ASPHALT SUPPLY IN A VOLATILE OIL WORLD Bill Haverland ConocoPhillips Company
Issues to be Discussed Crude Oil Supply Crude Oil Pricing Refining Capacity Products Supply Products Pricing Future of the Industry
CRUDE OIL SUPPLY A WORLD LOOK
Crude Oil Supply (2006) World Crude Oil Production Millions of Barrels Per Day FSU/E. Europe Middle East 12.6 26.0 Africa 9.8 W. Europe 6.3 10.6 11.3 8.4 Total: 85MMB/D Latin America US/Canada Asia/Pacific Asia/Pacific Africa World Proven Crude Oil Reserves Billions of Barrels FSU/E. Europe 743 W. Europe 79 15 116 Latin America 201 36 102 Middle Middle East East Total: 1,292 BB US/Canada Asia /Pacific Africa
Crude Oil Demand Demand has risen by 7 MMBD (9%) since 2002. Demand at 85 MMBD or 98% of world daily delivery capacity. Vulnerable to supply disruptions caused by storms, accidents, breakdowns, political unrest. 65% of proven reserves within national oil companies and 16% held by Russia. Traditional companies have full access to 7% of reserves and 12% through partners (if allowed).
CRUDE OIL PRICING
WTI Price by Year 70 60 50 40 30 20 10 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
1Q 2006 1Q 2005 WTI Price by Quarter 80 70 60 50 40 30 20 10 0 1Q 2001 1Q 2002 1Q 2003 1Q 2004
REFINING CAPACITY
Topping Refinery 650- GASES NAPHTHA AND CRUDE OIL DU 650+ Tea Pot Not A Refinery Really Just A Crude Distiller GASOIL FEEDSTOCKS 6OIL or ASPHALT (if heavy crude)
Simple Refinery CRUDE OIL DU 650-650+ GASES NHT KHT DHT CRU Hydroskimming Refinery, many exist all over the world TO MOGAS JET/KER O TO NO.2 6OIL or ASPHALT (if heavy crude)
CCU - Complex Refinery GASES 650- NHT CRU KHT DHT TO MOGAS TO MOGAS JET/KER O TO 2OIL CRUDE OIL DU 650+ GASES 650-1050 VAC CCU ALKY GASOLINE GASOIL TO MOGAS TO MOGAS TO 2OIL 1050 + 6OIL ASPHALT
CCU/HCU/Coker - Very Complex Refinery CRUDE OIL GASES DU H2 PLANT GASES 650-750 750-1050 NHT HCU GASES CCU KHT DHT CRU MTBE ALKY ISOM TO MOGAS TO MOGAS TO MOGAS TO 2OIL TO MOGAS TO MOGAS TO MOGAS VAC GASES COKER TCU/VIS DEASPHALTER COKE
Refinery Yield (% of Crude Intake) 120% 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% OTHER MOGAS JET LT NAPH HVY NAPH GAS OIL NO.2 NO6 or Asphalt COKE 10% 0% TOPPING RFY SIMPLE RFY CCU RFY COKER RFY
U. S. Refining Capacity 18.5 18 17.5 17 16.5 16 15.5 15 14.5 319 175 more than 30 less than 30 Crude Dist Cap 158 131 14 1980 1995 2000 2006 Last New U. S. Refinery Built in 1976 Source: Oil & Gas Journal
Total U.S. Capacity Utilization Percent utilization 1 100 95 90 85 80 75 70 65 90% Forecast (DOE) History Demand growth has outpaced capacity expansion Investment focused on clean fuels Insufficient global capacity to process more difficult crudes 60 1980 1985 1990 1995 2000 2005 2010 2015 2020 Source: U.S. Department of Energy 1 Percent utilization defined as: gross input to refineries /operable capacity.
