california’s transportation fuels outlook
DESCRIPTION
California’s Transportation Fuels Outlook. National Conference of State Legislatures Summer Energy Outlook Conference Denver, Colorado April 17, 2007 Gordon Schremp Fuels and Transportation Division California Energy Commission. Presentation Topics. Background - PowerPoint PPT PresentationTRANSCRIPT
CALIFORNIA EN ERGY COMMISSION
4/17/07 1
California’s TransportationFuels Outlook
National Conference of State LegislaturesSummer Energy Outlook Conference
Denver, ColoradoApril 17, 2007
Gordon SchrempFuels and Transportation Division
California Energy Commission
CALIFORNIA EN ERGY COMMISSION
4/17/07 2
Presentation Topics
• Background• California gasoline price volatility• Regional transportation fuel market• 2007 price increases• Linkage to financial markets• Market factors contributing to the price spike• Proactive actions to limit additional potential price
increases• Gasoline price outlook• Ethanol availability• Summary
CALIFORNIA EN ERGY COMMISSION
4/17/07 3
Background
• California’s transportation fuel market is isolated by time and distance from the next alternative source of resupply
• Additional sources of incremental supply are weeks away– Identify available barrels– Locate a ship– Transit time
• As a consequence, unplanned refinery outages and unexpected extension of maintenance can result in wholesale price spikes that are normally greater in magnitude and longer in duration than other regions of the United States
CALIFORNIA EN ERGY COMMISSION
4/17/07 4
California Gasoline VolatilityJanuary 1995 to April 9, 2007
-10
0
10
20
30
40
50
60
1/2/19957/2/19951/2/19967/2/19961/2/19977/2/19971/2/19987/2/19981/2/19997/2/19991/2/20007/2/20001/2/20017/2/20011/2/20027/2/20021/2/20037/2/20031/2/20047/2/20041/2/20057/2/20051/2/20067/2/20061/2/2007
California Minus U.S. Difference
Cents Per Gallon
Peak 54.4
MTBE Phaseout Period27.0 Average, 10.5 Std Dev
Calif Retail Price Higher Than U.S.Calif Retail Price Lower Than U.S.
MTBE Use Year-Round17.5 Average, 9.0 Std Dev
MTBE Use - Winter Months10.1 Average, 4.1 Std Dev
Ethanol Use Period25.1 Average, 10.3 Std Dev
CALIFORNIA EN ERGY COMMISSION
4/17/07 5
California Gasoline Price Volatility
• Differential between California and U.S. retail gasoline prices has averaged 19.6 cents per gallon (cpg) since January 1995
• Differential has been growing over time– 10.1 cpg winter oxy season 1995-1996– 17.5 cpg year round use of MTBE 1996-2002– 27.0 cpg partial transition to ethanol 2003– 25.1 cpg year round use of ethanol 2004 to present
• Volatility has been increasing
CALIFORNIA EN ERGY COMMISSION
4/17/07 6
AnacortesSeattle
Portland
Chico
SF
LA
Bakersfield
LasVegas
Reno
Phoenix
TucsonEl Paso, TX
8
15SD
21
7
1
2
3
4
5
9
10
19
14
17
11
12Fresno
16 1820
6
22
13
West Coast Petroleum Flows1 Foreign Imports into Northern California2 Foreign Imports into Southern California3 US Gulf Coast Imports into Northern California4 US Gulf Coast Imports into Southern California5 Ship/Barge - San Francisco to Los Angeles6 Ship/Barge - San Francisco to Portland7 Ship/Barge - Washington to Los Angeles8 Kinder Morgan - San Francisco to Chico9 Truck - Chico into Southern Oregon
10 Kinder Morgan - San Francisco to Reno11 Kinder Morgan - San Francisco to Fresno12 Kinder Morgan - Bakersfield to Fresno13 Truck - Imperial into Western Arizona14 Kinder Morgan - Los Angeles to Las Vegas15 Kinder Morgan - Los Angeles to San Diego16 Kinder Morgan - Los Angeles to Imperial17 Kinder Morgan - Los Angeles to Phoenix18 Kinder Morgan - Los Angeles to Tucson19 Kinder Morgan - Tucson to Phoenix20 Kinder Morgan - El Paso to Tucson21 Longhorn Pipeline - Houston to El Paso22 Ship/Barge - San Francisco to Eureka
CALIFORNIA EN ERGY COMMISSION
4/17/07 7
Regional Transportation Fuel Market
• California is primary source of supply to neighboring states– Nearly 100 % to Nevada– About 60 % to Arizona
• Washington is also a source of supply for California• Unplanned refinery outages or pipeline distribution
problems can have a regional price impact due to the interconnected relationship of this regional market
CALIFORNIA EN ERGY COMMISSION
4/17/07 8
California Retail Prices - Gasoline and Diesel Fuel versus Alaska North Slope (ANS) Crude Oil
January 2005 through April 9, 2007
80
130
180
230
280
330
380
