copyright ©: eai, inc., 2002 energy analysts international westminster, colorado

Copyright ©: EAI, Inc., 2002

Energy Analysts InternationalEnergy Analysts International

Westminster, Colorado


Rocky Mountain Business Analysis,Outlook and Strategy

Selected Excerpts from EAI’s Rocky Mountain Business Study

For the Western Interstate Energy Assocation

October 2, 2002


Overview of Corporation• Incorporated in 1982

• Original and current mission: To provide the energy industry products and services built upon market driven, integrated and “Bottom-Up” information and analysis.

• Consulting services built upon innovative but standardized approaches to forecasting, planning, strategy / business development, and business benchmarking / competitive analysis.

• EAI clientele includes all major U.S. and Canadian petroleum companies, petroleum transportation companies and a growing base of energy consumers.

EAI (Energy Analysts International, Inc.)

Figure ES-2


Business Areas Serving the Petroleum Industry

EAIEnergy Services

ComputerApplications

SupportServices

EnergyConsulting


Figure ES-3


Services

Energy Consulting

Client Specific Studies

Special Topic/ Industry Studies

IntegratedRegional Tracking

and Analysis

"Real Time"SupportServices


Figure ES-4


Western Region Specific Consulting ProductsRefined Product and Crude Oil Specific

Refined Product Study ProductsWestern Region Petroleum Business Outlook and StrategyRocky Mountain – Petroleum Business Analysis and OutlookU.S. Hypermart Petroleum Market Outlook Study

Crude Oil Study ProductsWest Coast Crude Supply, Logistics and Market OutlookRocky Mountain Petroleum Business OutlookGulf Coast Crude Supply, Distribution and Refining OutlookNorth American Crude Supply, Logistics and Refining Outlook



Rocky Mountain Business Analysis Rocky Mountain Business Analysis and Outlook-2002and Outlook-2002

Integrated Rocky Mountain Petroleum Integrated Rocky Mountain Petroleum Trends and OutlookTrends and Outlook


Western Region Refined ProductWestern Region Refined ProductSupply-Demand NetworkSupply-Demand Network

Western Region is relatively isolated from Gulf Coast Western Region is relatively isolated from Gulf Coast until Longhorn starts up and KMPL is expandeduntil Longhorn starts up and KMPL is expanded

Refining Center

Primary Pipeline

Product Movement

PacificNorthwest

RockyMountain

Gulf Coast

KM

Cenex

Pioneer

Wyco

Chase

Yellowstone

KMPL

Chevron

ATA

DS

SA

AL

Phillips

DS

Olympic

KM

Sinclair

Conoco

Co

no

coW

yco

CALNEV

Phoenix

Tucson

El Paso

TankerMovement

KMPL

PacificSouthwest

Ch

evron

LH

Shamrk

ShellFA

Tucson

Foreign and Gulf

Coast Imports


Western regions growing increasingly short of product. Accelerated consumption growth through the mid to late 1990’s under conditions of moderate refinery expansion has tighted supply.

Although future consumption growth is not likely to be as aggressive, the Western regions will require increasing supply of product from outside the trade area.

Western regions import product from the Gulf Coast, Caribbean, West Texas, Texas Panhandle and Midcontinent regions.

Rocky Mountain region interacts with West Coast regions in several areas: 1) West Coast product supplements RM supply for Eastern WA market, 2) SLC supply interacts with WC supply out of Reno and Las Vegas, and, 3) West TX refiners supply both RM and Tucscon-Phoenix markets.

Overview of U.S. Western Regions


-250

-200

-150

-100

-50

0

50

100

150

Net

Su

pp

ly,

MB

PD

PNWNCA

SCA

AZ/NV

RM

TOTAL

Regional Gasoline Balance: Regional Gasoline Balance: Local Refining Output minus Local Refining Output minus

ConsumptionConsumptionU.S. Western RegionsU.S. Western Regions

2001 Total Gasoline, MBPD2001 Total Gasoline, MBPDOverall the western states are Overall the western states are growing increasingly gasoline growing increasingly gasoline shortshort


0

50

100

150

200

250

300

350

400

Su

pp

ly,

MB

PD

NM TRCK 5.8 5.8 3.6 5.2 6.3 5.4 27.4 19.9 17.9 16.1 9.1 9.1 9.1 9.1 9.1 9.1 9.1 9.1 9.1 9.1 9.1 9.1

KM->AZ 29.1 34.2 46.2 33.4 42.3 40.2 37.2 44 57.8 69.8 69.1 74.8 74.8 74.8 74.8 74.8 74.8 74.8 74.8 74.8 74.8 74.8

DM WB 2 0.3 1.4 0.8 0.7 0.7 11.3 3.9 0.4 8.8 3.1 3.1 3.1 3.1 3.1 3.1 3.1 3.1 3.1 3.1 3.1 3.1

FRGN WB 4.5 0.1 2.4 2.9 0.6 1.5 6.3 5.7 3.5 9.8 4.6 20.2 33.9 53.3 73.2 92.8 104 115 126 137 149 161

CHASE\TX PHNDLE TO DNVR 23.6 24.4 34.4 36.8 49.3 48.2 52.2 53 50.9 52 57.8 59.2 60.9 63.4 65.9 68.5 70.6 72.7 74.9 77.2 79.4 81.7

