Recent Developments in EU Refining and in the Supply and Trade of Petroleum Products Third Meeting of the EU Refining Forum Brussels, 22 May 2014 Toril Bosoni, International Energy Agency OECD/IEA 2014
European Refinery Activity Recovers from 25-year Lows But throughputs continue to contract year-on-year mb/d OECD Europe Refinery Runs 14.0 13.5 13.0 12.5 12.0 11.5 11.0 10.5 1 Jan-08 Jan-10 Jan-12 Jan-14 After hitting its lowest level since 1989 in October, regional refinery runs bounce back above 11 mb/d European throughputs nevertheless continue to contract annually, by 0.5 mb/d in 1Q14, compared with 1 mb/d in 2H13 (and 650 kb/d for full-year 2013)
Regional Demand Slide Halted For Now? Yet, Refineries Curb Runs Sharply mb/d 16.0 OECD Europe Oil Demand mb/d 0.5 Annual Change in European Demand vs. Crude Runs 15.5 15.0 14.5-0.5 14.0-1.0 13.5 13.0 2000 2002 2004 2006 2008 2010 2012 2014 Demand Crude Runs -1.5 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 After plummeting 1.7 mb/d in from 2008 to 2012, regional demand declines by a more modest 120 kb/d in 2013 and 50 kb/d forecast for 2014. Since mid-2013, regional throughputs are 850 kb/d lower on average
Industrial Demand Sees Sign of Life LPG imports from Russia and US on the rise kb/d Oecdeur: Diesel Demand kb/d 1,150 Oecdeur: LPG Demand 4,600 1,100 4,400 1,050 4,200 1,000 4,000 3,800 3,600 JAN APR JUL OCT JAN Range 09-13 2013 2014 5-year avg 950 900 850 800 JAN APR JUL OCT JAN 2011 2012 2013 2014 After years of decline, LPG and Diesel demand looks healthy Diesel is projected to expand by 2.8% in 2014 (after having posted 4.5% gains in 1Q14) LPG demand is expected to grow slightly in 2014 (+0.9%), after an 11% surge in 2013.
Refinery Margins Remain Weak April recovery proves short-lived $/bbl Refining Margins Northwest Europe 15.0 12.5 1 7.5 5.0 2.5-2.5-5.0-7.5 Jan 08 Jan 10 Jan 12 Jan 14 $/bbl Refining Margins Mediterranean 17.5 15.0 12.5 1 7.5 5.0 2.5-2.5-5.0-7.5 Jan 08 Jan 10 Jan 12 Jan 14 Urals (HS) Urals (Cracking) Brent (HS) Brent (Cracking) Es Sider (Cracking) Urals (Cracking) Es Sider (HS) Urals (HS) Simple margins remain negative through most of 2013, keeping throughput rates low Cracking margins also fall through December, before posting a slight recovery in early 2014 By mid-may, however, rates fall again as plants complete maintenance amid weak demand and high product imports
Weak Margins not Restricted to European Plants Simple refineries at worst level since 2008 $/bbl 7.5 5.0 2.5-2.5-5.0 Simple Refining Margins -7.5 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 NW Europe Urals MED Urals NW Europe Brent Singapore Dubai $/bbl 17.5 Global margins follow suit. Singapore simple margins firmly negative and US rates come off earlier highs Refiners with access to discounted crude and cheap refinery fuel (natural gas) fare better 15.0 12.5 1 US Gulf Coast margins surge in 2014 7.5 5.0 2.5 Global Cracking Margins -2.5 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 NWE Brent Singapore Dubai MED Urals USGC LLS/HLS
US Crude Advantage moves South Gulf Coast Refinery margins surge in 2014 on crude glut $/bbl 5 4 3 2 1 Refining Margins US Midcontinent Data Source: IEA/KBC Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 WTI Cracking WCS/Bakken Cr. Bakken Cracking WTI Coking WCS/Bakken Cok. Bakken Coking $/bbl US Gulf Coast Refining Margins 2 15.0 1 5.0-5.0-1 Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Mars Cracking HLS/LLS Cra. ASCI Coking Maya/Mars Cok. Midcontinent refiners still enjoy the highest returns at around $22/bbl on average in April 2014 (down from $28/bbl a year earlier Gulf Coast refinery margins averaged $11/bbl in April 2013 in comparison, up from $4.40/bbl the previous year
Pipeline Expansions Draw Crude out of Midcontinent Underpinning better Gulf Coast Margins and high runs mb/d 9.0 8.5 US Gulf Coast Refinery Runs mb 120 US Weekly PADD 2 Crude Stocks US Mid-continent 8.0 110 7.5 7.0 6.5 Source: EIA 6.0 Jan Apr Jul Oct 5-yr Average 2013 2014 US crude stock surplus now sits on the Gulf Coast, rather than in the Midcontinent Reflected in US crude differentials 100 90 80 Source: EIA 70 Jan Apr Jul Oct Range 2009-2013 5-yr Average mb 220 200 180 160 2013 2014 Source: US Weekly PADD 3 Crude Stocks US Gulf Coast 140 Jan Apr Jul Oct Range 2009-2013 5-yr Average 2013 2014 Source: EIA
