U.S. Product Exports: Key Drivers and Challenges John R. Auers, P.E. Executive Vice President Argus North American Petroleum Transportation Summit 2015 Houston, TX June 1, 2015
TM&C Overview International consulting practice since 1971 Downstream focus; refinery/chemical engineers Industry and financial clients Strategic Studies FMV Assessments & Venture Analyses National Policy Studies Publish various outlook and multi-client subscription reports Crude and Refined Products Outlook Refinery Construction Outlook World Crude Outlook North American Crude and Condensate Outlook 2014 Edition issued in October 2
Key Conclusions U.S. Has Moved From Largest Importer to Major Product Exporter Resulted from both necessity and increased competitiveness Aided by increasing demand in emerging economies Facilitated by refining developments/challenges in other regions/countries Ability to maintain/grow exports will be critical for U.S. refiners Demand Growth Domestic/Global Will Be Key Domestic Demand Impacted by Both Regulations and Demographics Alternate Fuels Are Stealing Market Share Lower Price Environment Should Help Many Other Factors Involved Other Factors/Challenges Impacting Export Model Market saturation in traditional markets Construction of refineries in importing countries Competition from other export refineries - ME/India/Russia Gasoline and light products could be more difficult to export Crude export restrictions will result in greater product exports 3
Agenda Evolution from Importer to Exporter Product Demand What Does the Future Hold - Key Issues and Challenges 4
Million BPD World Liquid Fuels Demand Growth (2005-2014) 6 5 4 3 2 1 0-1 -2-3 U.S. Europe Japan China India Other Asia Pacific Rest of the World *Total Petroleum and Other Liquids Consumption 5
Competitiveness Factors Advantaged Crude Costs Free Market Principles, Economically and Politically Stable U.S. Refining Competitiveness Most Advanced, Complex Refineries Low Energy Costs Low Capital Costs Highly Skilled, Flexible Workforce 6
MBPD U.S. Net Product Exports: 2005 to Present 3000 2000 1000 Decline in domestic demand combined with favorable refining environment 0 1985 1990 1995 2000 2005 2010 2015-1000 -2000-3000 -4000 6-month Rolling Average 7
Leading Product Importers/Exporters (Net) 2005 1. Exporter - Russia 2. Exporter - Saudi Arabia 3. Exporter - Venezuela 4. Exporter - Kuwait 5. Exporter - Algeria ---------- 5. Importer - Hong Kong 4. Importer - Spain 3. Importer - China 2. Importer - Japan 1. Importer - U.S. Current 1. Exporter - Russia 2. Exporter - U.S.* 3. Exporter - India* 4. Exporter - Saudi Arabia* 5. Exporter - Canada ---------- 5. Importer - Brazil 4. Importer - Mexico 3. Importer - France 2. Importer - Indonesia 1. Importer - Japan *All three relatively close, U.S. exports continue to rise. 8
Net Exports (Imports), MBPD 1000 800 U.S. Net Export Balance Shift By Product 600 400 200 0-200 -400-600 -800-1000 Gasoline Diesel LPG & NGL Resid 2005 2014 (Jan-Oct) 9
U.S. Imports/Exports By Source/Destination U.S. Imports (Jan-Oct 2014) U.S. Exports (Jan-Oct 2014) Canada Total = 1.8 Million BPD Total = 3.7 Million BPD 33% 26% 17% Canada Russia Europe Other 19% 18% 13% 14% Mexico Central + South America Europe 24% 36% Other 10
U.S. Gasoline Exports 90+% stay in W. Hemisphere Transportation advantage vs. other export oriented facilities Mexico traditionally largest market for U.S. product exports Venezuelan refining center has struggled with operability/allowed increases to Central & South America 2014 U.S. Gasoline Export Destinations Canada 10% Others, 2% Africa 7% Central + South America 36% Mexico 45% 11 11
U.S. Diesel Exports 2014 By Type By Destination Other, 4% LSD 10% HSD 10% Mexico, 11% ULSD 80% Europe, 31% Central + South America, 53% 12
MBPD MBPD Other U.S. Product Exports Shale gas revolution has drastically increased supply of NGLs Shale crude also increasing refinery LPG s Resid export growth driven by decreasing domestic demand 1000 800 600 400 200 0-200 -400 600 500 400 300 200 100 0-100 -200-300 -400 U.S. LPG/NGL Net Exports 2005 2010 2014 U.S. Resid Net Exports vs. Demand 2005 2010 2014 Other Latin America Mexico Canada Net Exports U.S. Demand 13
