 10% 0% 2004 Downstream Capacity Percent of Distillation US EU6 Asia6 Middle East Coking FCC Hydrocracking Hydrotreating Note: Asia6: China, India, Indonesia, Japan, Singapore, South Korea; EU6:France, Germany Italym, Netherlands, Spain, and U.K., Middle East: Bahrain, Kuwait, Saudi Arabia, and UAE. Source: Oil and Gas Journal 30

31 Regional Distillation Capacity Changes EIA Thousand Barrels Per Day U.S. Europe Middle East Asia Pacific Sources: Oil and Gas Journal, FACTS, Company Presentations 31

32 U.S. Capacity Changes (KB/D) EIA CDU Coking FCC/RCC HDC AZ Clean Fuels 150?? BP 100 Coffeyville 15 ConocoPhillips Frontier 10 Marathon Motiva Sunoco 100? Valero Others CreepClosings 250 TOTAL 1, 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 32

33 Europe s Capacity Changes (KB/D) EIA CDU VDU Coking FCC/ RCC HDC Croatia 42 Finland 47 France 2 48 Greece Italy 25 Lithuania Romania 25 Spain TOTAL 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. 33

34 Asian Capacity Changes (KB/D) EIA CDU VDU Coking FCC/ RCC HDC China 1, India 1, Indonesia 250 Pakistan Other TOTAL 3,614 1, 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. 34

35 Middle East Capacity Changes (KB/D)EIA CDU Coking FCC/ RCC HDC Bahrain 60 Iran Iraq Kuwait 410??? Oman Qatar 145??? Saudi Arabia UAE Yemen 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. 35

36 Who Will Expand: Outlooks/Plans Vary EIA Group Regions Future Market Expectations Refinery Investment Strategy Super Majors All Margins revert to historic Maintain topquartile performance, little expansion need Majors with Large Downstream U.S. & Europe Improved 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 lightheavy Expand for export, add bottoms upgrading State & Private India & China High demand growth, better margins Rapid expansion existing & grassroots Sources: Trade press articles, company presentations and press releases. 36

37 Capacity and Consumption Changes EIA Thousand Barrels Per Day Distillation Capacity Demand U.S. Europe Middle East Asia Pacific Sources: Capacity see previous slides; Demand: EIA, BP World Statistical World Review 2005, FACTS, IEA 37

38 National Weather Service Temperature October December 38

39 National Weather Service Precipitation October December 39

40 National Weather Service Temperature January March 40

41 National Weather Service Precipitation January March 41

42 Old Farmers Almanac 42

43 Wooly Bears

44 What can government do? Rely on market forces to allocate products Do not impose new taxes that: Will reduce investment in expanded oil and natural gas production and refining expansion Will ultimately harm consumers and shareholders Reduce barriers to supply Open onshore areas to responsible energy development and reduce permitting delays Lift constraints on key offshore areas with highresource potential Expand access to world natural gas supplies (LNG) Increase refiners flexibility to facilitate expansion Provide timely response to waiver requests in emergencies Streamline existing permit processes to expedite capacity expansions Clarify environmental requirements to streamline operations 44