The North American Crude Boom: Impacts on U.S. & PADD IV Refiners

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This is a presentation by John Auers at Platts' 7th Annual Rockies Oil & Gas Conference in Denver, CO on April 15, 2013

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The North American Crude Boom: Impacts on U.S. & PADD IV Refiners

  1. 1. The North American Crude Boom:Impacts on US and PADD IV RefinersJohn R. AuersTurner, Mason & CompanyPlatts’ 7th Annual Rockies Oil & Gas ConferenceApril 15, 2013Denver, COPresented by
  2. 2.  International consulting practice since 1971 Downstream focus; refinery/chemical engineers Industry and financial clients Publish various outlook and forecast products Crude and Refined Products Outlook Refinery Construction Outlook World Crude Oil Outlook The Great NGL Surge! (with BENTEK Energy) Special Studies2Turner, Mason & Company
  3. 3.  Detailed regional production forecasts; focus on quality Determination of refinery demand and capability to rundifferent types of crude by facility/region Analysis of required logistics Evaluate challenges and opportunities for producers andrefiners and midstream operators Initial publication – June 2012 Update issued in October 2012 Next edition scheduled for release in June 20133
  4. 4.  US Production Makes a U-Turn Towards Strong Growth Canadian Production Growth Accelerating New Production Is Causing Regional Imbalances Crude Quality is Different from Previous Forecasts Net Effects: Pricing Dislocations Incentives for Finding Midstream Options US Appetite for Imports Receding Regulatory Implications Yield/Processing/Operating/Investment Issues at Refineries Lower supply costs enable US refiners to become major product exporters4Driving Force for Crude Study
  5. 5. Presentation Agenda• North American Production Forecast• Changes in Crude Quality• Impacts on Crude Supply Balance• Focus on PADD IV5
  6. 6. Recent DevelopmentsU.S. production up by about 2 MMBPD since 2008•Reverses 20+ year trend of declines•Comes despite slowdown in Gulf after MacondoCanadian crude on upward trend for 3 decades•Up by almost 1 million BPD in the last decade•Largest reserve base in the world/unconventional resources•Almost all reserves located in Western CanadaDriven by high prices and technology advances6
  7. 7. Production ForecastsUS forecasts differ widely•All credible forecasts show continued strong growth•Most expect 2020 production to be 9 to 11+ MMBPD•Growth levels beyond 2020 even more uncertainCanadian production forecasts less variable•Resource base is better understood•Dependent on price/ability to remove logistical limits•Expect about 5 MMBPD by 2020 (>50% vs. 2012)7
  8. 8. Production Forecasts (cont.)Where/What Type?• U.S. growth mostly in PADDs 2 and 3• Declines in Alaska/California to continue• Predominantly light sweet• Canadian growth primarily in the West• Vast majority heavy sourProduction dependent on key assumptions• Crude prices – both absolute and regional• Production potential of tight oil plays very uncertain• Prospective fields (Utica, Tuscaloosa, SCOOP) even harder to forecast• Various limitations (manpower, materials, regulatory, etc.) affect growth• Ability to move crude to markets in timely and cost effective ways will beparticularly critical8
  9. 9. U.S. Crude Production Forecast9456789101112MillionBPDLow High
  10. 10. U.S. Crude Production Change by PADD2012 to 202010-1000-5000500100015002000250030003500PADD I PADD II PADD III PADD IV PADD VMBPDLow High
  11. 11. U.S. Crude Production Change by Area2012 to 202011-1000-5000500100015002000250030003500Permian/Bakken/EagleFordGulf of Mexico All Others California/AlaskaMBPDLow High
  12. 12. 01234562012 2013 2014 2015 2016 2017 2018 2019 2020MillionBPDWestern EasternForecastCanadian Crude Production Forecast12Actual
  13. 13. Presentation Agenda• Crude Production Forecast• Changes in Crude Quality• Impacts on Crude Supply Balance• Focus on PADD IV13
  14. 14. Gravity°APISulfurWt.%Condensate ≥ 55.0 AllSuper Light ≥ 42.0 AllLight Sweet 31.0 – 42.0 ≤ 0.99Light Sour 31.0 – 42.0 ≥1.00Medium 24.0 – 31.0 AllHeavy ≤ 24.0 AllTM&C Crude Quality Categories14
  15. 15. Change in Crude Production by Grade2012 to 202015-500050010001500200025003000350040004500Condensate/ LightSweetLight Sour Medium HeavyMBPDUS Low US High Canada
  16. 16. 0.20.40.60.81.01.21.4313233343536372000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020Sulfur,wt.%APIGravityAPI Gravity Sulfur, wt. %Future Quality of U.S. Crude Oil Production16Low Cases
  17. 17. 173030.53131.53232.533APIGravityAPI GravityHigh CrudeForecastLow CrudeForecast
  18. 18. Shale Crude vs Displaced Light Imports18Property Bakken EagleFordSoyoBonnyLightAPI Gravity 41 45 39 34Sulfur, wt% 0.20 0.60 0.14 0.24Distillation Yield, volume %Lt. Ends, C1-C4 3.5 3.8 2.1 1.3Naphtha 35.7 40.1 23.5 20.3Middle Distillates 30.9 29.7 34.5 45.5Gas Oil 24.8 21.2 31.1 27.4Vacuum Residue 5.2 5.2 8.7 5.4
  19. 19. Heavy Canadian Crude Quality Shift19Property Current 2020 ChangeAPI Gravity 20.3 20.3 - -Sulfur, wt% 3.4 3.4 - -TAN, mg KOH/gm 1.15 1.50 0.35Distillation Yield, volume %Lt. Ends, C1-C42.7 4.9 2.2Naphtha 14.0 15.0 1.0Middle Distillates 21.7 17.8 -3.9Gas Oil 33.8 31.2 -2.6Vacuum Residue 27.8 31.1 3.3
