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North American Refining Changing Crude Supply & Qualities
Dallas Program November 7, 2013
Michael W. Leger, P.E.
Presented to:
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Today’s Speaker
Michael W. Leger, [email protected]
LSU Chemical Engineer
Formerly with Texaco and CITGO
Strategic planning, FMV, ventures
Directs firm activities
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International consulting practice since 1971Downstream focus; refinery/chemical engineersIndustry and financial clients
• Strategic Studies• FMV Assessments & Venture Analyses• National Policy Studies
Publish various outlook and multi-client subscription reports• World Crude Outlooks• North American Crude & Condensate Outlook• Crude and Refined Products Outlook• Refinery Construction Outlook• Special Studies
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TM&C Overview
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Today’s Agenda
Major Developments in N.A. Crude Supply NACCO Projections to 2022
U.S. by PADD & Grade Canada
Changing Crude Flows/Sources Impact on Foreign Imports Quality Changes Crude Exports?
Refinery Yield ImpactsExport IssuesSome Final Thoughts
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North American Crude & Condensate Outlook
Regional forecasts in new TO and conventional areas
Evaluation of refinery capabilities on a plant-by-plant basis
Analysis of planned/required logistics
Evaluate challenges and opportunities for producers,midstream companies and refiners
Forecast pricing implications
Initial publications – June & October 2012
2013 NACCO released in June
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Major N.A. Crude RegionsApproximate Current Production Levels
Oil SandsBasins3.3 MMBPD
WillistonBasin900 MBPD
Niobrara160 MBPD
Oklahoma/Kansas450 MBPDPermian
Basin1.3 MMBPD
EagleFord900 MBPD
Gulf of Mexico1.3 MMBPD
Utica13 MBPD
Offshore E. Canada250 MBPD
California600 MBPD
Alaska500 MBPD
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-400
-200
0
200
400
600
800
1000
EagleFord
Bakken PermianBasin
Other OK/KS OtherTexas
Gulf ofMexico
California Alaska
Thou
sand
BPD
Source: EIA
Crude Production Increases – U.S.2008 to 1H2013
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Projected Production Volumes by 2022
U.S. • Low Case 9.5 MMBPD• High Case 12.0 MMBPD
Canada• 5.5 MMBPD
Forecast Assumptions• Absolute crude prices (Brent) remain in $80 to $120 range• Key limitations (manpower, materials, regulatory, financial, etc.)• Build out of crude transportation assets is critical• Limited production from some high potential prospects• High case requires significant crude exports
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U.S. Crude Production Change by PADD2012 to 2022
9
-1000
-500
0
500
1000
1500
2000
2500
3000
3500
4000
PADD I PADD II PADD III PADD IV PADD V
MB
PD
Low High
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Crude Oil Grades
Crude Oil CategoriesGravity Sulfur°API Wt. %
Condensate ≥ 55.0 AllSuper Light 42.0 – 55.0 AllLight Sweet 31.0 – 41.9 ≤ 0.99Light Sour 31.0 – 41.9 ≥ 1.00Medium 24.1 – 30.9 AllHeavy ≤ 24.0 All
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Change in Crude Production by Grade2012 to 2022
11
-1000
0
1000
2000
3000
4000
5000
6000
7000
Condensate/ LightSweet
Light Sour Medium Heavy
MB
PD
US Low US High Canada
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U.S. Crude Supply/Demand
4
6
8
10
12
14
16
2003 2005 2007 2009 2011 2013 2015 2017 2019 2021
MM
BPD
Low High Refinery Runs12
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N.A. Crude Flows
U.S.• Bakken will flow primarily to the East Coast and the PNW
Movements to PADD III will be largely eliminated by 2014
• Eagle Ford will generally be consumed in PADD III with some volumesmoving to Atlantic Coast refineries (both U.S. and Canada) Exports required in High Production Case
Canadian Production• PADD II heavy crude expansions will soak up most of the addnl. hvy
production in the short term
• Significant volumes will not reach the USGC until 2016
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N.A. Crude Flows (Cont’d)
Other Foreign Imports• Lt. Sweets backed out of PADD III by the end of 2013/early 2014
• Most Lt. Sours replaced in PADD III by mid-decade
• Role of foreign Medium grades is declining; some remain as “structuralimports” – Motiva/USWC
• High Case has most Medium grades out of PADD III by 2016
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Changing U.S. Crude Oil Sources
0
2
4
6
8
10
12
14
16
2004 2008 2012 2022High
2022Low
Mill
ion
BPD
Domestic Canada Waterborne Forecast
35% 34% 43%
10% 13%
16%
54% 53% 41%
9%
66%
15%
25% 25%
61%
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Shale Crude vs Displaced Light Imports
PropertyBakken
Eagle Ford
EagleFord
Cond. BrentBonny Light
API Gravity 41 45 56 39 34Sulfur, wt% 0.20 0.20 0.15 0.35 0.24Distillation Yield, volume %
Lt. Ends, C1-C4 3.5 3.8 6.6 3.5 1.3Naphtha 35.7 40.1 56.7 24.1 20.3Middle Distillates 30.9 29.7 28.6 35.3 45.5Gas Oil 24.8 21.2 7.6 27.0 27.4Vacuum Residue 5.2 5.2 0.5 10.1 5.4
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Canadian WCS Quality Shift
