The Asphalt Oil Binder Business A Necessary Evil or a Godsend From a Refiner s Perspective Austin Miller Sr. Manager Asphalt Supply & Trading Valero Energy Corporation NAPA s 56 th ANNUAL MEETING Orlando, FL February 6-9, 2011
Questions To Be Answered Is asphalt a by-product or a specialty product? Why have major refiners reduced their presence as an asphalt binder supplier? Why can t refiners predict asphalt binder prices any better than they do? Why do inventories fluctuate so much? Does winterfill make sense these days? Will there be enough asphalt production to meet future demand? 1
Topping Refinery Naphtha Distillate Crude Oil Crude Unit Yields: 50% Other 50% Asphalt/Fuel Oil Gas Oil Asphalt / Fuel Oil 2
Complex/Integrated Refinery Naphtha & Lighter Yields: 70% - 95% Other 5% - 30% Asphalt/Fuel Oil Crude Oil Crude Unit ATB AGO Vac. Tower LVGO/HVGO FCC Propane Butane BTX Gasoline Kerosene Jet Fuel Diesel Slurry Coker Gas Oil Pet Coke Rose Asphalt/Fuel Oil 3
THEN vs. NOW 4
THEN Keep the refinery tanks empty / do not cut back the refinery (AT ALL COSTS) Low crude costs and low product values Crude / product pricing relatively stable easier to predict Asphalt binder specification were simpler 5
NOW Do not cut back the refinery but maximize profitability High crude costs and high product values Asphalt prices must keep pace with crude prices Crude / product pricing volatile impossible to predict Asphalt binder specifications governed by SHRP 6
Asphalt Producing Refineries Exxon Husky Greka Valero Shell San Joaquin Exxon Valero Paramount (2) LTR Cenex Exxon Holly Connacher Moose Jaw Sinclair Sinclair Frontier Suncor Frontier Valero Sinclair Holly Gary Williams Valero Lion Hunt Alon Western Calumet (2) Pelican Hunt Conoco Phillips Total Valero BTB Petro-Canada Murphy Marathon Flint Hills Exxon United Marathon BP BP Marathon NuStar Exxon Valero Conoco Phillips Marathon NuStar Irving Exxon Flint Hills 7
Crude Pricing vs. Asphalt Pricing 2001 2005 WTI $/bbl Asphalt - Gulf Coast Barge $/bbl 140.00 120.00 100.00 80.00 60.00 40.00 20.00 - Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 $/bbl 8 Source: Argus
Crude Pricing vs. Asphalt Pricing 2006 2010 WTI $/bbl Asphalt - Gulf Coast Barge $/bbl 140.00 120.00 100.00 $/bbl 80.00 60.00 40.00 20.00 - Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 9 Source: Argus
Crude Pricing vs. Asphalt Pricing 2001 Feb 2010 WTI $/bbl Asphalt - Gulf Coast Barge $/bbl 140.00 120.00 100.00 80.00 60.00 40.00 20.00 - Jan-01 May-01 Sep-01 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 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 10 Source: Argus
Asphalt Pricing as a % of WTI 2001 2010 Asphalt Pricing as a % of WTI 90% 80% 70% 77% 74% 72% 77% 83% 76% 60% 55% 58% 59% 50% 47% 40% 30% 20% 10% 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 11 Source: Argus
Gulf Coast Market 2001 2010 $160.00 Asphalt Rack - Gulf Asphalt Wholesale - Gulf WTI $140.00 $120.00 $100.00 $/bbl $80.00 $60.00 $40.00 $20.00 $- 1/1/2001 6/1/2001 11/1/2001 4/1/2002 9/1/2002 2/1/2003 7/1/2003 12/1/2003 5/1/2004 10/1/2004 3/1/2005 8/1/2005 1/1/2006 6/1/2006 11/1/2006 4/1/2007 9/1/2007 2/1/2008 7/1/2008 12/1/2008 5/1/2009 10/1/2009 3/1/2010 8/1/2010 12 Source: Argus
Mid-Continent Market 2001 2010 Rack - Midwest Wholesale - Midwest WTI $160.00 $140.00 $120.00 $100.00 $/bbl $80.00 $60.00 $40.00 $20.00 $- 1/1/2001 6/1/2001 11/1/2001 4/1/2002 9/1/2002 2/1/2003 7/1/2003 12/1/2003 5/1/2004 10/1/2004 3/1/2005 8/1/2005 1/1/2006 6/1/2006 11/1/2006 4/1/2007 9/1/2007 2/1/2008 7/1/2008 12/1/2008 5/1/2009 10/1/2009 3/1/2010 8/1/2010 13 Source: Argus
East Coast Market 2001 2010 Rack - East Wholesale - East WTI $160.00 $140.00 $120.00 $100.00 $/bbl $80.00 $60.00 $40.00 $20.00 $- 1/1/2001 6/1/2001 11/1/2001 4/1/2002 9/1/2002 2/1/2003 7/1/2003 12/1/2003 5/1/2004 10/1/2004 3/1/2005 8/1/2005 1/1/2006 6/1/2006 11/1/2006 4/1/2007 9/1/2007 2/1/2008 7/1/2008 12/1/2008 5/1/2009 10/1/2009 3/1/2010 8/1/2010 14 Source: Argus