  20. 20. • Crude Production Forecast• Changes in Crude Quality• Impacts on Crude Supply Balance• Focus on PADD IVPresentation Agenda20
  21. 21. Waterborne Imports into PADD I Replaced by Bakken Refineries particularly well suited for Bakken quality; FCC resid capability Unit rail unloading capacity expanding quickly – 700 MBPD by end of 2013 Rail likely remains primary transportation option thru the end of the decade Rail will allow even heavier WB imports to be replaced PADD II to Rely on In-PADD and Heavy Canadian Crude Non-Canadian imports already displaced PADD III and Canadian non-heavy to decline rapidly Growing production/coking additions limit ability to absorb more light sweet PADD III Will Reach Limit in Ability to Absorb Light Crude Strong in-PADD growth from Eagle Ford/Permian Bakken deliveries to substantially decrease over the next two years Will incentivize ways to move PADD III crude to other markets21
  22. 22.  Significant Heavy Crude Imports into PADD III Will Remain Estimate floor of 1.0 to 1.5 MMBPD for Latin American imports PDVSA and PEMEX control about 600 MBPD of heavy crude capacity Additional heavy capacity is contractually “locked-in” Overall Latin American heavy production will grow/natural home is USGC Small amounts of other WB imports remain – Motiva and for lubes/other quality reasons PADD V Challenges LCFS could limit/prevent heavy Canadian imports Requires new mid-stream projects to access PADD II/III/IV crude California refineries built for heavy crude; will continue to import some heavier grades Pacific Northwest is first to absorb PADD II crude; better fit for refineries and alsosupported by rapid build-out of rail unloading facilities Exports Not forbidden/requires export license in most cases Politically controversial Potential destinations – first Canada and then Asia22
  23. 23. U. S. Waterborne ImportsRecent History2331%11%58%20058493 MBPDPADD III HeavyPADD VOther34%17%49%20126086 MBPD
  24. 24. U. S. Waterborne ImportsForecast2468%22%10%2020 Low2500 MBPDPADD III HeavyPADD VOther81%13%6%2020 High1600 MBPD
  25. 25. Presentation Agenda• Crude Production Forecast• Changes in Crude Quality• Impacts on Crude Supply Balance• Focus on PADD IV25
  26. 26. Total PADD IVNo. Refineries 14Total Capacity 625 MBPDPADD IV Refineries26BillingsSalt LakeCity
  27. 27. RegionAverageCrudeCapacityMBPDCatCrackingCapacityHydro-crackingCapacityCokingCapacityTotalUpgradingCapacityPADD IV 45 32% 5% 14% 51%US 134 34% 10% 15% 59%PADD I 133 48% 2% 8% 58%PADD II 159 33% 8% 12% 53%PADD III 169 34% 10% 16% 61%PADD V 155 32% 21% 21% 74%2727
  28. 28. 28In-PADDProduction56%CanadianHeavy29%OtherCanadian15%Supply SourceLight Sweet49%Lt. Sour andMedium18%Heavy34%Quality MixPADD IV Crude Slate - 2012Average API Gravity 33.8US Average 31.1
  29. 29. PADD IV Product Balance26Denver/ColoradoSpringsTX PanhandleRefineriesLas Vegas, NVSpokane, WASalt LakeCityNorth DakotaSouth Dakota/Nebraska
  30. 30. Gasoline Diesel Jet/Kero TotalDemand 308 190 51 549Refinery Prod.(incl. ethanol) 309 193 26 528From PADD II/III 30 3 25 58To PADD V (31) (6) 0 (37)Total Supply 308 190 51 5493029
  31. 31. Actual2012 2013Forecast2015 2020Growth2012 to2020Gasoline 308 311 316 319 11Diesel 190 195 202 216 26JetA/Kero 51 52 53 56 5Total 549 558 571 591 42% AnnualGrowth1.6 1.2 0.7 0.9US %AnnualGrowth0.5 0.1 -0.2 0.03130
  32. 32. PADD IV Crude Production Forecast322003004005006007008009001000MillionBPDLow HighPADD IV Crude Runs
  33. 33. PADD IV Crude Movements to OtherPADDs3301002003004005006002012 2013 2014 2015 2016 2017 2018 2019 2020MBPDLow High
  34. 34. 34-2.000.002.004.006.008.0010.0012.0014.0016.0018.0020.002000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012DollarsperBarrelLLS - WTI WTI -Wy. SweetRegional Light Crude Differentials
  35. 35.  Surplus of Crude in PADD IV will Continue to Grow Only PADD with production greater than in-PADD demand Wide range for potential surplus due to unknown production prospects Quality of new crude will be light; question is how light? Finding Markets for New Crude/Ways to Access Markets Critical Several P/L projects are being developed Rail projects are also moving ahead; well behind developments in Bakken A major challenge: PADD II and III are already saturated with light crude PADD V could be potential destination; challenge is logistics One advantage in marketing to California refiners is the low CI assigned to Niobrara PADD IV Refiners Should Continue to Experience Superior Margins Lower crude costs than in other regions Product demand growth above U.S. averages Incentivize some small projects – focus on running local crude/produce distillates Expansion of capacity/crude runs limited by regional demand More exposed to domestic economic conditions because of inability to export products35
  36. 36. 36
  37. 37. John R. Auers – Senior Vice PresidentTurner, Mason & Companyjauers@turnermason.comTelephone: 214-754-089837

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