1/3/20053/3/20055/3/20057/3/20059/3/200511/3/20051/3/20063/3/20065/3/20067/3/20069/3/200611/3/20061/3/20073/3/2007
Cents Per Gallon
GasolineDiesel FuelANS Crude Oil
Sources: Energy Information Administration (EIA) – California retail prices Alaska crude oil prices – Wall Street Journal
CALIFORNIA EN ERGY COMMISSION
4/17/07 9
2005, 2006, and 2007 Average Weekly Retail Gasoline Price Minus Weekly
Alaska North Slope (ANS) Crude Oil Price
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
1/3/05 1/17/051/31/052/14/052/28/053/14/053/28/054/11/05 4/25/055/9/05 5/23/05 6/6/05 6/20/05
Difference per Gallon (Dollars)
200520062007
CALIFORNIA EN ERGY COMMISSION
4/17/07 10
2007 Price Increases
• California retail gasoline prices increased 51 cents per gallon (cpg) between January 3 and March 21, 2007
• Crude oil prices actually decreased by 3 cpg over this same time period
• Retail prices, less crude oil, have increased 54 cpg over the same time period, a 44 % increase
• Wholesale prices have experienced similar increases driven by rising NYMEX values and higher premiums for pipeline barrels
CALIFORNIA EN ERGY COMMISSION
4/17/07 11
Nymex Price and CARBOB Differential January 3 - April 10, 2007
0
50
100
150
200
250
300
1/3/071/10/071/17/071/24/071/31/072/7/072/14/072/21/072/28/073/7/073/14/073/21/073/28/074/4/07
Cents Per Gallon L.A. CARBOB differentialNymex gasoline price
CALIFORNIA EN ERGY COMMISSION
4/17/07 12
Linkage to Financial Markets
• Wholesale prices for purchases of large quantities, referred to as spot pipeline transactions, increased by 78 cents per gallon (cpg) between January 3 and March 28, 2007
• Represents a 43 % increase• Refiners and other market participants will turn to pipeline
transactions to obtain additional supplies of gasoline following unplanned outages or unanticipated extensions of routine maintenance
• These spot pipeline purchases are quoted as a differential to a benchmark, the month ahead gasoline contract on the New York Mercantile Exchange (NYMEX)
CALIFORNIA EN ERGY COMMISSION
4/17/07 13
Linkage to Financial Markets• One of the consequences of this pricing mechanism is that
factors external to the California petroleum market - such as geopolitical instability or a severe hurricane in the U.S. Gulf Coast – can increase the value of NYMEX gasoline contracts
• This in turn can increase Calif. wholesale gasoline prices• Local supply imbalances can also tighten gasoline supplies
in the region and are reflected in the form of higher differentials that are paid by market participants for spot pipeline transactions
• These differentials went from a low of 4.5 cpg on January 19 to a high of 60 cpg on March 8, 2007 – an indication of scarcer gasoline supplies
CALIFORNIA EN ERGY COMMISSION
4/17/07 14
Market Factors that Contributed to the First Quarter 2007 Price Spike
• Seasonal demand growth
• Unplanned refinery outages and planned maintenance
• Refinery production of gasoline
• Inventory levels for gasoline and blendstocks
• Pipeline exports to Arizona
• Distribution infrastructure constraints
CALIFORNIA EN ERGY COMMISSION
4/17/07 15
California Gasoline Monthly DemandSeasonal Increases2003-2006 Average
41.0
41.5
42.0
42.5
43.0
43.5
44.0
44.5
January FebruaryMarch
April May
Millions of Gallons per DayMonthly AverageLinear (Monthly Average)
Source : Analysis of California State Board of Equalization taxable gasoline sales figures.
CALIFORNIA EN ERGY COMMISSION
4/17/07 16
Seasonal Demand Increases
• California gasoline demand normally increases from winter to the outset of spring– Demand jumped an average of 4.8 percent from January to
March over the last 4 years• Over the same time period, gasoline production capability
at California refineries declines due to the transition from winter to summer gasoline formulations– Lower volatility limit begins in mid-February for Southern
California and mid-March for the rest of the state– Certain blending components such as butane are temporarily
excluded from the gasoline pool
CALIFORNIA EN ERGY COMMISSION
4/17/07 17
California Refinery Events - Number of Days(January-March of 2005, 2006, and 2007)
224
158
263
8
79 79
0
50
100
150
200
250
300
Jan-Mar 2005 Jan-Mar 2006 Jan-Mar 2007
Days
Total Planned Maintenance Days
Total Unplanned Outage Days
Source: CEC Petroleum Idustry Information Reporting Act (PIIRA) database.
