Energy Disruption: New forces reshaping the downstream ... · Energy Disruption: New forces...

Confidential. © 2018 IHS MarkitTM. All Rights Reserved.Confidential. © 2018 IHS MarkitTM. All Rights Reserved.

Energy Disruption:

New forces reshaping the downstream energy landscape

Oil Markets, Midstream, Downstream, & Chemicals

Presented to the USAEE Houston Chapter

Houston, Texas

January 11, 2019

Blake Eskew, Vice President, [email protected]

mailto:[email protected]

Confidential. © 2018 IHS MarkitTM. All Rights Reserved.

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2


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3


Recent IHS studies have

focused on short term and

long term disruptive forces in

the downstream industry

Commercial transport – same

influences, different results

IMO bunker fuel sulfur reduction – a

major disruption is coming

Personal mobility – impact of

technology, regulatory, and societal

influences

4

Confidential. © 2018 IHS MarkitTM. All Rights Reserved.Confidential. © 2018 IHS MarkitTM. All Rights Reserved. Source: Smart Vision EQ

Societal changes

Climate policy and air quality

Disruptive technologies

Converging factors are driving disruption in mobility, transport, and energy consumption

5


Mobility services, driverless technology, and electric cars are adding

new dimensions to the century-old personal car use model

6

Selling oil-powered cars to consumers for personal use is challenged by

new mobility services and powertrain options

Human-operated

versus driverless cars

Personally-owned cars

versus mobility services

Gasoline/diesel versus

electric powertrains


Disruptions to the trucking ecosystem–and diesel markets–are coming

7

7

Note: ZEV = zero-emission vehicle.

Source: IHS Markit © 2018 IHS Markit / 1713744

Automation and electrification … the pace of change for cars and trucks


Over the next decade, up to 90% of light duty vehicle (LDV) sales will be

subject to fuel economy standards

Countries with fuel economy initiatives under discussion

Countries with currently enacted fuel economy targets

Beyond 2020, a major increase in the number of markets supporting fuel economy regulations is expected

Source: IHS Markit © 2018 IHS Markit

8


0

10

20

30

40

50

60

70

China European Union India United States

Light duty vehicle fuel economy standards are increasing

*US standards for 2025 are not yet finalized.. Sources: National /regional regulatory agencies.© 2018 IHS Markit

Mile

s p

er

ga

llon 2015-17

standard

2020-21

standard

2025*

Fuel economy and emissions standards for LDVs are increasing

across the world

China: 74% increase

from 2015 to 2025

9


Anti-fossil fuel moves are gathering pace, with strong impact on new car sales,

especially diesel

10

Finland: Mulling ban on sales of

diesel cars by 2030

Italy: Rome seeking to ban

diesel cars by 2024

Ireland: Considering 2030 ban on

fossil fuel car sales, reducing

diesel-gasoline tax differential

Belgium: LEZ in Brussels, ban older

diesels from 2018. Reduce fuel tax

differential

Austria: Tentative target of 2025

for ban on fossil fuel cars

Netherlands: Halt sales of new

gasoline and diesel cars by 2030

Norway: Plan to phase out new gasoline and

diesel car sales by 2025 using tax incentives

France: Ban sales of fossil fuel cars by

2040; Paris restricts older diesels, total

ban by 2030. Diesel/gasoline tax

levelling. Scrappage bonus

Spain: Madrid seeks

to ban older diesels

by 2025

Sweden: Seeking bans, beginning with older

diesel cars in town centres from 2020

Germany: Diesel bans begin in 2018

following court ruling. Stuttgart is the

first to enforce ban on older diesels

UK: Seeking ban on fossil fuel car sales

by 2040, London ULEZ; mulling HGV ban

in London. Scotland looking for fossil fuel

car sales ban in 2032

Slovenia: Ban on new fossil

fuel car sales by 2030

Denmark: Copenhagen seeking ban on

diesel cars by 2019

Greece: Athens seeking

ban diesel cars by 2025


Electric vehicle technology is advancing – and China is leading the way

Norway31.2%

China2.3%

Netherlands2.0%

United Kingdom1.7%

France1.7%

Germany1.6%

United States1.2%

Spain0.6%

Denmark0.5%

Italy0.2%

-5

95

195

295

395

495

595

695

795

0 1 2 3 4 5 6 7 8 9 10

EV uptake ranking: 2017

Source: IHS Markit © 2018 IHS Markit/1713563

EV uptake ranking (EVs as percent of LV sales)

EV

s s

old

(th

ou

san

ds)

Globally, EVs accounted for 1.7% of global new LV

sales and 0.2% of fleet (parc).