U.S. Product Exports (MBPD) Latin American Export Destinations 600 500 528 Total Exports in 2005: 582 MBPD Total Exports in 2014: 1,857 MBPD 486 400 300 200 100 0 268 217 39 37 164 8 144 142 41 104 15 14 71 161 2005 2014 14
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 MBPD Mexico s Growing Product Shortfall 2500 2000 1500 1000 Consumption Refinery Throughput 500 0 15
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 MBPD Similar Story for Central + S. America 8000 7000 6000 5000 4000 3000 Consumption Refinery Throughput 2000 1000 0 16
Regional Balances/Trends PADD I Only Substantial Importer of Refined Product Gasoline makes up bulk of imports into PADD I Both gasoline and total imports have declined by over 50% since 2006 Europe and Canada largest source of imports PADD III Has Large and Growing Surplus of All Refined Products Surplus has grown as in-padd demand declines and production increases PADD I is biggest destination for surplus product (over 3.2 million BPD including over 1.8 million BPD of gasoline) Volumes to PADD I limited by pipeline constraints and Jones Act impacts Exports also growing Now over 2.8 MMBPD, incl. about 400 MBPD gasoline PADD V Generally Balanced Supplied by Regional Refineries Declining demand moving region from small shortage (100+ MBPD) to small surplus (100+ MBPD) Region about 1 refinery long; outages have caused short-term shortages 17
Agenda Evolution from Importer to Exporter Product Demand What Does the Future Hold - Key Issues and Challenges 18
Key Demand Drivers Economic Growth Particularly important for diesel demand Demographics Population growth Lifestyle changes (telecommuting, reurbanization) Environmental/Tax Regulations Alternative Fuels (subsidies, mandates, etc.) Mandated Efficiency Standards (CAFE) Fuel Taxes/Subsidies Other policies imposing higher costs PRICES Demand is elastic at the consumer level 19
Gasoline Price ($/Gal) Gasoline Demand (MBPD) $4.50 $4.00 U.S. Demand is Price Elastic 1974-1982 1984-1994 2002-2014 10000 9500 $3.50 9000 $3.00 $2.50 $2.00 $1.50 $1.00 $0.50 Rising prices drives down demand $0.00 1974 1976 1978 1980 1984 1986 1988 1990 1992 2004 2006 2008 2010 2012 Price: 3 Month Rolling Average Demand: 12 Month Rolling Average Extended period of low prices causes rebound in demand Gasoline ($/Gal) Sharp spike in prices before recession led to demand decline. Post recession price spike in 2010 causes additional drop in demand Demand (MBPD) 8500 8000 7500 7000 6500 6000 Prices: EIA Retail Gasoline Price, Monthly Energy Review 20
U.S. Canada Chile Poland Spain Italy France Greece Norway UK Germany Israel Turkey New Zlnd. Japan Korea Dollars Per Gallon $6 $5 $4 $3 High Taxes Impact Elasticity U.S. Gasoline 80-90% Canada Gasoline 50-65% France Gasoline 30-40% Diesel 35-50% Japan Gasoline 45-60% Diesel 50-65% $2 $1 Gasoline Diesel $0 NA SA Europe Asia Pacific Component % of Total Cost, Remainder Tax OECD/EEA Fuel Taxes, as of Jan 2010 21
USA Canada Chile Argentina Venezuela Norway UK Greece Sweden France Spain Romania Poland Russia Israel South Africa Nigeria Egypt Kuwait Saudi Arabia Turkey Hong Kong New Zealand South Korea China India Indonesia Malaysia Gasoline Price Per Gallon Tax/Subsidy Impact on Pump Price $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 $0 NA SA Europe Africa Asia Pacific Bloomberg: Gasoline Prices by Country, Q4 2014 22
Percent Price Decrease June 30-Dec 30, 2014 Oil Price Impacts on Gasoline 60% 50% 50% 40% 37% 30% 20% 30% 27% 22% 18% 16% 10% 0% Brent U.S. Canada France UK Japan India Crude Gasoline 23
MPG CAFE Fuel Efficiency Standards* 2012-2025 60 50 40 30 20 10 0 Passenger Cars Light Trucks 2012 2014 2016 2018 2020 2022 2024 *For new model year vehicles, and based on EPA models. Source: NHTSA 24