CALIFORNIA EN ERGY COMMISSION
4/17/07 18
Average Number of Days per Refinery Event(January-March of 2005, 2006, and 2007)
24.9
22.6
26.3
4.0
15.8
11.3
0
5
10
15
20
25
30
Jan-Mar 2005 Jan-Mar 2006 Jan-Mar 2007
Days
Planned MaintenanceUnplanned Outages
Source: CEC Petroleum Idustry Information Reporting Act (PIIRA) database.
CALIFORNIA EN ERGY COMMISSION
4/17/07 19
Refinery Outages & Maintenance• Planned maintenance at California refineries during the
first quarter of 2007 was 66 percent greater (number of maintenance days) than the same period in 2006
• Although refiners usually build inventories of gasoline in advance of such work, supplies are normally adequate to meet contractual obligations, rather than normal levels of refinery output
• Unbranded supplies become constrained and wholesale prices normally rise for the entire petroleum market
• Unplanned outages were similar to 2006, but shorter in average duration per refinery event
CALIFORNIA EN ERGY COMMISSION
4/17/07 20
5,000
5,500
6,000
6,500
7,000
7,500
8,000
8,500
1/6/20061/20/20062/3/20062/17/20063/3/20063/17/20063/31/20064/14/20064/28/20065/12/20065/26/20066/9/20066/23/20067/7/20067/21/20068/4/20068/18/20069/1/20069/15/20069/29/200610/13/200610/27/200611/10/200611/24/200612/8/200612/22/20061/5/20071/19/20072/2/20072/16/20073/2/20073/16/20073/30/2007
Thousands of Barrels per Week
Current Year
CARB Gasoline Production(with 5-Year High-Low Band)
CALIFORNIA EN ERGY COMMISSION
4/17/07 21
California Gasoline Inventories(with 5-Year High-Low Band)
8,500
9,500
10,500
11,500
12,500
13,500
14,500
15,500
1/6/20061/20/20062/3/20062/17/20063/3/20063/17/20063/31/20064/14/20064/28/20065/12/20065/26/20066/9/20066/23/20067/7/20067/21/20068/4/20068/18/20069/1/20069/15/20069/29/200610/13/200610/27/200611/10/200611/24/200612/8/200612/22/20061/5/20071/19/20072/2/20072/16/20073/2/20073/16/20073/30/2007
Thousands of Barrels
Inventories
CALIFORNIA EN ERGY COMMISSION
4/17/07 22
Refinery Production & Inventory
• California refinery production of gasoline declined by 20 percent from the week ending January 5 through the week ending March 30, 2007 – reaching a severely low level of 816 thousand barrels per day (TBD) by the end of March
• This 200 TBD decline in output came at a time when gasoline demand normally increases by nearly 50 TBD
• As a consequence, inventory levels were drawn down by 3.6 million barrels or 25%
• Declining production and scarcer gasoline inventories normally result in upward pressure on wholesale prices
CALIFORNIA EN ERGY COMMISSION
4/17/07 23
Gasoline Movements by Pipeline to PhoenixJanuary 2005 - March 2007
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
1/5/20053/5/20055/5/20057/5/20059/5/200511/5/20051/5/20063/5/20065/5/20067/5/20069/5/200611/5/20061/5/20073/5/2007
Barrels per Week
EASTWEST
CALIFORNIA EN ERGY COMMISSION
4/17/07 24
Diesel Movements by Pipeline to PhoenixJanuary 2005 - March 2007
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
1/5/20043/5/20045/5/20047/5/20049/5/200411/5/20041/5/20053/5/20055/5/20057/5/20059/5/200511/5/20051/5/20063/5/20065/5/20067/5/20069/5/200611/5/20061/5/20073/5/2007
Barrels per Week
EASTWEST
CALIFORNIA EN ERGY COMMISSION
4/17/07 25
Pipeline Exports Increase• Propane fire at Valero refinery in McKee, Texas decreases
shipments of gasoline and diesel fuel to Arizona• California exports increase to compensate
– 22 TBD gasoline– Only 5 TBD for diesel
• Blendstocks used to make AZ gasoline are also main ingredients for California reformulated gasoline
Matt Slocum / AP
CALIFORNIA EN ERGY COMMISSION
4/17/07 26
Potential Distribution Constraints
• Another potential factor contributing to the recent price spike is pipeline constraints that limit the ability of gasoline and blendstocks in third-party storage from reaching distribution terminals
• Northern California intra-state pipeline segments at capacity have previously been identified as bottlenecks that could temporarily constrain transportation fuel supplies
• An assessment is planned to determine if such constraints may have developed and exacerbated the rapid increase in wholesale prices
CALIFORNIA EN ERGY COMMISSION
4/17/07 27