11

Electric vehicles address emissions, climate, efficiency, and technology


Driverless technology has the potential to be most disruptive force of change in the

automotive ecosystem

Driverless (autonomous) technology disruptive

potential:

• Improve road safety

• Lower the cost of mobility

• Increase access to mobility

• Liberate people from driving

• Increase sales & use of EVs

• Support stringent restrictions on car use

• Fewer cars needed due to higher utilization

• Less parking needs will impact urban design

• However, costs are high for the suite of

technologies, but declining

Illustrative diagram of driverless technology

© 2018 IHS Markit: 1701760

Note: GPS = global positioning system; V2X = vehicle to vehicle or

vehicle to infrastructure.

Source: IHS Markit

12


0.59 0.580.48

2.17

0.430.33

0.00

0.50

1.00

1.50

2.00

2.50

Human driver (ICE) Human driver (ICE) Human driver (EV) Human driver (ICE) Driverless (HEV) Driverless (EV)

Cost of mobility by car for US market

Notes: BEV = battery electric vehicle. Hybrid = gasoline/electric with internal combustion engine. ICE = internal combustion engine.

Source: IHS Markit © 2018 IHS

Do

lla

r p

er

mil

e t

rave

led

,

Co

ns

tan

t 2

01

7 $

US

Driverless technology will benefit from strong cost incentives, if hurdles

can be overcome

13

Personal owned car basis

No cost for driver.

12k mi per year.

Rivalry Scenario

Mobility as a service basis

Includes cost for driver/driverless kit.

65k mi per year.

Rivalry Scenario

Today 20402040 2040

2040

Today

13


Different mobility channels will prefer different vehicles, and affect the

structure of travel demand

0%

20%

40%

60%

80%

100%

Total LDV,2016

Total LDV,2040

PNAC PAC MaaS

Gasoline Diesel HEV PHEV BEV FCEV Other

RTW regional powertrain sales mix by mobility channel,

Rivalry 2040

Notes: HEV: Hybrid electric vehicles, which include both mild and full conventional hybrids

PHEV: Plug-in electric vehicles

BEV: Pure battery electric vehicles

FCEV: Hydrogren fuel cell vehicles

Other: include both compressed natural gas and LPG vehicles

© 2018 IHS Markit

Sh

are

of

LD

V S

ale

s

0

2,000

4,000

6,000

8,000

10,000

12,000

2000 2010 2020 2030 2040

PAC PNAC MaaS Total LDV

RTW regional total LDV miles traveled by mobility channel:

Rivalry

Billio

n m

iles p

er

year


14


Future sales led by hybrid and EV powertrains, but fleet turnover is slow

0

10

20

30

40

50

60

70

80

90

100

2000 2005 2010 2015 2020 2025 2030 2035 2040

RTW regional LDV sales by powertrain: Rivalry

Millio

n p

er

year

Note: Other includes CNG and LPG vehicles. PHEV = plug-in hybrid electric vehicle. © 2018 IHS Markit

0

200

400

600

800

1,000

1,200

1,400

2000 2005 2010 2015 2020 2025 2030 2035 2040

RTW regional LDV on road fleet by powertrain: Rivalry

Millio

n p

er

year

Note: Other includes CNG and LPG vehicles. PHEV = plug-in hybrid electric vehicle. © 2018 IHS Markit