Total Alternative Fuels (MBPD) Alternative Fuels Growth 5000 4500 4000 3500 3000 2500 Actual Forecast? 2000 With recent sharp 1500 decline in oil prices, 1000 viability of many alternatives is in 500 jeopardy. 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Other CTL/GTL CNG/LNG/LPG Biodiesel Ethanol 25
Million BPD From 1990-2005, Petroleum Based Gasoline Demand Grew 1.5%/yr 10 9 U.S. Gasoline Demand (2005-2025) Historical Forecast Going forward, from 2014-2025 petroleum based gasoline is forecast to continue falling by 0.9%/yr 8 7 6 5 RFS Mandates, 10% Ethanol in Gasoline Demographic Shifts: Reurbanization & Stagnant Car Ownership CAFE Standards: Increased Fuel Economy Continued Demographic Shifts 4 2005 2010 2015 2020 2025 From 2005-2014, Petroleum Based Gasoline Demand Fell 1.6%/yr Petroleum Gasoline Ethanol 26
Demand Change, 2014-2025 (Million BPD) Worldwide Demand Forecast (2014-2025) 9 8 7 6 5 4 3 2 1 0-1 -2 U.S. Europe Asia Pacific Rest of the World Gasoline Distillates Resid Other 27
Million BPD 8 7 Demand in Producing Countries (2005-2014) 6 5 4 3 Demand from producing regions/countries has accounted for up to 60% of total demand growth in the last decade 2 1 0 Middle East Brazil + Venezuela Russia Africa Canada World 28
Agenda Evolution from Importer to Exporter Product Demand What Does the Future Hold - Key Issues and Challenges 29
U.S. Exports (MBPD) U.S. Export % of Total Mexico, LA+SA Consumption LA Market Approaching Saturation? 2000 1800 1600 1400 1200 1000 800 600 400 200 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 % of Total Exports to LA+SA 25% 20% 15% 10% 5% 0% 30
MBPD Growth in U.S. Net Product Exports High Crude/High Gasoline Production Case 2,000 1,500 1,000 500 2014 2025 Crude Exports Allowed 2025 Crude Exports Restricted 0 Gasoline Distillates LPG/LSR -500 31
MBPD U.S. Gasoline Import/Export Balance 1,500 28% 1,000 500 41% 37% 48% 35% Asia/Other Latin America Europe Mexico 0 Canada -500 65% 2014 2025 Crude Exports Allowed 2025 Crude Exports Restricted 32
Transportation Cost Competition Route is roughly 2-4 times longer for U.S. gasoline + $3.00-$6.00 vs. Middle East exports 33
Recent Capacity Repositioning 2013-2014 capacity changes (MBPD) Additional ~2 Million BPD under threat Russia U.S. & Canada 170 Europe -400 180 Asia Pacific Latin America 130 Africa 35 950 Middle East 950-570 Japan & Australia 34
Major Refinery Start-Ups 2013/14 Consuming Countries Refinery Country Incremental Crude Capacity Motiva Port Arthur U.S. 325 Petrobras RNEST (Abreu y Lima) Brazil 115 Sinochem Quanzhou China 240 Petrochina Pengzhou China 200 Sinopec Caofeidian China 200 Producing Countries Refinery Country Incremental Crude Capacity Saudi Aramco / Total SA Jubail Saudi Arabia 400 Saudi Aramco / Sinopec Yanbu Saudi Arabia 400 Rosneft Tuapse Russia 140 35
Expected Capacity Increases 2015-2021 capacity changes (MBPD) Decline in these regions expected Russia U.S. & Canada 400+ Europe? 300 Asia Pacific Latin America 500+ Africa 600+ 2300 Middle East 3800? Japan & Australia 36
Major Upcoming Projects 2015-2021 Consuming Countries Refinery Country Year Incremental Crude Capacity Petrobras (2 Sites) Brazil 2015+ 280 CNPC Jieyang China 2017 400 IOCL Paradip India 2015 250 Sonangol Lobito Angola 2016 200 Petrovietnam Nghi Son Vietnam 2017 200 PTT / Aramco Nhon Hoi Vietnam 2021 400 Producing Countries Refinery Country Year Incremental Crude Capacity NIORDC Abadan Iran 2019+ 215 KNPC (3 Sites) Kuwait 2019 680 Saudi Aramco Jizan Saudi Arabia 2017 400 Takreer Ruwais UAE 2015 417 37
Capital Costs High in ROW Brazil Abreu e Lima: 4 years late, $16B over budget. Issues with bribery/corruption. Comperj: Delayed by 4 years, total cost over $13B. Premium I/II: Delayed 5-6 years. Colombia Reficar/Cartagena: Several labor disputes and delays, drive cost from $2.5B to $6.5B. Saudi Arabia Jubail and Yanbu: refineries each $3.5B to $4B over budget. 38
Presenter John R. Auers, P.E. Executive Vice President Univ. of Nebraska Chem. Engr. Univ. of Houston MBA Formerly with Exxon Industry studies/analysis, forecasting, modeling Leads Outlook team Contact Info jauers@turnermason.com Office 214-223-8887 39