The Changing Face of Global Refining

The Changing Face of Global Refining A Changing World A Global Shift in Refining Threats to U.S. and European Refineries A Potential Tsunami of Product Imports into the Atlantic Basin 1

The Changing Face of Global Refining A Changing World A Global Shift in Refining Threats to U.S. and European Refineries A Potential Tsunami of Product Imports into the Atlantic Basin 2

Regions of the World A potential tsunami of gasoline and distillates from Middle East and India may threaten refineries in the U.S. and Europe OECD North America FSU and Eastern Europe OECD Europe China Non-OECD Asia Latin America Africa India Middle East OECD Pacific NOTE: IEA Regions 3

Oil demand growth China, India, & Middle East Oil demand decline North America, Europe, & Japan 120 World Oil Demand Millions of Barrels Per Day 100 80 60 40 20 Bunkers Latin America Africa Middle East India China Non-OECD Asia FSU and Eastern Europe OECD Pacific OECD Europe OECD North America 0 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 SOURCE: IEA and Baker & O Brien estimates 4

OECD North America OECD Europe OECD Pacific FSU and Eastern Europe Non-OECD Asia China India Middle East 0 Barrels Per Capita Per Year 3 6 9 12 15 18 21 1980 2010 2030 Oil Intensity U.S., Europe, Japan - high but declining India, China, Latin America low but growing Middle East high and growing rapidly Africa Latin America SOURCE: IEA and Baker & O Brien estimates 5

A Changing World - Key Trends Developed Regions Developing Regions Population Small growth Strong to moderate growth GDP Growth but declining share Strong growth and increasing share GDP/Capita High and growing Low with some growth (China, India, ME) Oil Intensity (Bbl. Per Capita Per Year) High and declining Low with strong growth Oil Demand Flat at best Strong growth (China, India, ME) 6

The Changing Face of Global Refining A Changing World A Global Shift in Refining Threats to U.S. and European Refineries A Potential Tsunami of Product Imports into the Atlantic Basin 7

Worldwide Refinery Capacity Additions Roughly 5 MMB/D new capacity to be built over 2011-2015 New capacity in Asia/Pacific & ME many government-owned ~600 MB/D new N. America capacity focus on USEC deliveries 1,800 Thousands of Barrels Per Day 1,600 1,400 1,200 1,000 800 600 400 200 Asia Pacific Africa Middle East Europe & Eurasia Latin America North America 0 2010 2011 2012 2013 2014 2015 SOURCE: Baker & O Brien estimates 8

New Export Refineries: Large and Complex Typical New Export Refineries Saudi Arabia and India Saudi Arabia Owner/Location: Saudi Aramco / Yanbu (Red Sea) Start-Up Year: 2015 Crude Capacity: 400 MB/D Crude Feed: Arab Medium/Heavy Configuration: Full Conversion Coking with Hydrocracking India Owner/Location: Reliance Industries/Jamnagar (West Coast) Start-Up Year: Late 2009 (currently on-stream) Crude Capacity: 580 MB/D Crude Feed: Flexible/Heavy Configuration: Full Conversion Coking with Cat Cracking and Hydrocracking 9

Large Product Export Volumes Available New capacity from both India and Middle East Primarily distillates to Europe, gasoline to USEC India Middle East Refinery Capacity, M B/D 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Available for Export For Domestic Consumption 0 2000 2005 2010 2015 Available for Export For Domestic Consumption 2000 2005 2010 2015 10

Refinery utilization expected to remain low Cash margins expected to be relatively flat World Refinery Utilization and Margins 88% Actual Forecast 14 World Refinery Utilization 87% 86% 85% 84% 83% 82% 81% 12 10 8 6 4 2 0 EBITDA Margin, $/Bbl. (2009 dollars) 80% -2 1990 1995 2000 2005 2010 2015 Utilization USGC LLS Cracking USGC Maya Coking SOURCE: Baker & O Brien Analysis 11

Worldwide Refinery Capacity Reductions Over next five years ~ 2 MMB/D announced reductions Possible additional reductions ~ 2 MMB/D Most refinery capacity closures: light, sweet, low conversion Coking capacity concerns if extended periods of low light-heavy crude oil differentials 12

The Changing Face of Global Refining A Changing World A Global Shift in Refining Threats to U.S. and European Refineries A Potential Tsunami of Product Imports into the Atlantic Basin 13

PADD 1 Light Product Supply History Renewable fuels and declining oil demand Declining Imports Flat USGC transfers Thousands of Barrels Per Day 6,000 5,000 4,000 3,000 2,000 Imports Transfers from USGC Ethanol Declining Refinery Production 1,000 PADD 1 Production 0 2002 2003 2004 2005 2006 2007 2008 2009 SOURCE: EIA 14

PADD 1 Light Product Import Sources 2,000 India/Asia: Growing Imports Europe: Declining Imports Caribbean/SA: Declining Imports Eastern Canada: Steady Volumes Thousand Barrels per Day 1,800 1,600 India / Asia-Pacific 1,400 1,200 1,000 Europe 800 600 400 Caribbean + South America 200 Eastern Canada 0 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 15

Current PADD 1 Light Product Imports Canadian, Caribbean, South American imports are structural European imports tend to be steady from several sources India/Other Asian imports from new export refineries Note: Flows in MB/D in 2009 / 1 st Half 2010 PADD 1 Eastern Canada 250 / 288 MB/D 504 / 447 MB/D Europe 287 / 230 MB/D Caribbean & South America 16 / 61 MB/D India-Other Asia 16

