Meeting U.S. Transportation Fuel Meeting U.S. Transportation Fuel DemandDemand

John Hackworth

Joanne Shore

Energy Information Administration

Energy & Transportation Panel

August 2004

www.eia.doe.govwww.eia.doe.gov

Capacity Surplus Disappearing, Capacity Surplus Disappearing, Creating Short-Term ChallengeCreating Short-Term Challenge

02468

101214161820

Jan

-81

Jan

-83

Jan

-85

Jan

-87

Jan

-89

Jan

-91

Jan

-93

Jan

-95

Jan

-97

Jan

-99

Jan

-01

Jan

-03

Mil

lio

n B

arre

ls P

er D

ay

U.S. Refining Capacity & Inputs

Gross Inputs

Operable Capacity

Source: EIA

OverviewOverview

• Transportation demand growth – some uncertainties

• A need for both U.S. capacity & import growth

• New U.S. product specifications limit import sources

• Will gasoline import availability grow?

Demand – A Crucial Factor Affecting Demand – A Crucial Factor Affecting Capacity DecisionsCapacity Decisions

• Future growth forecasts

• What could affect future growth?

0

5

10

15

20

25

19

50

19

60

19

70

19

80

19

90

20

00

Mil

lio

n B

arre

ls P

er D

ay

Transportation

Total End Use

U.S.Petroleum Consumption

Source: EIA

Transportation Demand Growth Drives Transportation Demand Growth Drives EIA’s Reference CaseEIA’s Reference Case

0

1

2

3

4

5

6

7

8

Mil

lio

n B

arre

ls P

er D

ay

2000 2005 2010 2015 2020 2025

Increases in Petroleum Use for Transportation

Total Transportation Demand13.2 MMB/D in 2000

Source: EIA, Annual Energy Outlook 2004

Efficiency Could Affect Demand,Efficiency Could Affect Demand,But How Quickly?But How Quickly?

10

15

20

25

30

35

40

1970 1980 1990 2000 2010

Fu

el E

con

om

y (M

iles

Per

Gal

lon

) CAFE Estimates (Adjusted EPA)

Cars

Fleet

Fleet

Weight

4063 lbs

Fleet

Weight

3273 lbs

Fleet

Weight

3870 lbs

Future Efficiency

•Materials

•Drag

•Hybrid

•Advanced Batteries

•Advanced Diesel

Source: U.S EPA, Light-Duty Automotive and Fuel Economy Trends: 1975-2003, April 2003.

Historical Efficiencies Affected Historical Efficiencies Affected Demand Relatively QuicklyDemand Relatively Quickly

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

Mil

lio

n G

all

on

s

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Tri

llio

n M

ile

s

Light Duty Vehicle Fuel Use & Miles Traveled 1978-1987

Light Duty Trucks

Cars

Miles TraveledTotal Fuel Use

Source: Department of Transportation, FHA, Highway Statistics 2001, Table VM-1.

Role of Gasoline Imports – Role of Gasoline Imports – Now and in the FutureNow and in the Future

• Historically, imports have been an essential supply source

• Need increased import volume in future• Will import supply be available?

– Why imports have been a competitive supply source

– Future impacts of U.S. specification changes– The impacts of international supply/demand

Imports Have Been EconomicImports Have Been Economic

6500

6700

6900

7100

7300

7500

7700

7900

8100

830019

90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

0

200

400

600

800

1000

1200

1400

1600

1800U.S. Gasoline Imports & Production (MB/D)

Total Net Imports

Total Production Excl. Blending Compontent Net Imports

Source: EIA

Gasoline Net Imports – An Essential Gasoline Net Imports – An Essential Supply SourceSupply Source

Local Production

Net Imports

Other DomesticProduction

Imports to Other Regions

PADD 1 Share

PADD 1 Sources of SupplyImport Destinations

885 MB/D (2003)

Source: EIA

Import SourcesImport Sources

• Nearby dedicated suppliers– Canada– Virgin Islands– Venezuela

• Nearby economic sources– Western Europe – symbiotic relationship– Eastern Europe– Latin America– Africa

• Other incremental supply– Middle East and Asia

EU-15 Demand Mix May Imply Excess EU-15 Demand Mix May Imply Excess European Mogas SupplyEuropean Mogas Supply

0

50

100

150

200

1990

1995

2000

2005

2010

2015

Mil

lio

n T

on

nes

/Yea

r

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Mo

gas

/Die

sel

Rat

io

Gasoline Diesel Ratio Gasoline/Diesel

Source: History IEA; Forecast Purvin & Gertz

European Choices of New Vehicles European Choices of New Vehicles Show Why Diesel Fuel Growth May Show Why Diesel Fuel Growth May