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Property Current 2022 ChangeAPI Gravity 20.3 20.3 - -Sulfur, wt% 3.4 - -TAN, mg KOH/gm 1.15 1.50 0.35Distillation Yield, volume %
Lt. Ends, C1-C4 2.7 4.9 2.2
Naphtha 14.0 15.0 1.0
Middle Distillates 21.7 17.8 -3.9
Gas Oil 33.8 31.2 -2.6
Vacuum Residue 27.8 31.1 3.3
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Canadian Heavy vs. Latin Heavies
Property Canadian Heavy
(Current)
Canadian Heavy (2022)
MexicanMaya
PDVSAMerey
API Gravity 20.3 20.3 20.5 16.0Sulfur, wt% 3.4 3.5 3.7 2.5TAN, mg KOH/gm 1.15 1.50 0.20 0.7 – 0.9Distillation Yield, volume %
Lt. Ends, C1-C4 2.7 4.9 0.9 0.1Naphtha 14.0 14.9 16.0 7.1Middle Distillates 21.7 17.8 23.1 24.1Gas Oil 33.7 31.2 27.0 34.2Vacuum Residue 27.8 31.1 33.0 34.5
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0.2
0.4
0.6
0.8
1.0
1.2
1.4
31
32
33
34
35
36
37
38
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
Sulfu
r, w
t. %
API
Gra
vity
API Gravity Sulfur, wt. %
Quality of U.S. Crude Oil Production
Low Cases
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API Gravity of U.S. Refinery Crude Slate
30
30.5
31
31.5
32
32.5
33
API
Gra
vity
API Gravity
20
High Crude Forecast
Low Crude Forecast
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0200400600800
1,0001,2001,4001,6001,800
1980 1985 1990 1995 2000 2005 2010 2015 2020
Thou
sand
BPD
Canada Other
High ProductionCase with exports
History
U.S. Crude Oil Exports
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Crude Exports
By 2022, N.A. crude production vs. refinery runs will be close to balanced (~18.0 vs. 17.5 MM BPD) if crude exports are allowed.
Crude exports of ~2.0 MM BPD: Necessary to balance against “structural imports” from PDVSA, Pemex, S.A. etc. Mostly from Eagle Ford, Permian and ANS Canadian will export from both coasts (dependent on midstream expansion)
Crude access/logistics will continue to be key margin determinant
Export policy decisions critical
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Refinery Yield Impacts “Dumbbelling” of Crude Slate
– Higher LPG and naphtha– Lower middle distillate– Resid yields up in Canadian heavy crudes; still generally lower than in Latin heavy
Implications– Higher LPG yield adds to surplus from field production– Higher naphtha/lower distillate yields runs counter to demand growth patterns– Will lead to increasing exports of LPG’s/gasoline; decreasing ability to export diesel– Light naphtha surplus a particular issue – some can be used as diluent for Can.
bitumen
Remedies– Construction of hydrocracking units – very capital intensive– Development of LPG/NGL, light naphtha and gasoline export markets– Export of particularly problematic crudes – export limitations; condensate splitting– Incentivize high distillate yielding GTL projects
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U.S. Net Product Exports
(500)
0
500
1,000
1,500
2,000
2,500
2012 2014 2018 2022
MB
PD
Gasoline Distillates LPG/NGL/Other
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Final Thoughts
NA Boom in Crude Production • Significant “game changer” with international implications• Well decline rates in some tight oil formations are 80%+ but production growth will continue
for several years before reaching a plateau• Permian has the most long-term potential• Ability to export crude will be key to continued growth
Implications for U.S. Refining Sector• Less expensive crude • Lower natural gas cost• Adds to existing advantages – higher complexity, developed infrastructure, more flexible work
force – to make U.S. refineries the most competitive in the world
Facilitates Ability to Export Products – Requirement due to Declining Domestic Demand• U.S. transitions from big net importer to large net exporter• Sustainable trend; increased competitiveness of U.S., growing demand in developing
countries; lack of success in building/running refineries
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Final Thoughts (Cont.)
U.S. Crude Boom Also Presents Challenges• Will require downstream capex along with investment outside refinery gates• Major impact on refinery yields/product balances – more gasoline/less diesel• Particularly long on light naphtha/condensate• Quality of new production (mostly shale) major unknown
Threats to Product Export Model• Growing dependence on volatile markets in Latin America and elsewhere• Dependent on continuing difficulty of countries to supply own demand• Increasing volumes of gasoline more difficult to place• Threats from other export refineries – SATORP/Jubail, YASREF/Yanbu, others• Potential of U.S. export restrictions; unlikely despite political posturing
Regulatory/Policy Issues• U.S. policy on crude exports• RFS – Ethanol Blendwall/Soaring RIN Costs/Increasing volumes of alternatives• Potentially more restrictive CAFÉ standards• Tier 3 Rules – More investment/increased costs• Carbon restrictions –tax/cap and trade/LCFS• Other – XL pipeline approval?/LS heating oil, bunker fuel/Jones Act
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Today’s Speaker
Michael W. Leger, [email protected]
LSU Chemical Engineer
Formerly with Texaco and CITGO
Strategic planning, FMV, ventures
Directs firm activities