15

Gasoline

Gasoline

Diesel

HEV

PHEV

BEV

Diesel

HEV

PHEV

BEVOtherOther


Demand for trucking growing rapidly, but changes to this ecosystem are coming,

too

0

10

20

30

40

50

60

70

2000 2025

Mil

lio

n t

on

-km

Europe

Japan

China

US

© 2018

IHS Markit

Ton-kilometers: RTT markets, 2000–40

Source: IHS Markit

Certainties

• Trucking remains a central element of the global logistics system

• There is significant scope for diesel engine fuel efficiency

improvements

• The pace of change will be hampered by the inertia of a

conservative and fragmented trucking industry

Uncertainties

• The role of policy and regulation in forcing change

• The disruptive impact of autonomous driving and other

technologies

• The future role for alternative fuel powertrains, which today have

fragmented offerings

Ton-kilometers set to more

than double to 2040

RTT = Reinventing the Truck study that includes these four markets that account

for about 40% of global medium/heavy duty diesel demand

16

16


Driverless trucks have the potential to fundamentally alter the cost

structure of the industry

17

Source: Based on Society of Automotive

Engineers levels of automation (SAE J3016)

Incre

asin

g a

uto

mati

on

No automation

Driver assistance

Partial automation

Conditional automation

High automationIHS Markit self-driving

Full automationIHS Markit driverless

L0

L1

L4

L2

L3

L5

© 2018 IHS Markit

Vehicle capex$71

Taxes$20

Driver$180

Maintenance$26

Fuel$53

Resale value($20)

TCO $330

$-

$50

$100

$150

$200

$250

$300

$350

$400

1 2 3 4 5 6

TCO breakdown: Europe MDV Rivalry, 2020

Source: IHS Markit © 2018 IHS MarkitU

S$

2018 t

ho

usan

ds

Note: Assumes six-year vehicle life with 220,000 km driven. For a general application MDV purchased in 2020, all values are net

present values assuming a 6% discount rate.

Autonomous = Level 4 and Level 5

17


Higher HDV fuel efficiency is feasible and many countries are targeting

improvementsDiesel engine example:

• Downsizing from 15L engine to 11L-13L is becoming the norm in

class-8

• Large improvements in turbocharging technology allow for similar

performance at a smaller size

• A 1MPG (6MPG to 7MPG) increase at 100,000 miles/yr = ~

$7.5k/yr fuel savings

> Such savings challenge EV in trucking, at least for the same

light-duty model

• Injection pressures have also increased to 1600/1800 BAR – 2500

BAR in the future

What technologies could contribute to improvements in

diesel fuel economy?


1

2

3

4

5

Trailer aerodynamics

• Side skirts

• Boat Trails

Driveline

• Axle efficiency

• Transmission efficiency

• Integrated transmission

• Downspeeding

• Direct Drive

• Predictive cruise control

Tractor aerodynamics

• Roof deflectors or fairing

• Side fenders

• Aerodynamic mirrors

• Turning vanes

Engine

• Friction reduction

• Auxiliary electrification

• Combustion optimization

• Aftertreatment improvements

• Waste heat recovery

Tires

• Automatic inflation system

• Low-rolling resistance tires

18


Fuel economy standards—not EV penetration—have the biggest

impact on LDV gasoline and diesel demand

-

10,000

20,000

30,000

40,000

50,000

2000 2005 2010 2015 2020 2025 2030 2035 2040

Global LDV gasoline and diesel demand: Rivalry

Source: IHS Markit

Th

ou

san

d b

/d

Notes: This is an illustrative example of how much gasoline EVs displace versus improving fuel economy. "Rivalry without EVs" is calculated by assuming all global electric miles are instead driven by gasoline HEVs. "Rivalry without EVs and constant fuel economy" assumes that all

global LDV miles are traveled by vehicles with a constant 25 miles per gallon (mpg) fuel economy from 2020 to 2040

© 2018 IHS Markit

19

Decrease due to

higher fuel economy

Oil demand assuming constant fuel

economy and no EVs

Rivalry demand

with no EVs

Rivalry

Decrease due to Evs


Efficiency gains and fuel substitution curb long-term commercial

trucking diesel demand in our base (Rivalry) scenario

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

Diesel (Rivalry) Gasoline (Rivalry)

Diesel and gasoline demand from MHCV—RTT markets


Dem

an

d (

tho

usan

d b

/d)

20

Peak in 2025

(+4% versus 2018)

(4)% versus peak

(8)% versus 2018

20


As these efficiency gains and substitution slow demand growth, global

refined products demand peaks in the 2030s

1.3

0.4

0.9

1.2

0.7

0.4

0.1

-0.1

-1.0

-0.5

0.0

0.5

1.0

1.5

2000-2005 2005-2010 2010-2015 2015-2020 2020-2025 2025-2030 2030-2035 2035-2040

Europe Africa Latin_America CIS Middle_East OECD_Asia

China India Rest_of_Asia North America TOTAL

World demand growth by region: Total refined products

© 2018 IHS Markit

Mill

ion

ba

rre

ls p

er

da

y

Source: IHS Markit

21


IMO 2020 bunker specification change—the biggest planned

disruption to oil markets ever?

