Turner, Mason & Company

Transcription

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2 Turner, Mason & Company International consulting practice since 1971 Downstream focus; refinery/chemical engineers Industry and financial clients Publish various outlook and forecast products Crude and Refined Products Outlook Refinery Construction Outlook Crude and Condensate Outlook Special Studies 2

3 TM&C Outlook Calendar CRUDE and REFINED PRODUCTS OUTLOOK/CONSTRUCTION OUTLOOK Biannual publications: February and August Long-term assessment of global demand and crude/product prices Refining projects impacts on crude/product balances Discussion of infrastructure, regulatory and environmental issues/impacts NORTH AMERICAN CRUDE and CONDENSATE OUTLOOK 10-year crude production forecast: focus on changing qualities/volumes Review/analysis of refining and mid-stream projects Evaluate challenges & opportunities for producers, refiners and midstream September 2014 update; rebalancing global dynamics/impacts 3

4 Agenda Profile of PADD IV & ND Regional Refinery Projects The Rest of the Country Final Thoughts 4

5 Profile of PADD IV & ND 5

6 PADD IV Supply/Demand Refiners have both supply and demand advantages Only region where production will exceed refinery demand Regional demand growth stronger than in rest of country Supply advantages from neighboring regions Access to growing and stranded production of Western Canadian heavy crude Advantaged access to growing light sweet ND Bakken Limited ability to access other product markets Also limits ability to buy/sell intermediates 6

7 PADD IV Production Will Exceed Crude Runs Actual Projected 700 Production (MBPD) Colorado Montana Utah Wyoming PADD IV Refy Runs 7

8 W. Canadian and ND Production Also Growing Western Canadian Production 6,000 Actual Projected 5,000 North Dakota Crude Production 1,600 Actual Projected 1,400 1,200 Production (MBPD) 4,000 3,000 2,000 Production (MBPD) 1, ,

9 Regional Supply Cost Advantages Production outstripping logistics; large crude discounts Refinery margins highest in the country PADD IV discounts remain even as WTI discount declines Uinta waxy crudes require special transportation and processing, leads to particularly large discount WCS crude from Canada stranded due to logistics Price advantages will remain; spreads will reduce to transport parity as logistics assets are added 9

10 WTI-LLS and WY Sweet-WTI Spreads $5 WTI-LLS and WY Sweet-WTI Spread Jan 11-Apr 14, Monthly Average $0 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 -$5 Spread ($/BBL) -$10 -$15 -$20 -$25 -$30 WTI-LLS WY Sweet-WTI 10

11 March 2014 Crude Prices PADD IV $110 $100 Price ($/BBL) $90 $80 $70 WCS Uinta Black Wax Altamont Yellow Wax WY Sweet (Guernsey) Bakken (Clearbrook) WTI (Cushing) LLS (St. James) Brent (Dated) 11

12 2013 Average Refinery Margins Margin ($/BBL) $35 $30 $25 $20 $15 $10 $5 $0 (WY Sweet) Cracking (Yellow Wax) Cracking (Black Wax) Cracking (WCS) Coking (WTI) Cracking (Bakken) Cracking (WCS) Coking (LLS) Cracking (Eagle Ford) Cracking (Maya) Coking (Bonny Light) Cracking (Bakken) Cracking (ANS) Cracking (Kern River) Coking (Brent) Cracking (Urals) Cracking (Dubai) Singapore Cracking PADD IV/Rocky Mtn Mid-Cont USGC USAC USWC ARA Italy AP 12

13 PADD IV (plus ND) Demand Overall demand growth in PADD IV has outpaced U.S. (~0.6% annually) since Demand in ND has increased substantially in past several years, despite declining PADD II demand. Increases predominantly in distillate demand Consumption (MBPD) Driven by increased Bakken production (rigs, trucks, etc) PADD IV Fuels Demand Rest Finished Gasoline Distillate Fuel 13 Consumption (MBPD) ND Fuels Demand On Highway Distillate Demand Oil Industry/ Commecial Distillate Demand Total Distillate Demand Total Gasoline Demand

