© OECD/IEA 2014 © OECD/IEA 2014

Antoine Halff

2014 EIA Energy Conference

Changing Global Petroleum Product

Trade Flows

Washington, DC July 14, 2014

© OECD/IEA 2014

Crude trade shifts further east

Asia imports increase by 2.6 mb/d to 22.1 mb, or 65% of the international crude market

Crude Exports in 2019 and Growth in 2013-19 for Key Trade Routes1

(million barrels per day)

0.2 0.3(0) 2.0 (0.2)

(-0.6) 4.1(-0.6)

0.1(-0.7)

3.11.2 (0.3)

1.0 (+0.1)-0.6

2.21.8 (+0.8)(-0.6)

1.1(+0.3)

Red number in brackets denotes growth in period 2013-19 1.21Excludes Intra-Regional Trade (+0.6)2 Includes Chile3 Includes Israel

5.2(+0.3)

Other Asia

China

OECD Europe

1.6(-0.2)

1.3 (+0.6)OECD Asia

Oceania3

0.5 (-0.0)

0.7(+0.4)

3.6 (-0.5)

OECDAmericas2

© OECD/IEA 2014

Refinery capacity expansions continue…

95% of new capacity comes from the non-OECD, of which Asia accounts for half

-0.5

0.0

0.5

1.0

1.5

2.0

2013 2014 2015 2016 2017 2018 2019

mb/d

OECD North America OECD Europe OECD Pacific FSU China Other Asia Latin America Middle East Africa

CDU Expansions 2013-2019 by Region

Crude Distillation Expansions

© OECD/IEA 2014

…but plans are getting scaled back in the face of rising over-capacity

Projects slip in Latin America China stalls new projects on looming surplus capacity, corruption

scandals, pollution concerns

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2012 2013 2014 2015 2016 2017 2018

mb/d

OECD Americas Other OECD China Other Asia

Middle East Latin America Other non-OECD

0

200

400

600

800

1 000

1 200

1 400

1 600

2012 2013 2014 2015 2016 2017 2018 2019

kb/d

Current data May-13

Chinese CDU expansions vs . previous

Revisions to capacity expansion plans since 2013 MTOMR

© OECD/IEA 2014

Middle East emerges as large product exporter

New refinery projects coming on stream in the Middle East exceed regional demand growth

Increased product exports – in particular of middle distillates

- 500

0

500

1 000

1 500

2008 2010 2012 2014 2016 2018

kb/d

Naphtha/gasoline Jet/gasoil Fuel oil

Imports

Exports

6.0

7.0

8.0

9.0

10.0

11.0

1Q06 1Q09 1Q12 1Q15 1Q18

mb/d

Reported output Modelled output Demand

Middle Eastern product balances Middle East refinery output vs demand

© OECD/IEA 2014

FSU fuel oil supplies cut back as refiners upgrade and export duties are changed

Equalization of Russian fuel oil export duties with crude oil from Jan 2015, has led to refinery upgrading investments

New duties make simple refiners, with high fuel oil yield, uneconomical

Fuel oil demand unchanged through 2019,as non-OECD offset improvement in OECD

0

200

400

600

800

1 000

1 200

1 400

1 600

2008 2010 2012 2014 2016 2018

kb/d

Jet/gasoil Fuel oil

FSU key product exports Global fuel oil demand

0

2

4

6

8

10

2006 2009 2012 2015 2018

mb/d

North America Europe OECD Asia FSU

Latin America Middle East Africa Non-OECD Asia

© OECD/IEA 2014

Atlantic Basin product trade to increase

European middle distillate deficit balloons to 1.6 mb/d by 2019,but region struggle to rid itself of surplus gasoline supplies

US refinery industry renaissance, coinciding with sharp drop in demand, takes US to top global naphtha/gasoline supplier

-1 000

- 500

0

500

1 000

1 500

2008 2010 2012 2014 2016 2018kb

/d

Naphtha/gasoline Jet/gasoil

Imports-2 000

-1 500

-1 000

- 500

0

500

1 000

1 500

2008 2010 2012 2014 2016 2018

kb/d

Naphtha/gasoline Jet/gasoil

Imports

Exports

OECD America’s key product balances Europe’s key product balances

© OECD/IEA 2014

Africa, Latin America remain importers

Difficulties in bringing new refinery projects on stream leave Africa and Latin America with large product import requirements

Heavy financial burden on governments subsidising fuels

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1Q06 1Q09 1Q12 1Q15 1Q18

mb/d

Reported output Modelled output Demand

Africa refinery output vs total oil demand

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

1Q06 1Q09 1Q12 1Q15 1Q18

mb/d

Reported output Modelled output Demand

Latin American refinery output vs total oil demand

© OECD/IEA 2014

Europe’s middle distillate deficit balloons to 1.6 mb/d by 2019

Increased supplies from Middle East, North America & Russia

Product Supply Balances - Gasoil/KeroseneRegional Balances in 2013 and 20191

Thousand barrels per day

897 1167

FSU

-1057 -1592

Europe

9841377

OECD Americas

-559 -548

Latin America

3581094

Middle East

1280801

Asia

-657 -998

Africa

Refinery production and supplies from other sources vs. end-user demand. Regional total does not add to zero due to feedstock trade and differences in product classifications.