PNW FRGN 6.6 10.7 9.2 5.2 2.3 0 0 0 1.1 13.7 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3 5.3

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Incremental Gasoline Supply RequirementsIncremental Gasoline Supply RequirementsWestern Regions (PNW, PSW and RM)Western Regions (PNW, PSW and RM)

KM -> Arizona from El Paso

KM -> Arizona from El Paso

PSW Waterborne/

Longhorn

Phoenix

Chase/UDS/Phillips to DnvrChase/UDS/Phillips to Dnvr

With no refinery closures;assumes reasonable creep for PNW and PSW areas; MTBE phase-out impact on refinery intermediate stock loss included in plot

Western regions will need Western regions will need approximately 150 MBPD of approximately 150 MBPD of incremental gasoline over next 5 years incremental gasoline over next 5 years including adjustment for gasoline pool including adjustment for gasoline pool shrinkage due to MTBE phaseout. shrinkage due to MTBE phaseout.

ForecastForecast


Refined Product Network StatusRocky Mountain Region-2002

To

tal Ch

evron

Pl

Cap

acity (64)

Refinery Utilization Refineries in Colorado,

Montana , Utah and Wyoming operating

seasonally at full capacity

Casper

Salt Lake City

Salt Lake City

COUT

ID

MT

WY

BillingsBillings

North Platte

BoiseBoise

Fountain

Cheyenne (17)

Seminoe (34)

Pioneer Pl (48)

Sinclair Pl

(20)

Phillips P

l

(41.5)

Chase Pl (49)

KN

BP

L(8”)

KN

BP

l (8")

Cenex Pl (19)

YellowstonePl (56)

Kaneb (21)

Valero (50)**

Sinclair refinery expansion

Both Phillips and Valero pipelines have open capacity

Valero pl capacity from McKee to Co Springs = 50 MBPD

High Utilization

SeasonalBottlenecks

Barge

Expanded by 11 MBPD

Potential MC refinery shutdownsand high utilization

Longhorn startup in 2002/Equilon TXNM conversion in EIS stage

Refinery supply constrained

Retractionto serve

expanding SLC

Continued demand growth

Demand increasing/ refineries constrained

Incremental Valerosupply vs

local refining

Newcastle

KNB Pl (14)

KNB(10")

Rail from Helena toThompson

Falls/Spokane

Missoula

Expanded to 70 MBPD in

2000 DenverDenver

Ch

evron

Pl (17)

To MosesLake

Spokane

To Minot/Fargo

To Rapid City

Sinclair Built Segment to Chase and can reverse Denver Products Pl

Gas Diesel

Proposed Williams Pipeline Project passed

EIS stage. Startup in 2003

Major Demand Centers

Major Refining Centers

High Demand Growth Areas

Pipeline Capacities in MBPD(xx)

Figure PRS-8


Williams Product Pipeline Proposed RoutingWest Texas to Salt Lake City

(xx)

Proposed pipelines

Refinery

Pipeline capacities, MBPD

El Paso

Dallas

Houston

Corpus Christi

San Antonio

Austin

Lubbock

MidlandOdessa

Artesia

Albuquerque Amarillo

Abilene

Wichita Falls

San Angelo

Flagstaff

Tucson

Phoenix

Juarez

EM(17)

(32)

(8)

(111)

SF

(173)(17)

(55)

SF(95)

(17)

CH(25)

DS

(50)

(20)

DS(24)

SH (15)NV

TXLH

FA

TX

FAPR

WL

(13)

FA

(17)

TX

DS(32)

FA

Ft Worth

Grand Junction

Salt Lake City

Farmington

DS

CH

DPWY

PH

MP

PI

CH

CH ChevronDP Den ProdDS Dia ShamrockEM EmeraldFA FinaLH LonghornMP MapcoMS MesaNV NavajoPH PhillipsPI PioneerPR PrideSF Santa FeEQ EquilonWL WilliamsKN Kaneb

DenverAspen New

Construction


0

50

100

150

200

250

300

350

400

De

ma

nd

, M

BP

D

UT 58.7 60.2 63.1 64.5 66.2 67.3 68.7 70.2 71.7 73.2 74.7 76.1 77.2 78.2 79.1 79.9 80.6

MT 31.4 32.8 33.7 32.3 33.1 28 28.6 29.3 30.1 30.9 31.8 32.6 33.2 33.8 34.3 34.7 35.2

ID 37.7 39.5 37.4 42.8 44.8 40.9 42 43.3 44.5 45.7 47 48.1 49.1 50 50.7 51.4 52

WY 22.6 22.5 23.1 22.3 22.6 19.9 20.3 20.6 21 21.3 21.6 21.9 22.2 22.4 22.6 22.8 23

CO 114.8 120.1 122.8 126.4 133.1 140.6 143.6 146.6 149.7 152.9 156.2 159.1 161.6 163.8 165.6 167.3 168.9

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Gasoline Demand Trends and OutlookRocky Mountain States