14 Regional Demand Growth Annual Average, % 0.5% 0.0% PADD I PADD II PADD III PADD IV PADD V -0.5% -1.0% -1.5% -2.0% -2.5% -3.0% 14

15 PADD IV Product Flows Spokane, WA North Dakota South Dakota/ Nebraska Salt Lake City Denver/ Colorado Springs Las Vegas, NV TX Panhandle Refineries 15

16 PADD IV Product Supply/Demand 2013 Gasoline (MBPD) PADD IV Gasoline Supply/Demand Production From PADD II/III To PADD V Total Demand Diesel (MBPD) PADD IV Diesel Supply/Demand Production From PADD II/III To PADD V Total Demand Jet/Kero (MBPD) PADD IV Jet/Kero Supply/Demand Total (MBPD) PADD IV Total Supply/Demand Production From PADD II/III To PADD V Total Demand 0 Production From PADD II/III To PADD V Total Demand 16

17 PADD IV Clean Product Demand Outlook (MBPD) 2013 Actual 2020 Forecast Growth 2013 to 2020 Gasoline Diesel JetA/Kero Total % Annual Growth 0.9% US % Annual Growth -0.2% 17 30

18 ND Diesel Supply Balance Demand more than doubled since 2007 to 70 MBPD 70% brought in from Minnesota/Montana refineries Along with crude growth has provided driving force for new refinery projects Mandan recently expanded by 5 MBPD Dakota Prairie will produce ~8 MBPD Calumet Great Falls adds 4 MBPD Other projects being developed Current Capacity: Tesoro Mandan 22 MBPD Capacity Under Construction: Dakota Prairie Refinery 8 MBPD (Q4 2014) Demand: MBPD 18

19 Regional Refining Projects 19

20 PADD IV & ND Refineries Billings Salt Lake City 20 26

21 21 Regional Refinery Configurations Region Average Crude Capacity MBPD Cat Cracking Capacity Hydrocracking Capacity Coking Capacity Total Upgrading Capacity PADD IV 42 31% 5% 13% 48% US % 10% 15% 58% PADD I % 3% 6% 51% PADD II % 8% 12% 53% PADD III % 10% 17% 59% PADD V % 18% 19% 65% 21

22 PADD IV/ND Crude Qualities Crude API Bakken Niobrara Uinta WTI LLS WCS Crudes run in PADD IV vary from light/sweet to heavy/sour and acidic Tight oils particularly light and sweet with low metal and nitrogen contents. Niobrara condensates can be over 60 API. Uinta crudes highly paraffinic; F pour points. API ranges for black wax, for yellow wax crudes. These crudes require special handling/processing Poor cold flow and reformer feed properties Excellent FCCU feed, diesel cetane, lubes Sulfur (wt %) API High API Low Sulfur (wt %) Uinta Waxy Crudes Picture courtesy Bill Barrett Corp.

23 Projects Driven by Advantaged Crude ND projects to take advantage of crude growth Supported by crude boom driven diesel demand Salt Lake Area projects to take advantage of discounted Uinta basin crude Requires investment to handle cold flow properties Proposed pipeline is an important development Size of projects limited by regional demand 23

24 MT/ND Refinery Projects Calumet Great Falls Expansion (10 MBPD 20 MBPD) (Est. Completion Q3 2015) $275MM expansion of existing refinery Heavy crude focus new Crude Unit, Hydrocracker, Hydrogen Plant Enables compliance with tighter fuel regulations Calumet Dakota Prairie, (20 MBPD) (Est. Completion Q4 2014) $300MM grassroots facility in Dickenson, ND; Bakken crude focus Modular refinery construction, groundbreaking May 2013 Located in Dickinson, ND; funded by Calumet and MDU Under Construction Quantum Energy, (20 MBPD) Site located near East Fairview, ND; Bakken crude focus Located next to transloading facility operated by Northstar Transloading Thunder Butte Refinery (20 MBPD) Three Affiliated Tribes, funded by oil royalties and special federal loans Construction of crude transloading facility, groundbreaking May 2013 Refinery construction not to begin until ~2015 Trenton Diesel Refinery (20 MBPD) Dakota Oil Processing LLC. Lost investors and ND state grants; unlikely to proceed Planning Stages 24