1. Positive number indicates net-export potential, negative number net-import requirement

© OECD/IEA 2014

Emerging North American gasoline glut

N. America faces excess light distillate supply of 1.3 mb/d in 2019 In search of export outlets

Product Supply Balances - Gasoline/NaphthaRegional Balances in 2013 and 20191

Thousand barrels per day

469 528FSU

718652

Europe

-205

1320OECD Americas

154 138

Latin America

7021023

Middle East

-974 -1490

Asia

-143-332

Africa

Refinery Production and supplies from other sources vs. end-user demand. regional total do not add to zero due to feedstock trade and differences in product classifications.

Positive number indicates net-export potential, negative number indicate net-import requirement

© OECD/IEA 2014

Fuel oil markets could tighten

Russian export duty reform, refinery investments curb output Global demand stays flat – unless marine bunker markets shift

away from fuel oil ahead of new IMO sulphur standards

Product Supply Balances - Fuel OilRegional Balances in 2013 and 20191

Thousand barrels per day

1264636

FSU

-58 -166

Europe

175207

OECD Americas

140 113

Latin America

-192 -153

Middle East

-1129 -782

Asia

-67 -110

Africa

© OECD/IEA 2014

Chinese product output to balance demand as projects scaled back

Apparent slowdown in gasoil demand growth sees product surpluses emerging

China turned net gasoil exporter in 2013

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

1Q06 1Q09 1Q12 1Q15 1Q18

mb/d

Reported output Modelled output Demand

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1Q06 1Q09 1Q12 1Q15 1Q18

mb/d

Reported output Modelled output Demand

Chinese total refinery output vs demand Chinese gasoil refinery output vs demand

© OECD/IEA 2014

Diverging trends in OECD refining: Europe & Asia versus North America

OECD Refinery Shutdowns

4.8 mb/d of OECD crude distillation capacity shut since 2008 Surging US LTO, condensate supplies lead to 750 kb/d

expansion in US in 2015-2017

0.0

0.5

1.0

1.5

2008 2009 2010 2011 2012 2013 2014 2015

mb/d

OECD Americas OECD Europe OECD Asia Oceania

- 100

0

100

200

300

400

500

2013 2014 2015 2016 2017 2018 2019

kb/d

Crude distillation Upgrading Desulphurisation

North America Capacity Additions

© OECD/IEA 2014

Refinery margins, utilization remain under pressure amid surplus capacity

To bring utilization rates up to 2006-2008 levels (when margins were healthy), another 4.8 mb/d of capacity would have to be cut, whether through plant closures, projects delays or cancellations

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

USD/

bbl

NW Europe Urals NW Europe BrentMED Urals Singapore Dubai

70.0%

75.0%

80.0%

85.0%

90.0%

1Q06 1Q09 1Q12 1Q15 1Q18

World OECD Non-OECD

Benchmark simple refinery margins Refinery utilisation rates

© OECD/IEA 2014

EU-Russian product trade on the rise

Russian tax incentives

for product exports

Netherlands and France

account for 50% of trade

Germany, Turkey, UK,

Belgium for more than

45%

European Imports of Russian Refined Products in 2013 Netherlands

FranceGermanyTurkeyUnited KingdomBelgiumFinlandDenmarkPolandHungaryGreeceSwedenNorwayItalySpainEstoniaPortugalIcelandCzech RepublicSloveniaIrelandSlovak RepublicAustriaSwitzerlandLuxembourgtotal = 1.0 mb/d

© OECD/IEA 2014

EU-Russian crude trade: too deep to fail?

OECD Europe gets 36%

of its crude from Russia

Russia exports 71% of

its crude to Europe

4 countries account for

>50% of the trade:

Germany, Poland,

Netherlands, Belgium

Declining trend

European Imports of Russain Crude in 2013

Germany

Poland

Netherlands

Belgium

Italy

Finland

Spain

Greece

France

Sweden

Slovak Republic

Hungary

Otherstotal = 3.0 mb/d

© OECD/IEA 2014

050

100150200250300350400450500

2000 2002 2004 2006 2008 2010 2012

kb/d European Residual Fuel Oil Imports

Netherlands France Belgium Denmark Italy Spain Others

European Imports of Russian Residual Fuel Oil in 2013

Netherlands France Denmark Belgium Others

total = 320 kb/d

Russian RFO exports to Europe

© OECD/IEA 2014

0

100

200

300

400

500

600

700

2000 2002 2004 2006 2008 2010 2012

kb/d European Imports of Russian Gasoil

France Turkey United Kingdom Netherlands Germany Finland Others

European Imports of Russian Gasoil in 2013

France

United KingdomTurkey

Netherlands

Germany

Finland

Hungary

Greece

Belgium

Others

total = 428 kb/d

Russian gasoil exports to Europe

© OECD/IEA 2014

Thank you

Further questions: OilMarketReport@iea.org