Product demand growth projected to slow across region, most of demand concentrated in Colorado and Utah

Colorado

Wyoming

Idaho

Montana

Utah


0

100

200

300

400

500

600

700

800

MB

PD

Imports 95 89 78 67 67 61 62 88 88 106 115 121 126 129 139 155 148

Refined 366 377 375 382 389 385 398 374 382 395 398 415 418 423 435 447 445

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Rocky Mountain Total Light Product Supply-Demand Balance Trend

Total Light Product = Gasoline, Jet, Distillate - MBPD

Imports to RockiesImports to Rockies

Refinery ProductionRefinery Production

Consumption + ExportsConsumption + Exports

Williams pipeline to add 65 MBPD of Williams pipeline to add 65 MBPD of pipeline import capacitypipeline import capacity


Refinery Throughput ProfileRocky Mountain Region Refineries

1991 - 2002Note High Utilization Rates, Capacity Creep and Crude Run Growth

200

300

400

500

600

700

800

Cap

acit

y o

r T

hro

ug

hp

ut

[MB

PD

]

0102030405060708090100110120

Per

cen

t U

tiliz

atio

n

Refinery RunsCrude Tower Capacity

Crude Tower Utilization


Geographical Phase In Area

PacificNorthwest

PacificNorthwest

RockyMountain

RockyMountain

Refining Center

Primary Pipeline

Product MovementGulf CoastGulf Coast

KMPL

CENEX

Pioneer

Kaneb

Chase

Yellowstone

KMPl

Chevron

ATA

Valero

SAAL

Phillips

Valero

Olympic

KM

PL

Sinclair

Cheyenne

Sem

inoeK

aneb

GATXPacific

SouthwestPacific

Southwest

Phoenix

Tucson

El Paso

TankerMovement

KMPL

Chevron

Shell

FA

TX

KPLWPL

GPA area shaded - consists of CO, ID,

MT, UT, WY, ND, NM plus outlying markets supplied by GPA refiners

20 refineries are in GPA and produced 359 MBPD gasoline in 2001. Have Delay For Completing Investments To

Produce Low Sulfur Fuels


Impact of New Low Sulfur ProductSpecifications

1 of 2

New low sulfur gasoline specifications - 150 ppm for years 2004 to 2007 in GPA. Changes to national standard 30 ppm in 2007. Small refiner hardship exemption through 2009. Early commitment to ULSD allows sulfur credits and delay of LSG.

For 2004 - 2006 interim specification: Six refiners were evaluated to have to add naphtha hydrotreating or change crude slate - Frontier, Little America, ChevronTexaco, Conoco - Denver, and Valero refineries. Chevron and Montana Refining may be borderline. Modified Sinclair refinery and Conoco Billings come close to 30 ppm.

For 2007 30 ppm specification: All others with the possible exception of Silver Eagle will have to make some process unit additions (most considering hydrotreating) or change crude slate.


Impact of New Low Sulfur ProductSpecifications

2 of 2

Ultra low sulfur diesel - requires major revamps and additions to existing distillate hydrotreaters or addition of new units for those plants without. Off-road market may be an option for some small refiners considering no investment or those considering derating the capability of in-place units.

Canadian synthetic crudes targeting replacing declining Rocky Mountain light sweet crude production. Local sweet crude production in Utah, Western Colorado, and Southwest Wyoming very important. Also natural gasoline will become more important in this context.


Major Issues and TopicsRocky Mountain Petroleum

Business(Page 1 of 3)

Product demand growth has slowed considerably in eastern Rockies and somewhat in western Rockies.

West Coast product growing tighter with MTBE phase out and may impact ethanol blended oxy fuels in UT and CO.

Declining RM crude production and accelerated need for Canadian conventional and syncrude supply.

New product pipeline projects are stalled due to Williams financial problems; Longhorn from Gulf Coast to El Paso delayed (start-up potentially 2003), Williams to SLC may be on-hold.



Business(Page 2 of 3) Product pipeline expansions to Midcontinent-Midwest from

Gulf Coast will improve supply access between Midcontinent and Eastern Rocky Mountains

Environmental regulations lowering sulfur level in gasoline and diesel beginning in 2004 and 2006; designation of RM as Geographical Phase In Area; refinery survivability issue.

Some potential for small refinery closures in Rocky Mountains. This will increase reliance on supply areas outside the region

A tightening of supply could also impact the availability of RM product for Eastern Washington, Southern Utah and western Nevada markets (areas that are also supplied with west coast product)



Business(Page 3 of 3)

Potential closure of New Mexico and West Texas refining capacity will impact product supply for New Mexico in absence of Longhorn product pipeline start-up.

Canadian surplus of synthetic crude, bitumen and some conventional light streams will result in “push” to RM region. This situation coupled with a relatively stable product market will continue to make the area one of the most positive refining centers.

This situation could actually spur additional refinery investment to offset some potential closures depending on the outlook for additional pipeline capacity to serve the RM region.

copyright ©: eai, inc., 2002 energy analysts international westminster, colorado

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