25 ND Diesel Hydroskimming Refinery LPG and Fuel Gas to Heaters Overhead Drum Naphtha Primarily Sold As Diluent Crude Storage Crude Tower Feed Heater Distillate Hydrotreater Fuel Gas Reboiler Furnace Tower Bottoms Ultra Low Sulfur Diesel Sold as Intermediate/ Feedstock Supply Local Demand 25

26 Salt Lake City Refinery Projects Tesoro (58 MBPD 62 MBPD) $180MM project, done in two stages, first stage complete, second stage complete in 2014 Improving crude throughput by 4 MBPD, and increasing waxy crude throughput to 21 MBPD Expanding crude unloading facilities, crude unit, FCC, diesel hydrotreater/dewaxing, and vapor recovery unit, and associated upgrades Signed 7 year, 18 MBPD supply agreement for Uinta waxy crude with Newfield Exploration HollyFrontier (31 MPBD 45 MBPD 60 MBPD) $700 MM project, done in two stages, Phase 1 in early 2015 and Phase 2 in 2016 Includes second crude unit, waxy crude unloading racks, FCC, diesel HDS/dewaxing, hydrogen plant, lubes, poly unit, storage tanks, wastewater treatment and emissions reduction Increasing waxy crude throughput from 10 MBPD to 40 MBPD Signed 10 year, 20 MBPD supply agreement for Uinta waxy crude with Newfield Exploration Chevron $83MM project to improve efficiency and refinery operation, no capacity expansion. Complete in summer of 2014 Expansion allows for increased efficiency, reliability, product yield 26

27 SLC Waxy Crude Expansion Offgas New Equipment Circled in Red Overhead Drum Light Naphtha Treat/Gasoline Blending Heavy Naphtha Conventional Crude Storage Crude Tower Distillate Feed Heater Distillate Hydrotreater Dewaxing Distillate Hydrotreater Dewaxing Heated Waxy Crude Storage Crude Preheater Crude Truck Unloading Rack Uinta Waxy Crude Transport Reboiler Furnace FCC Distillate Ultra Low Sulfur Diesel Tower Bottoms Uinta Waxy Crude Transport Naphtha (Treat/Gasoline Blending) 27

28 Uinta Express Pipeline Tesoro developing Uinta Express Pipeline Filed notice of intent in late January 2014 Proposed completion in 2017 The 60 MBPD, 135 mile line is to run from Myton, UT to refineries in Salt Lake City The 12 pipeline would follow the right of way of several existing pipelines Would replace 250 trucks per day Requires insulation/heat tracing/emergency tanks Expect strong opposition from local environmental groups Proposed Uinta Express Pipeline 28

29 Rest of the Country 29

30 Product Surge is Key Driver U.S. production up by over 3 MMBPD since 2008 Reverses 20+ year trend of declines Increases dominated by onshore tight oil production Canadian crude on upward trend for 3 decades Up by almost 1 million BPD in the last decade Largest reserve base in the world/unconventional resources Almost all reserves located in Western Canada Production increases driven by higher crude prices and technology advances (fracking, in-situ extraction, etc) 20 U.S. and Canadian Crude Oil Production 8,000 U.S. Oil Production MMBPD Canada US Low US High Production (MBPD) 7,000 6,000 5,000 4,000 Permian Niobrara Eagle Ford Bakken All Other ,

31 Regional Developments Waterborne Imports into PADD I Replaced by Bakken Refineries particularly well suited for Bakken quality Unit rail unloading capacity in place; outcomes of rail safety debate critical Crude export debate critical; disadvantaged if exports are allowed PADD II to Rely on In-PADD and Heavy Canadian Crude Non-Canadian imports already displaced PADD III movements decline/canadian light to decline with Line 9 Growing production/coking additions limit ability to absorb more light 31