Factors that Contributed to Price Spike
• Refinery operations & impact on Production– Gasoline production was lower due to
• Unplanned refinery outages• Heavier-than-normal maintenance
• Gasoline inventories rapidly declined– Lowest levels over the last 5 years
• Pipeline exports to neighboring states– Increased in response to West Texas refinery fire
• Possible pipeline distribution capacity limitations– Assessment to be conducted
CALIFORNIA EN ERGY COMMISSION
4/17/07 28
Proactive Steps to AvoidAdditional Price Increases
• The California Energy Commission routinely monitors refinery production, distribution operations, and petroleum product price trends to determine whether or not transportation fuel supplies could become temporarily constrained
• This activity includes assessments of upcoming projects or events that may exacerbate an already tight market
• One recent example involved the Energy Commission learning that a discretionary refinery project had preliminarily been rescheduled to mid-April
CALIFORNIA EN ERGY COMMISSION
4/17/07 29
Proactive Steps to AvoidAdditional Price Increases
• A recent spate of refinery problems, inside and outside of California, in conjunction with a heavier-than-normal first quarter of maintenance raised the possibility of significant impact of gasoline supplies
• In response, the Energy Commission requested that Valero reschedule the date to commence modifications to one of their process units, if such a changer were feasible
• After careful consideration, Valero decided to defer the start date to later in the year
• Energy Commission believes that this action eliminated “a large, unnecessary financial hardship to consumers and businesses within our state.”
CALIFORNIA EN ERGY COMMISSION
4/17/07 30
Price Outlook
• Is $4 gasoline on the horizon for California consumers?
• Unlikely - as refiners complete repairs and resume normal operations following extended maintenance cycles additional supplies of gasoline should place downward pressure on wholesale prices
• Absent large crude oil price increases, at least two significant refinery outages would be necessary to send retail gasoline prices over the $4 mark
CALIFORNIA EN ERGY COMMISSION
4/17/07 31
U.S. Ethanol Plant Nameplate Capacity Growth July 2005 - Feb 2008
135122100 94
1025
125
218
40
85 97
59
100
270
97 107
0
469 470
369
115
306
270
370 359
150
509
33
250
370
3.85
8.95
9.57
0
50
100
150
200
250
300
350
400
450
500
550
600
650
700
Jul-2005Aug-2005Sep-2005Oct-2005Nov-2005Dec-2005Jan-2006Feb-2006Mar-2006Apr-2006May-2006Jun-2006Jul-2006Aug-2006Sep-2006Oct-2006Nov-2006Dec-2006Jan-2007Feb-2007Mar-2007Apr-2007May-2007Jun-2007Jul-2007Aug-2007Sep-2007Oct-2007Nov-2007Dec-2007Jan-2008Feb-2008
Capacity Additions (MGPY)
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
Cumulative Nmeplate Capacity (BGPY)
New Capacity and ExistingPlant ExpansionsCumulative Capacity
CALIFORNIA EN ERGY COMMISSION
4/17/07 32
Ethanol Supply Outlook
• Supplies of ethanol to meet the needs of California, federal reformulated gasoline areas, and discretionary blend markets should be more than adequate to meet anticipated demand during the 2007 driving season
• Ethanol nameplate production capacity is estimated at nearly 6 billion gallons per year and could reach the 2012 RFS goal of 7.5 billion gallons some time this summer – assuming no additional construction delays or deferrals
• Ethanol values are anticipated to be significantly lower compared to the summer of 2006 due to the rapid increase in domestic production capacity
CALIFORNIA EN ERGY COMMISSION
4/17/07 33
Closing Remarks
• California’s price spike during the first quarter of 2007 yielded a record differential of 54 cents per gallon for retail gasoline prices when compared to the U.S. average
• A heavier-than-normal refinery maintenance schedule, a number of unplanned outages, and a refinery fire in West Texas were all factors that contributed to a temporary tightness of gasoline supplies
• Proactive action by the Energy Commission and a commendable decision by a refiner to reschedule completion of a discretionary project averted further price increases for consumers & businesses