The International Maritime Organization (IMO) agreed in October 2016 to reduce bunker fuel sulfur

from 3.5% to 0.5% as of January 2020.

22

The impact will

be disruptive

and uncertain,

because:

1 The simultaneous global nature of the change

With less than one year until the change, refinery

investment and ship scrubber installation appears

insufficient

Legislative clarity on the change is still required as the

largest area of uncertainty is compliance

IHS Markit still expects the most likely outcome to be

an excess of residue in 2020 having to find a home

in power generation

2

3

4

• IHS has studied impacts since 2009, with urgency accelerating since the 2016 decision

• Most oil market observers and the futures markets now anticipate significant disruption

• Key questions are how much disruption and how long will it last?


Global shipping will need to comply with the new fuel quality rules

23

Switch to

compliant

low-sulfur

bunker fuel

Install exhaust gas

cleaning systems,

aka scrubbers

Switch to

liquefied

natural gas

Non-compliance,

sanctioned or otherwise

(Not a true pathway)

Four

pathways


At less than 12 months from one of the most disruptive changes for

refining and shipping, a lot of work still needs to be doneFuel

availability study

Jul-2016

MEPC 70 Oct-2016

PPR 4 Jan-2017

MEPC 71 Jul-2017

PPR 5 Jan-2018

MEPC 72 Apr-2018

MEPC 73 Oct-2018

PPR 6 Jan-2019

MEPC 74 Spring 2019

0.50% sulfur cap

1 Jan 2020

PPR

Intersessional

meeting

Jul-2018

ISO quality

guidance

Decision to impose a 0.50

wt% sulphur cap on

marine bunkers

from 1 January 2020

High sulphur fuel

oil carriage ban

proposed

High sulphur fuel oil

carriage ban agreed

CO2 emissions reduction

targets agreed for 2030

and 2050

Proposed ship

implementation plan

but no consensus on

guidance to PSC about

enforcement and

nonavailability

Final approval of the high

sulphur fuel oil carriage

ban

No new specification

New fuels within ISO8217

Guidance about type of fuel

blends expected from 2020

High sulphur fuel oil

carriage ban effective

1 March 2020

Key

MEPC: Marine Environmental Protection Committee

PPR: Subcommittee for Pollution Prevention & Response

ISO: International Standards Organisation

Today

Carriage

ban

24


Interest in onboard scrubbing accelerated strongly in 2018

• IHS Markit records accelerating uptake of exhaust gas

cleaning systems with 1,750 vessels with scrubbers fitted or

on order as of year-end 2018, an increase of ~1,300 ships

compared to March 2018

• In summer and autumn 2018, several large shipping

companies announced significant scrubber fitting programs,

and some carriers that were initially skeptical have since

changed their tone

• Regardless, we still expect scrubber levels to be significantly

below the expectation when the IMO change timing was set

• We expect most scrubbers to be open loop - often hybrid-

ready - with only a minority of scrubbers closed loop or hybrid

from the onset

• Time-charter premiums have been quoted for tankers and dry

bulk vessels fitted with scrubbers, as charterers can

compensate these through bunker fuel savings

• The new long-term shipping GHG emission reductions targets

(50% by 2050) further confuse the decision for the shipping

industry

0

500

1000

1500

2000

2500

Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20

Fitted by 1 Jan 2020

Vessels with scrubbers on order

Vessels fitted or on order

Vessels with exhaust gas cleaning installed or on order


co

un

t o

f sh

ips

25

6 December 2018

1,752

On order

Fitted

25

Confidential. © 2018 IHS MarkitTM. All Rights Reserved.26

Scrubber installations are focused on the highest fuel-consuming segments

• Over 80% of the fleet fitted/to be fitted with scrubbers comes from

the high consuming sectors, Tanker (26%), Bulk Carrier (33%),

Cruise ships (9%) and Container Ships (14%)