The Changing Face of Global Refining A Changing World A Global Shift in Refining Threats to U.S. and European Refineries A Potential Tsunami of Product Imports into the Atlantic Basin 17

Analysis of Competitive Import Threats Used an in-house computer model (PRISM TM ) to quantify the competitive position of various Atlantic Basin refiners vs. imports. Compared the gasoline and distillate light oil product ( LOP ) unit cost of refineries in U.S. PADDs 1, 2, and 3, Eastern Canada, and Europe to landed cost of product from India and ME. Considered refinery capacity, conversion, logistics, and operating costs, and included credits for non-lop products sold. Delivered LOP Unit Cost - Calculated as the crude cost + fixed and variable costs + transportation costs non-lop product credits divided by the total gasoline and distillates produced. PRISM TM is a trademark of Baker & O Brien, Inc. All rights reserved. 18

Size and Complexity of Key East Coast Refineries Complexity and size not sole metrics of vulnerability Coking vulnerability from depressed light-heavy spreads 13.5 Regional Refinery Complexity vs. Light Product Capacity Refinery Complexity Factor 11.0 8.5 Coking Cracking Shut Shut Shut 6.0 0 375 750 1,125 1,500 Cumulative Production of Light Products (Gasoline, Diesel, Jet Fuel), MB/CD SOURCE: Baker & O Brien estimates using PRISM 19

East Coast Light Products Cost Curves in 2008 and 2009 Regional Light Products Cost Curve, 2008 2008: Steep cost curve with wide light-heavy spreads Light Product Costs, US$/Bbl. 0 375 750 1,125 1,500 2009: Cost curve flatter and lower with low light-heavy spreads Light Product Costs, US$/Bbl. Regional Light Products Cost Curve, 2009 0 375 750 1,125 1,500 Cumulative Production of Light Products (Gasoline, Diesel, Jet Fuel), MB/CD SOURCE: Baker & O Brien estimates using PRISM 20 Coking Cracking

NY Harbor Delivered Cost Analysis: Wide Light-Heavy Crude Oil Spreads (2008) Wide light-heavy spreads: advantage for coking refineries Most vulnerable: light, sweet cracking refineries Delivered Light Oil Product Costs, $/Bbl. LOP USEC FCC W Afr Sweet USGC FCC LLS USGC Coker Arab Hvy ME Coker Arab Hvy India Coker Arab Hvy Product Transport Variable Operating Costs Fixed Operating Costs Crude Oil Transport Crude Oil Less Product Credits NOTE: Scale from 70-130 (increments of 10) SOURCE: Baker & O Brien estimates using PRISM TM 21

NY Harbor Delivered Cost Analysis: Narrow Light-Heavy Crude Oil Spreads (2009) Coking refineries lost their advantage PADD 1 cracking refineries became more competitive Delivered Light Oil Product Costs, $/Bbl. LOP USEC FCC W Afr Sweet USGC FCC LLS USGC Coker Arab Hvy ME Coker Arab Hvy India Coker Arab Hvy Product Transport Variable Operating Costs Fixed Operating Costs Crude Oil Transport Crude Oil Less Product Credits NOTE: Scale from 20-80 (increments of 10) SOURCE: Baker & O Brien estimates using PRISM TM 22

NY Harbor Delivered Cost Analysis: (2 nd Q 2010) 2 nd Q 2010 Situation: Middle East/India exports very competitive USEC/USGC light, sweet cracking refineries remain vulnerable Delivered Light Oil Product Costs, $/Bbl. LOP USEC FCC W Afr Sweet USGC FCC LLS USGC Coker Arab Hvy ME Coker Arab Hvy India Coker Arab Hvy Product Transport Variable Operating Costs Fixed Operating Costs Crude Oil Transport Crude Oil Less Product Credits NOTE: Scale from 40-100 (increments of 10) SOURCE: Baker & O Brien estimates using PRISM TM 23

Atlantic Basin Refinery Cost Curve (2009) European refineries - higher LOP costs than PADDs 1, 2, 3 USEC refineries - generally higher LOP costs than PADDs 2 and 3 85 Consolidated Cost Curve of Atlantic Basin Refineries (151 total refineries) U.S. PADD Region Western Europe 1 2 3 North South/Central Light Product Costs, US$/Bbl. 75 65 55 0 1,500 3,000 4,500 6,000 7,500 9,000 10,500 12,000 13,500 15,000 17,500 Cumulative Production of Light Products (Gasoline, Diesel, Jet Fuel), MB/CD SOURCE: Baker & O Brien estimates using PRISM TM 24

Conclusions A Changing World Most oil demand growth will be in the developing world as growth in the developed world remains moderate and oil intensity declines. A Global Shift in Refining Large new high-conversion refineries are being built in the developing world (e.g., Middle East and India) and significant capacity is targeted for export. Tepid demand is causing shutdowns in the developed world (e.g., U.S. and Europe). Threats to U.S. / Europe Refiners Some additional U.S. / Europe refiners are threatened by new export supplies as traditional domestic and import suppliers fight to maintain their historical market shares. A Tsunami in the Atlantic Basin Cost competitiveness of new product imports into the Atlantic Basin will be influenced by light-heavy crude oil spreads. Even with moderate spreads, some U.S. and European conversion refineries may be at risk. 25

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