US Refinery Renaissance Support the OECD mb/d US Weekly Refinery Throughput 17 16 15 14 Source: EIA 13 Jan Apr Jul Oct 5-yr Average 2013 2014 mb/d 0.6 0.4 0.2-0.2-0.4-0.6-0.8-1.0-1.2 OECD Crude Throughputs Annual Change 1Q12 3Q12 1Q13 3Q13 1Q14 Americas Europe Asia Oceania US refiners increased refinery runs by 750 kb/d year-onyear in first four months of 2014 2013 yearly gains of 315 kb/d Surging domestic liquids supply and better refinery profitability lead to increased downstream investment 500 kb/d of new capacity likely by 2018
European Industry Restructuring Continues Another 110 kb/d shut in 2014, taking total to 1.8 mb/d since 2008 MOL shuts Mantova in 2014, Essar cuts capacity at Stanlow In addition, lot of ownership changes, with Russian, Chinese, Indian players entering the market, as well as trading companies (Vitol, Gunvor)
Thousands Plant Closures in France, Germany, Italy and UK kb/d 600 OECD Europe Refinery Closures mb/d 0.8 Cumulative European Refinery Shutddowns 2.0 500 400 300 0.6 0.4 1.5 1.0 200 0.2 0.5 100 0 2008 2010 2012 2014 Czech Republic France Germany Italy UK 2008 2010 2012 2014 France Germany Italy UK Total (RHS) Refinery Closures to Date: France 585 kb/d Germany 400 kb/d UK 455 kb/d Italy 320 kb/d From 2007 to 2013, a total of 1.7 mb/d of capacity shut in total. Comparatively, demand fell by 1.9 mb/d
European Net Distillate Imports Surge Increasing volumes coming from US, Russia, India, and Saudi? 1600 1400 1200 1000 800 600 400 200 0 Net European Middle Distillate Imports (kb/d) -200 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 United States Russian Federation India Saudi Arabia Others Since September 2013, European Net Middle Distillate imports have averaged 1.3 mb/d, compared with 830 kb/d in 2012 and 1.1 mb/d in 2009. US overtakes Russia as main supplier in 4Q13, providing 4650 kb/d (compared with 430 kb/d from Russia) Russia takes back key European supplier spot in 2014
US Turns Gasoline Net-Exporter But Jones Act provides market for Europe on East Coast US Net Gasoline imports (kb/d) 1400 1200 1000 800 600 400 200 0-200 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 US Gasoline Imports (kb/d) 1600 1400 1200 1000 800 600 400 200 0 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 OECD Europe Others For the last four months (Nov13 Feb14),US is net exporter of Gasoline The Jones Act, which prevents non US-flagged ships to sail within US waters, creates market for European gasoline on East Coast
US Gasoline Exports Stay in the Americas But increasing share of Distillates coming to Europe US Gasoline Exports (kb/d) 900 800 700 600 500 400 300 200 100 0 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Mexico Canada NonOPEC LatAm Others US Middle Distillate Exports (kb/d) 1600 1400 1200 1000 800 600 400 200 0 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 OECD Europe Others Mexico and Latin America remains the key buyers of US gasoline surplus While Latin America is also main market for US middle distillates, increasing share is coming to Europe (over 30% on average in last six months through February
Globally, Surplus Refining Capacity Still Exist mb/d 2.5 2.0 1.5 1.0 0.5 Refinery Additions vs. Demand Growth 2012 2013 2014 2015 2016 2017 2018 Net Capacity Additions Demand Growth kb/d OECD Refinery Closures 1,400 1,200 1,000 800 600 400 200 0 2008 2009 2010 2011 2012 2013 2014 North America Europe Pacific Aruba Despite OECD refinery closures, surplus distillation capacity exist 3.8 mb/d of OECD capacity already shut since 2008 (including Valero s 235 kb/d Aruba refinery) Another 670 kb/d scheduled for 2014, mostly in Japan Additions exceed projected demand growth to 2018 Furthermore, biofuels, NGLs etc. meet larger share of demand
Good News For Europe Global Refinery Investments Scaled Back Project delays, cancellations reduce new additions from year ago plans Chinese projects stalled due to concern over surplus capacity and pollution Slow progress in Brazil lead to further project slippage Less capacity reduction requirements for Europe and other mature markets
New Medium Term Outlook to be Released on 17 June 2014 Will include update on global investment outlook and new trade balances for Europe and the World
Thank you toril.bosoni@iea.org