1 meeting future distillate needs jean sentenac president & ceo

1

Meeting Future Distillate Needs

Jean Sentenac

President & CEO

OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 2

• Worldwide refining: recent past context

• Future global demand for refined products 2020

• Interest in heavier crudes

• Refining economics: “The New Deal”

• Impact on refining investments


Recent Past Context Facts

• Last decade characterized by• Low level of investment in refining during the 1990’s

• due to overcapacity and low margin

• Limited investments in crude exploration and production• due to low crude prices

• A sharp increase of world oil demand since 2003• Market driver China, to a lesser extent emerging

countries & the US

Oil Demand Growth

Mbpd

Source: AIE


Projected Refined Products Demand 2005 - 2020

2005 Demand (Mbpd)

AAGR (%/year)Incremental

Demand (Mbpd)

Asia/Pacific 23.5 2.5 10.3

Africa 2.8 2.6 1.3

Middle East 5.3 2.3 2.2

South Eastern Europe + CIS 5.3 2.1 2.0

Western Europe 14.7 0.4 0.8

Latin America 7.5 1.9 2.5

North America 22.6 1.2 4.4

World Total 81.9 1.7 23.3

2005 Demand Geographical Breakdown

2005-2020 Incremental Demand by Region

Mbpd

Source: Hart WRFS, 2004 Edition


Trend in Global Demand for Refined Products

2020 ~ 105 Mbpd2020 ~ 105 Mbpd

38%

25%

Middle Distillate*

Gasoline

Naphtha

1990 ~ 66 Mbpd1990 ~ 66 Mbpd

Middle Distillate*

Gasoline

Naphtha

31%

27%

7%

4%

62%

70%


Global Demand for Refined Productsin 2020

Continuous change in product mix

AAGR,

%

Incremental Demand, Mbpd

Naphtha + 2.3 2.2

Gasoline + 1.5 5.2

Middle Distillate• Diesel On-Road• Off-road• Kerosene

+ 2.2

+ 3.0

+ 0.7

+ 2.2

10.7

Fuel Oil - 0.4 - 0.5


23North America

Europe

Central & South

America

Asia - Pacific

-25

CIS

25

4

18

6

6

4

4

27

12

-10

-28

-4

6 3-5

6

35

-10

7

20

Africa & Middle East

-8

Imbalances & Major Flows2005

GasolineJet/Kerosene

DieselFuel Oil

All figures in Mt/y


Imbalances & Major Flows2015

50

North America

Europe

Asia - Pacific

-45

CIS

-60

30

40

Africa & Middle East

-45

Gasoline

Diesel All figures in Mt/y

-12

40-45

15

Jet/Kerosene


Crude Oil QualityWorld Trends Excluding Condensate

Source: Axens 2005

32.2

32.7

33.2

33.7

34.2

34.7

2000 2004 2010 20201.30

1.35

1.40

1.45

1.50

1.55

1.60

1.65

1.70API Gravity Sulfur, wt.%

Gravity

Sulfur


Supply & Demand Tension

• Trends• Average barrel of crude: heavier, more sulfur• Distillate demand is increasing• Residual fuel oil demand is decreasing• Product qualities will continue to rise

• Consequences• Investments on the

• Supply side: SCO production (non-conventional resources) or new refineries (conventional crudes)

• Demand side: Hydrocrackers, cokers, FCCs

• Hydrotreatreaters everywhere


Attractive Economics

• High crude prices accompanied by increased product spreads

• Increased HSFO - gas oil price differential • Beginning of 2004: 150 $/t • Today above 300 $/t

attractive investment conditions to convert residues into lighter products


HSFO & Diesel Prices1998 – Apr. 2006

0

100

200

300

400

500

600

700

800

0 10 20 30 40 50 60 70 80Brent Dated Prices, $/bbl

$/ton

2003: Diff. ~ 130 $/t

2005: Diff. > 300 $/t

On-Road Diesel FOB NWE

HSFO (3.5%S) FOB NWE

Source: Platts


Light-Heavy Differential

• Widening price differential betweenlight-sweet and heavy-sour crudes• Declining demand for HSFO• Lack of sufficient heavy-sour crude processing

capacity

• Widening price differentials have significantly contributed to increasing refining margins for refineries with heavy upgrading capacity


Refining Diff. vs. Crude Diff.1998 – Mar. 2006

0

1

2

3

4

5

6

7

8

9

10

0 1 2 3 4 5 6 7 8

2001-2003 period Crude Price Diff: ~ 1.5 $/bbl Ref. Marg. Diff: ~ 1

$/bbl

Urals (API=31.3)

Source: IEA, Platts

Brent – Urals Crude Price Differential, $/bbl

Cracking – Hydroskimming Diff.Refining Margins, $/bbl

Brent(API=38.6)

2004-2006 period Crude Price Diff: ~ 4 $/bbl Ref. Marg. Diff: ~ 2.5

$/bbl


The Market Direction

1. As crude prices increase, the light-heavy price spread increases

2. Operating margins are higher with heavier and more sour feeds

3. Margins increase further with increased refinery complexity

Treating heavy, extra-heavy crudes requires more complex refineries: added conversion technology


Impact on Refining Industry

• To satisfy additional demand, significant conversion capacity will be required through 2020• Conversion capacity: + 12.3 Mbpd

• Each year + 800,000 bpd

• Middle distillate HDS capacity: + 10.4 Mbpd


Refining Investment Strategies

• Europe, US, Japan Continued investments in regulation attainment and

conversion capacity

Creep capacity expansion will continue

• Product demand growth areas (Asia) New world-scale refineries

• Producing countries Refineries dedicated to export (Middle East)

Upgrading of non conventional hydrocarbon reserves (Canada, Venezuela) to produce synthetic oil to be refined in US / Europe


Projected Conversion Capacity Expansion 2005 - 2020

Region2005 Cap. (Mbpd)

2005-2020 Add. Cap. (Mbpd)

North America 10.5 2.6

Latin America 2.3 1.9

EU 28 3.3 0.3

CIS + South Eastern Europe 0.4 < 0.1

Asia-Pacific 5.3 5.2

Middle East 1.1 1.5

Africa 0.4 0.6

World Total 24.5 12.3

2005 Capacity Geographical Breakdown

2005-2020 Additional Capacity by

Region

Mbpd

Source: Hart WRFS, 2005 Edition


Capacity Expansions 2005-2020 Geographical Breakdown

Hydrocracking: + 4 Mbpd (+1.1 AR/VRDS)(80 – 90 units)

Catalytic Cracking: + 5 Mbpd(60 – 75 units)

Coking : +3.3 Mbpd(55 – 70 units)

North America

Latin America

EU 28

CIS + South Eastern Europe

Asia-Pacific

Middle East

Africa

Source: Axens & Hart WRFS, 2005 Edition


Conclusions

• Steadily increasing product demand• 1.6 - 1.7 %/y

• Continuous change in product mix in favor of light transportation fuels

• Declining crude quality (API, sulfur)

• Increasingly stringent fuel specifications

• Need 12.3 Mbpd additional conversion capacity by 2020


• Attractive operational margins• Tight supply – additional investments

required• High sulfur FO/GO differential above 300 $/t

and expected to remain there for the foreseeable future

• Widening LS and HS crude differential

• Conditions favorable for investing in conversion technologies

Conclusions

1 meeting future distillate needs jean sentenac president & ceo

Documents

demand mbpd aagr

sulfur distillate demand

residual fuel oil demand

jetkerosene slide

mty slide

mbpd middle distillate

aie slide

edition slide