32 Regional Developments (cont.) PADD III Rapidly Approaching Light Crude Saturation Strong in-padd growth from Eagle Ford/Permian WB light sweet gone; 1.6 MMBPD of light sour/medium remain Saudi market strategy will be key Significant WB heavy imports to remain; decrease with Canadian access PADD V Challenges Continue to import over 700 MBPD of waterborne light and medium crude Rail needed to access PADD II/III/IV crude; running into resistance in California LCFS could limit Canadian heavy Pacific Northwest moving fastest to displace WB/ANS 32

33 Refinery Project Drivers Projects to Allow Processing of Growing Tight Oil USGC (Eagle Ford), OH/KY (Utica) and Permian Basin Projects very refinery specific; new crude units, prefractionator towers, light ends and naphtha capacity expansion, etc. Midstream Sponsored Condensate Splitters Primarily Eagle Ford projects on the USGC 150 MBPD under construction; 200 to 300+ MBPD being proposed Export policy will be important factor Diesel Focused Projects Incentivized by favorable diesel vs. gasoline demand patterns Both new and revamped hydrocrackers Export Restriction Driven Crude-to-Product Projects Done in response to binding U.S. export restrictions Also midstream sponsored/condensate splitters and diesel hydroskimmers USGC locations; investment would be delayed by regulatory uncertainty 33

34 Refinery Expansions/Tight Oil Eagle Ford Operator Location MBPD* Startup Flint Hills Corpus Christi, TX 30 Late 2014 Valero Houston, TX 90 2Q 2015 Valero Corpus Christi, TX 70 3Q 2015 Utica Operator Location MBPD* Startup Marathon Canton, OH Marathon Catlettsburg, KY Permian Operator Location MBPD Startup Valero McKee, TX *Project will allow refinery to run higher volumes of very light crude and condensate from regional tight oil production. Estimated total expansion of crude capacity is not necessarily equal to capacity of new condensate splitter or preflash tower and is TM&C's estimate. 34

35 Condensate Splitters Under Construction Operator Location MBPD Startup Kinder Morgan, Phase Q 2014 Houston, TX Kinder Morgan, Phase Q 2015 Trafigura Corpus Christi, TX 50 4Q 2014 Proposed Operator Location MBPD Startup Magellan Corpus Christi, TX 50 2H2016 Martin Midstream Corpus Christi, TX Up to Q 2016 Targa Resources TBD TBD TBD Castleton Commodities Corpus Christi, TX TBD TBD Phillips 66 Sweeny, TX TBD TBD 35

36 Diesel Expansion Projects Completed Operator Location MBPD* Startup Valero Port Arthur, TX 60 Late 2012 Valero St. Charles, LA 60 Late 2013 Under Construction/Proposed Operator Location MBPD* Startup Philadelphia Energy Solutions Philadelphia, PA Valero Meraux, LA Husky Lima, OH Marathon Garyville, LA Valero Port Arthur, TX Valero St. Charles, LA *Reflects size of hydrocracker expansion 36

37 Final Thoughts Shale Boom Generational Event for U.S. Refiners Lower crude and natural gas costs add to existing advantages Makes U.S. refineries perhaps the most competitive in the world Incentivizing new capacity; 400 to 500 MBPD in next three years Finding homes for growing levels of product exports is a key challenge PADD IV Refiners Particularly Advantaged Low crude costs/growing demand should continue Fueling expansions; limited by regional product demand Exposed to domestic economic conditions because of inability to export Government Policy Challenges Costs/Demand/Access Increase cost Tier 3, NSPS, LCFS, other fuel specifications Decrease demand CAFE, RFS, other alternative fuels policies Access pipeline and rail facility permitting, Jones Act, new rail standards 37

38 Presenter John R. Auers, P.E. Executive Vice President Univ. of Nebraska Chem. Engr. Univ. of Houston MBA Formerly with Exxon Industry studies/analysis, forecasting, modeling Leads Outlook team Contact Info Office