> Aside from cruise ships, the other three sectors have seen a

large rush to install scrubbers

• The confirmed scrubber population of new builds is around 6% of

the total order book, however it is assume that this percentage will

rise as more installations are confirmed in due course

> Some major shipyards are offering retrofits to their in-house

designs, which can be undertaken before the ship’s scheduled

completion

Confirmed vessels fitted with scrubbers — December 2018

FittedIn Service

to be Fitted

Under

Construction

to be Fitted

No. of

Ships414 992 346

© 2018 IHS MarkitSource: IHS Markit

26


With ‘IMO 2020’ deadline fast approaching, action is accelerating

Crude slate optimization

Optimize capacity of existing processing units

Change bunker fuel blending recipe

High sulfur fuel carriage ban

Refiners are focused on low-capital

actions

Clarity is emerging on enforcement

Enhanced port state enforcement powers

Harmonizing fuel non-availability reporting

Implementing fuel oil data system

Possible loss of insurance cover

Limited investment in conversion capacity under

way – XOM Antwerp, Shell Pernis, a few more

27


IMO bunker fuel rules will create a spike in marine gasoil (diesel) demand…real

issue for oil markets is disposal of heavy residual

0

1,000

2,000

3,000

4,000

5,000

6,000

2000 2005 2010 2015 2020 2025 2030 2035 2040

Global bunker fuel demand


Th

ou

sa

nd

b/d

Gasoil demand increases by 1

million b/d or more

1. Scrubber uptake

2. More hybrid fuels

3. Gasoil market share falls to 20% by 2030

High Sulfur Residual Bunker

Gasoil Bunker

VLSFO Bunker

LNG Bunker

1. Hybrid fuels

2. Very Low Sulfur blends

28


-60

-50

-40

-30

-20

-10

0

10

20

30

40

Oct 18 Jan 19 Apr 19 Jul 19 Oct 19 Jan 20 Apr 20 Jul 20 Oct 20

Futures - 3.5% FO FOB Rotterdam Futures - European LS Gasoil (ICE)

Product Future Crackspreads

Source: CMEGroup, IHS Markit

Notes: numbers labeled as Futures are intended as being an indicative snapshot of current futures prices

Product crackspreads are relative to Brent Crude Oil; futures crackspreads relative to Brent futures (ICE)

Timestamp: October 30 2018

© 2018 IHS D

oll

ar

pe

r B

arr

el

IHS Outlook

IHS Outlook

Oil product futures markets are continuing to demonstrate an increasingly

significant ‘IMO 2020’ impact but less than the IHS Markit outlook

29


The “IMO Scramble”: compliance and scrubber uptake are the

two key uncertainties

• High Sulfur Fuel Oil (HSFO) will be sharply discounted to penetrate power

markets

• New 0.5% sulfur bunker will approach marine diesel price

• Increased demand will drive up light product prices (gasoline and

diesel/kerosene)

• Scrubbers eventually take care of HSFO surplus – but it will take time

• Recent study used Monte Carlo and scenario analysis to assess range of

uncertainty – significant disruption is the most likely outcome

30

30


Energy disruption will come

from many directions

Technology, mobility and IMO will

have short and long term impacts

Technology and innovation changing

product demand patterns

Policy and societal forces are

reshaping markets

31

IHS Markit Customer Care

[email protected]

Americas: +1 800 IHS CARE (+1 800 447 2273)

Europe, Middle East, and Africa: +44 (0) 1344 328 300

Asia and the Pacific Rim: +604 291 3600

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For more information on the Mobility and Energy Futures and Reinventing the Truck studies, please contact:

Kate Hardin, Vice President, IHS Markit Energy and Mobility: [email protected]

For more information on the Navigating Choppy Waters study, please contact:

Spencer Welch, Executive Director, IHS Markit Oil Midstream & Downstream: [email protected]

Energy Disruption: New forces reshaping the downstream ... · Energy Disruption: New forces...

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