U. S. Asphalt Refining Capacity 800 98 # Refineries Asphalt Capacity 750 700 72 60 650 600 42 550 500 450 1980 1995 2000 2006 400 Production Range: 600 B/D to 60,000 B/D Source: Oil & Gas Journal
U. S. Refining Coking Capacity 60 58 56 54 52 # Refineries w/cokers Coke Production, MT/D 81 120 56 58 138 140 120 100 80 60 50 48 50 40 20 46 1995 2000 2006 0
U.S. Coker Construction Projects 2005-2011 Engineering, Procurement & Const. Phase Total Refineries: 245 MB per day Asphalt Refineries: 135 MB per day Planning or Early Engineering Phase Total Refineries: 176 MB per day Asphalt Refineries: 121 MB per day * Source: Argus Asphalt Report
PRODUCTS SUPPLY/DEMAND
Supply Source for U. S. Demand Domestic Crude Production Imported Crude Imported Products MMB/D 20 18 16 14 12 10 8 6 4 2 0 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
U. S. Product Demand, MB/D 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 Gasoline Diesel Jet Resid Asphalt 1995 2000 2004 2005
Historical Asphalt Supply/Demand Millions Tons - Liquid 60 50 40 30 Supply Demand 20 10 0 1980 1995 2000 2003 2005 2006 Source: Oil & Gas Journal
PRODUCTS PRICING
1Q 2006 1Q 2005 1Q 2004 Prices by Quarter 100 90 80 70 60 50 40 30 20 WTI Gasoline 1Q 2000 1Q 2001 1Q 2002 1Q 2003
1Q '06 1Q '05 1Q '04 Prices by Quarter 90 80 70 60 50 40 30 20 10 0 WTI Gasoline Asphalt 1Q '00 1Q '01 1Q '02 1Q '03
Asphalt vs Coker Feed Value 90 80 70 60 50 40 30 20 10 0 WTI P&P MC Avg gulf coast coker value Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06
Economic Analysis 2005 YE Gasoline/Diesel Pricing Jan., 06 Price: $70.00/BBL Less Distribution: 6.00/BBL Net to Refinery: $64.00/BBL Kansas Asphalt Pricing 12/05 YTD: $32.94/BBL* ($35/Ton): 6.25/BBL $26.69/BBL Lost Value: $37.31/BBL * Source Poten & Partners
Coking Economics 2005 YE 30,000 BBLS/Day Asphalt Production X 70% Gasoil Production 21,000 BBLS Gasoil for Gasoline/Diesel X $37.31/BBL Gasoline/Diesel diff. To Asphalt $783,510 per day added margin $1 Billion / $783,510 = 1,276 days (3.5 years payoff)
Economic Analysis Recent Update Gasoline/Diesel Pricing Jan., 07 Price: $62.75/BBL Less Distribution: 6.00/BBL Net to Refinery: $56.75/BBL Kansas Asphalt Pricing 12/06 MTD: $49.11/BBL* ($35/Ton): 6.25/BBL $42.86/BBL Lost Value: $13.89/BBL * Source Poten & Partners
Coking Economics Recent Update 30,000 BBLS/Day Asphalt Production X 70% Gasoil Production 21,000 BBLS Gasoil for Gasoline/Diesel X $13.89/BBL Gasoline/Diesel diff. To Asphalt $291,690 per day added margin $1 Billion / $291,690 = 3,428 days (9.4 years payoff)
FUTURE OF THE INDUSTRY
Current Realities Crude production at maximum rates based on exiting infrastructure U.S. refining running at maximum capacity No new refineries in the near term Existing refinery expansions must fill gap Increase crude capacity and conversion capabilities to meet light product demand Asphalt must keep pace with conversion feed values to encourage production Asphalt not as politically charged as fuels
Factors Influencing Asphalt Price Absolute price of crude (WTI benchmark) Light/Heavy crude price differential Light product crack spread Coking economics Impact of clean fuels (sweet crudes) Heavy crude availability (Venezuela) Transportation costs Supply/Demand
Future For Asphalt More heavy crude being run (availability and price) Clean fuels capital behind refiners, up-graders next? Asphalt is more expensive in a $60.00+ crude world Asphalt has to trend faster with crude oil prices Asphalt has to be more competitive with light products Transportation costs rising Rail, Barge, Terminalling Refiners less willing to shoulder price risk State asphalt price indexes reduce supplier/contractor risk
QUESTIONS
Worldwide Coker Additions Refinery Coker Additions 1,570M Barrels Crude Upgraders - 1,214M Total Resid Destruction - 2,784M* *Reduces world asphalt and #6 oil supply Source Argus Asphalt Report
Light-Heavy Product Price Spread Drives Refinery Investment Cycle 30 25 20 15 10 5 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 0 1995-2000 Six New Cokers 2005 2006