Asphalt Rack Uplift 2001-2005 East Midwest Gulf Coast $70 $60 $50 $40 $/ton $30 $20 $10 $- 2001 2002 2003 2004 2005 15 Source: Argus
Asphalt Rack Uplift 2006 2010 East Midwest Gulf Coast $120 $100 $80 $/ton $60 $40 $20 $- 2006 2007 2008 2009 2010 16 Source: Argus
Asphalt Rack Uplift 2001 2010 East Midwest Gulf Coast $120 $100 $80 $/ton $60 $40 $20 $- 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 17 Source: Argus
Rack vs. Wholesale Pricing 2001-2010 East 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Rack $ 125 $ 150 $ 170 $ 180 $ 210 $ 315 $ 311 $ 508 $ 376 $ 463 Wholesale $ 94 $ 126 $ 147 $ 151 $ 170 $ 271 $ 271 $ 441 $ 298 $ 396 Rack Uplift 31 25 24 29 40 44 40 68 78 67 Gulf Coast 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Rack $ 142 $ 148 $ 155 $ 170 $ 206 $ 311 $ 295 $ 468 $ 374 $ 452 Wholesale $ 79 $ 111 $ 127 $ 130 $ 148 $ 259 $ 235 $ 419 $ 283 $ 373 Rack Uplift 63 37 29 40 58 52 60 50 91 78 Midwest 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Rack $ 144 $ 144 $ 154 $ 169 $ 198 $ 301 $ 294 $ 468 $ 393 $ 460 Wholesale $ 86 $ 118 $ 125 $ 124 $ 143 $ 245 $ 208 $ 421 $ 283 $ 368 Rack Uplift 58 26 29 45 55 56 86 47 110 92 18 Source: Argus
Asphalt Production/Sour Crude Differentials 2001 2005 U.S. Product Supplied (000 bbls) Sour Crude Differential ($/bbl) 250,000 200,000 6.18 6.45 7.00 6.00 4.91 5.00 150,000 4.00 3.60 100,000 2.49 3.00 2.00 50,000 1.00-2001 2002 2003 2004 2005-19 Source: EIA & Argus
Asphalt Production/Sour Crude Differentials 2006 2010 U.S. Product Supplied (000 bbls) Sour Crude Differential ($/bbl) 250,000 8.00 7.14 7.00 200,000 150,000 5.62 6.11 6.00 5.00 4.00 100,000 3.00 50,000 1.42 1.42 2.00 1.00-2006 2007 2008 2009 2010-20 Source: EIA (November & December 2010 Estimate) & Argus
Asphalt Production/Sour Crude Differentials 2001 2010 U.S. Product Supplied (000 bbls) Sour Crude Differential ($/bbl) 250,000 8.00 7.14 7.00 200,000 6.18 6.45 6.11 6.00 5.62 150,000 4.91 5.00 100,000 3.60 4.00 3.00 2.49 50,000 1.42 1.42 2.00 1.00-2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-21 Source: EIA (November & December 2010 Estimate) & Argus
Asphalt Import/Exports 2001 2010 Imports (000 bbls) Exports (000 bbls) 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000-2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 22 Source: EIA (November & December 2010 Estimates)
US Coking Capacity U.S. Refinery Coking Capacity (000 BPD) 2,500 2,400 2,300 2,200 2,100 2,000 1,900 1,800 2001 2002 2003 2004 2005 2006 2007 2008 2009 23 Source: EIA
Refinery Utilization U.S. Percent Utilization of Refinery Operable Capacity 94 92 90 88 86 84 82 80 78 76 2001 2002 2003 2004 2005 2006 2007 2008 2009 24 Source: EIA
The Refiner s Choice Gulf Coast 800 700 600 500 $ / Ton 400 300 200 100 0 Asphalt to Cokers Asphalt Texas Coastal Asphalt HSFO Alternative 25 Source: Argus, Poten & Partners
US Asphalt Inventories U.S. Asphalt Stocks (000 bbls) 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000-2001 2002 2003 2004 2005 2006 2007 2008 2009 26 Source: EIA
Business Comparison: Light Products vs. Asphalt Fungible products vs. specialty products Movement restrictions (transportation considerations) Customer base comparison Credit considerations Technical service needs Product pricing needs Economic drivers Financial Predictability (seasonal cycles/economic cycles) 27
Summary Major shift in philosophy from by-product to specialty product. Asphalt rack and wholesale pricing will track with crude pricing Rack and wholesale differentials will continue to remain volatile Is winterfill a good decision? No market mechanisms are available to effectively hedge asphalt 28
Summary Cont. US exports are expected to continue to outpace imports adding pressure to asphalt availability and prices Asphalt supply will primarily depend on availability of vacuum tower bottoms (VTB) Lower domestic refinery utilization Declining growth in incremental heavy crude oil production Start-up of new delayed coker projects Asphalt/Coker/Fuel Oil Economics A Necessary Evil or a Godsend? 29
30 QUESTIONS