Platts Refining Sept. 2016 Stephen Bowers
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Refining 2016 Today s Topics Crudes types in European refineries US crude oil reaches Europe After 40 year absence Lower crude prices = lower energy costs Tomorrow s Issues for European refineries Falling product demand in Europe Ageing assets and refinery configuration Competing against imports Sept 2016 Refining Page 3
Typical EU Refinery Product Slate and Demand Source: Fuels Europe Statistics 2016 Sept 2016 Refining Page 4
EU product demand Sept 2016 Refining Page 5 Source: Fuels Europe +IEA OMR
Gasoline and Diesel Crack Spread Europe Sept 2016 Refining Page 6 Source: IEA OMR
Northwest Europe Refining Margins Sept 2016 Refining Source: IEA OMR Page 7
Main Crude types in EU crude Slate - IEA Crude mbd Q1 2026 mbd Q2 2016 API Sulphur % Saudi Light 0.76 0.76 33.4 1.77 Iraq Basra Light 0.90 0.76 30.4 2.79 Kuwaiti Blend 0.20 0.12 31.4 2.52 Iranian Light 0.09 0.14 33.1 1.33 Iranian Heavy 0.04 0.13 30.2 1.91 Venezuelan Heavy 0.06 0.06 20.7 2.07 Mexican Maya 0.15 0.17 22.1 3.49 Canadian Heavy 0.01 0.01 19.7 3.65 BFOE (Brent, Forties,Oseberg, Ekofisk) 0.47 0.46 37.9 0.45 Russian Urals 1.58 1.74 31.8 1.35 Kazakhstan 0.76 0.76 43.3 0.59 Libya Light and Medium 0.16 0.18 37.48 0.17 Nigerian Light 0.44 0.40 33.7 0.16 Total 5.62 5.69 Sept 2016 Refining Page 8
US crude Imports to EU Jan Jun 2016 kb/month 2016 Jan Feb Mar Apr May Jun Total France 605 547 590 1742 Italy 529 1027 712 2268 Netherlands 1048 627 878 3414 5967 Switzerland 442 442 UK 543 1125 1097 2765 US crude reaches the EU after a 40 year absence Volumes are modest at 13 mb after six months or 70 kb/d equivalent 13 mb is just one day of EU crude demand In same period Russia Urals crude was about 300 mb or 23x US. Total 605 1577 1654 2410 5841 1097 13184 Source: EIA Petroleum Report Sept 2016 Refining Page 9
Yield % volume Crude Yields CDU Yields Selected Crude Yields 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% LPG naphtha jet diesel at. residue By carefully selecting crude type refiners can optimise product slate to match demand Urals can under certain market conditions yield better margins due to higher middle distillate yield vs Brent Lower sulphur crudes require less hydrotreating Less complex refineries can often achieve same margins as more complex refineries 0% Arab Lt Arab Hvy Urals Brent Crude Type Sept 2016 Refining Page 10
From the Fuels Europe Archive Europia (Fuels Europe) analysis 2008 of refining margins ETS carbon cost will add further burden to EU refiners A typical EU refinery of 143 kbd on a $5 gross margin would make about $261 million gross per year. More than $120 million can be expected to be for energy costs at $50 per bbl. (4.7% crude charge as fuel) Carbon taxes will bite into the net cash margin under the ETS. Source : Fuels Europe Average EU refinery carbon emissions = 0.21 mt CO 2 /mt crude (0.35 max) Sept 2016 Refining Page 11
Cost of EU Legislation - Concawe Concawe view of ETS on refiners Red bars denote ETS compliance under high and low scenarios $/bbl Green bars shows cost od sulphur $/bbl to compy with Sulphur in Liquid Fuels. Sulphur removal is a major refining cost Sept 2016 Refining Page 12
