Avails of MGO, still tight?Øivind Munthe-Kaas, Wilhelmsen Marine Fuels as
2DisclaimerThis presentation may contain forward-looking expectations whichare subject to risk and uncertainties related to economic and marketconditions in relevant markets, oil prices, currency exchangefluctuations etc. Wilh. Wilhelmsen Holding group and Wilh.Wilhelmsen group undertake no liability and make no representationor warranty for the information and expectations given in thepresentation.
3WILHELMSEN MARINE FUELS (WMF)o Part of the Wilh. Wilhelmsen groupo A bunker broker companyo Reputable with a good market standingo Well established credit lines with all supplierso Offices in Oslo, London and Singapore. Highly qualified and expreiencedpersonnelo Large volumes in key ports – 2012 vol. was 3.5 M tonnes
42015 CHALLENGES-Outlineo The current situation in the distillate market in Europein generalo Nordic countries+Balticso Northwest Europeo Mediterranean
52015 CHALLENGES- DIESEL MARKET IN EUROPEo Europe is short on diesel, net importer(30-40 mill mt out of demand of 250 mill mt)o Diesel is the largest oil product by demand in Europe, and is showing thestrongest growth globallyo Refineries are struggling to make profits, imports will increase aspercentage of total saleso Russian refineries will upgrade, have the potential to increase supplyo Several South European refineries have boosted diesel output
6EUROPE’S INCREASING MGO DEFICITSource: ENI Refining outlook 2011
82015 CHALLENGES- DIESEL MARKET IN EUROPEo Since 2008, 15 European refineries have closed with a capacityof 1.7 mbpd.Refinery runs have dropped to below 80% from 85% in 2006.o A further 620 000 bpd of hydroskimming capacity could be closeduntil 2018.
9ON-ROAD SULPHUR CONTENT IN DIESEL- EXPECTED REGIONAL ON-ROAD DIESEL SULPHUR CONTENT IN PPMSource: Hart’s WRFS and IFQC 80% of European middle distillate production is diesel fuel with sulphur contentbelow 0.05%
10PRELIMINARY CONCLUSION AND RECOMMENDATION The extra distillate demand generated by the 2015 changeover from fuel oil to distillates within the ECAs represents anincrease of 5-7% of the total distillate demand in OECD Europe/North America. This addition is insignificant to the totalmarket balance for distillates in the Atlantic basin. However, as Europe is already short on distillates, the changeover will increase the tightness in distillate markets andlead to further price increases. As North America is currently a net exporter of distillates the situation here is expected to be less tight. Furthermore it isestimated that North American refiners can increase their yield (% of output) of distillates by 4-5% percentage pointswithout major investments.Total demand in Europe and North America in Million b/d2000 2009 2015Additional ECA demand for middle distillates* 0,6Middle distillates 13,5 14,0 14,8Light distillates 14,4 14,1 15,0Fuel oil 3,5 2,3 1,8Others 8,1 7,8 8,3Total 25,9 24,3 25,1* Assuming 100% changeover from Fuel oil to MGO in ECAsSource: BP Statistical review of energy 2010, WPMF research 20102015 changeoverMT Barrels BpdNorth European ECA 22 000 000 139 700 000 382 740North American ECA 15 000 000 95 250 000 260 959Total volume change 643 699Source: EPA, Purvin & Gertz
112015 CHALLENGES- DIESEL MARKET IN EUROPEo Russian refineries have the potential to boost diesel output.20 refineries are planning upgrades, this could boost diesel ouput by 12 mill mt.o Most of the refineries are located in the ”European” part of Russia and wouldnaturally send their exports westwards.
12MGO 0.1% AVAILS- NORDIC COUNTRIESo Norway:Current situation:MGO readily available along the Norwegian coast, both 0.1% and 0.05%sulphur. Statoil main supplier, sourced from Mongstad refinery.o Mongstad and Slagen can produce around 6-7 mill mt of diesel per year,consumption for the domestic car market is 3.5 mill mt. This leaves around3 mill mt for the marine market. The marine market is estimated at around1.4 mill mt.o Both Denmark and Sweden are net exporters of distillates currently
13MGO 0.1% AVAILS- NORTHWEST EUROPEo LNG is not seen as an option short-term. The majority of vsls operating inECA will run on MGOSource: Lloyds register LNG fuelled deep seashipping, Aug 2012
14MGO 0.1% AVAILS- MEDITERRANEANo MED: currently avails is good. Do not expect any particular avails problemsin 2015. High production of 10ppm gasoil (automotive diesel) which can beused for Marine as well.o Several refineries have upgraded the last years, increasing distillateoutput.o Saudi-Arabia is establishing export refineries along the Red Sea, these willbe important suppliers of distillates to the Med-region
15HFO-MGO SpreadSpread depends on several factors:o Absolute oil price levelo Profits for distillateso Fuel oil availabilityo Economic growth
16GASOIL TRADES AT A PREMIUM TO BRENT, FUEL AT A DISCOUNT0100200300400500600-400-300-200-1000100200300400Fuel & Gasoil crack (per MT)Gasoil 0.1% FOB NWE crackRdam 3.5% fuel crackDiff (right axis)
17220240260280300320340360380400500600700800900100011001200380 vs MGO (Rdam, Great Belt) 2012 - YTDRotterdam 380Rotterdam MGOGreat Belt 380Great Belt MGORdam Spread FO vs OG380CST VS MGO (ROTTERDAM, GREAT BELT 2012 - YTD
182015 CHALLENGES- DIESEL MARKET IN EUROPESource: Exxonmobil long term energyoutlook