Selected EU country refining statistics kb/d Country Refineries CDU VDU FCC CCR HCR HT Average Capacity Austria 1 204 79 28 2205 15.6 38 204 Belgium 5 835 240 130 104 699 167 Finland 2 261 146 567 50 90 249 131 France 9 1409 551 245 195 76 1070 157 Germany 15 2187 1089 349 401 191 1905 146 Italy 13 2117 770 242 338 374 1207 163 Netherlands 6 1213 714 106 150 208 775 202 Poland 2 493 265 33 68 146 259 247 Portugal 2 304 88 41 50 9 201 152 Spain 9 1427 414 191 196 132 828 159 Sweden 5 437 135 30 71 49 269 87 UK 7 1389 670 348 283 36 1070 198 Sub total 76 12276 5161 2310 4111 1326.6 8570 162 Total EU 100 14323 5844 2658 4400 1461 9794 143 Average EU refining capacity is about 143 kb/d (7 million mta) New world scale capacity is 300-400 kb/d (15-20 million mta) FCC + HCR capacity is 28.7% of CDU capacity- low Complexity of EU refineries is low compared with new Asian refineries EU refineries are 40+ years old with a gasoline centric (FCC) configuration. Sept 2016 Refining Page 13 Source. Oil and Gas Journal
Energy Use in Refineries - indicative LPG 180 Crude C D U FRN 150 Jet -kero SR Diesel 100 NS KHT DHT 200 Reformer 290 Reformate Alkylate Alkylation FCC gasoline LCO Naphtha Gasoline Jet- Kero Diesel Gas Oil 180 400 280 380 V D U VGO 80 Residue 120 FCC Slurry Oil 350 Fuel Oil 260 150 # energy use MJ/barrel 150 # embedded energy MJ/ barrel product (+ 30 MJ/barrel added for other processes) Source : Szklo & Schaeffer 2007 Sept 2016 Refining Page 14
Energy Bandwidth Refinery Processes Process Min MJ/b Max MJ/b Mean MJ/b Crude Distillation CDU 90 200 145 Vacuum Distillation VDU 50 120 85 Delayed Coking DCU 100 150 125 Fluid Catalytic Cracking FCCU 50 180 115 Hydrocracking HCU 170 340 255 Hydrotreating HT 60 180 120 Catalytic Reforming 220 360 290 Alkylation Sulphuric Acid 350 360 355 Alkylation hydrofluoric Acid 430 430 430 Etherification 310 600 455 Isomerisation -pentane 100 250 175 Isomerisation - butane 360 360 360 Lube-oils production 1500 1500 1500 Sept 2016 Refining Page 15 Source : Szklo & Schaeffer 2007
Relative Rate of Reaction Sulphur a high cost contaminant ULSP and ULSD have greatly increased refiners cost. ULSD (10 ppm S) has posed a great challenge Cutting the diesel end point to minimise dibenzothiophenes reduces hydrotreating costs Dibenzothiophenes are pushed down into gas oils and require more time, pressure and temperature to remove. Sept 2016 Refining Page 16 Source: Myers Handbook of Refining
Scope for Energy Minimisation Relative to other regions EU refineries are amongst the best in terms of energy use High energy costs and carbon taxes have placed an emphasis on energy minimisation for years Careful selection of crude can minimise deep hydrotreating for sulphur removal Optimisation of process units can dramatically reduce energy use especially avoiding off spec material that has to be re-run Typical EU refinery fuel use 2015 was about 4.7% of crude charge Highly complex refineries can consume 8%+ of crude charge More complex the refinery = more energy consumed. Sept 2016 Refining Page 17
Summing Up Outlook for EU refining is at best mixed potential for further rationalisation Margins have fallen in past six months to around $5 per barrel and could fall more EU ETS will not help margins especially if carbon costs increase EU refiners are already fairly good in energy use per barrel throughput and little scope for significant improvement exists Lower crude prices have lowered energy costs which has boosted net cash margin - but for how long Extension of SECA will increase refiners costs still further Sept 2016 Refining Page 18
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Solomon Associates 2014 analysis Solomon Associates 2014 analysis of EU refining margins In the period energy costs have increased as % of gross margin, partly due to ULSP and ULSD implementation Current refining margins are little better than a decade ago Scope to increase margins is limited as EU has surplus gasoline Sept 2016 Refining Page 20 Source. Solomon Associates
EU states gasoline diesel demand and trade flows Sept 2016 Refining Page 21