ContinueContinue

40.3

0

10

20

30

40

50

Per

cen

t o

f N

ew

Reg

istr

atio

ns

1990 1992 1994 1996 1998 2000 2002

W. Europe Diesel-Fueled Vehicle Share of New Passenger Car Registrations

Source: ACEA www.acea.be

EU Hydrocracking Growing, But Not as EU Hydrocracking Growing, But Not as Fast as Mogas/Diesel Demand ShiftFast as Mogas/Diesel Demand Shift

0

2

4

6

8

10

12

14

16

1819

90

1992

1994

1996

1998

2000

2002

2004

Per

cen

t o

f D

isti

llati

on

Cap

acit

y

FCC

Hydrocracking

EU-11 Capacity As Percent of Distillation

Source: EIA

No Change in NWE Price Incentive for No Change in NWE Price Incentive for Diesel over GasolineDiesel over Gasoline

-30

-20

-10

0

10

20

30Ja

n-9

5

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Cen

ts P

er G

allo

n

Northwest Europe Spot Gasoline Minus Diesel

Source: Bloomberg; Monthly Average NWE EN590 and 95 Octane Gasoline

2004 Specification Effects on Summer 2004 Specification Effects on Summer Imports into New York/New JerseyImports into New York/New Jersey

Total Gasoline Imports into NY and NJ(Average March through May 2004)

0

50

100

150

200

250

300

350

400

450

2003 2004

Th

ou

san

d B

arr

els

Per

Day

Other

Eastern Europe

Western Europe

Canada & VirginIslands

Source: EIA

Changing U.S. Sulfur Specifications Changing U.S. Sulfur Specifications May Change Import SourcesMay Change Import Sources

Country 2004 2005/2006 2010

U.S. 120 30 30

E.U. 150 50 (10) 10

Brazil 1000 400 80

Argentina 350 50 N/A

South Korea 130 50 N/A

Source: Hart International Fuel Quality Center

Gasoline Sulfur Specifications (ppm)

Some Historical Suppliers Cannot Some Historical Suppliers Cannot Produce Low Sulfur GasolineProduce Low Sulfur Gasoline

0

100

200

300

400

500

600

700

800

900

100019

90

1992

1994

1996

1998

2000

2002

Th

ou

san

d B

arre

ls P

er D

ay Other

Other Latin America

E Europe

Venezuela

W Europe

Virgin Islands

Canada

U.S. Total Gasoline Imports

Source: EIA, Form EIA-814

Shifts in Gasoline Import Sources with Shifts in Gasoline Import Sources with Changes to Lower Sulfur GasolineChanges to Lower Sulfur Gasoline

0

100

200

300

400

500

600

700

800

900

100020

00

2001

2002

2003

2004

Th

ou

sa

nd

Ba

rre

ls P

er

Da

y Other

Other Latin America

Brazil

E Europe

Venezuela

W Europe

Virgin Islands

Canada

U.S. Total Gasoline Imports Jan-May

Source: EIA, Form EIA-814

Gasoline Import AvailabilityGasoline Import Availability

Stable or Increasing• W. Europe

gasoline/diesel imbalance continues

• Increased E. Europe export capability

• Dedicated U.S. import sources remain

• Potentially high U.S. gasoline margins

Decreasing• U.S. gasoline spec

changes limit supply sources in short run

• Demand outside U.S. growing faster than refining capacity

Factors Affecting International Factors Affecting International Product SuppliesProduct Supplies

• High world demand growth– Increases capacity utilization (especially Asia)– Supports high crude oil prices– Increasing imports and product prices

• Import implications of world refining capacity utilization– Asian demand rebound and China’s growth– Capacity growth lagging– Ability to produce light clean products in non-OECD

areas

Annual Demand Changes Vary Annual Demand Changes Vary ConsiderablyConsiderably

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

1971 1976 1981 1986 1991 1996 2001

Th

ou

sa

nd

Ba

rre

ls P

er

Da

y

Annual Change in World Petroleum Demand

Source: EIA, IEA

How Tight is World Refining Capacity?How Tight is World Refining Capacity?

• Recent claims of being maximum sustainable capacity are exaggerated

• Comparing world product demand and capacity can be misleading

• Must look at regional utilizations• However, demand growth is outpacing

capacity growth – for the moment

Overview of World Capacity Utilization Overview of World Capacity Utilization (Percent Gross Inputs/Distillation)(Percent Gross Inputs/Distillation)

1998 2003

U.S. 95.5 92.5

EU-15 94.5 89.1

Latin America 81.4 74.4

Middle East 93.0 87.1

Source: EIA, IEA & BP

U.S. and Western European TrendsU.S. and Western European Trends

50556065707580859095

10019

95

1996

1997

1998

1999

2000

2001

2002

2003

Per

cen

t

Capacity Utilization (Gross Inputs/Distillation)

U.S.

E.U. 15

Source: IEA

Singapore Utilization PatternSingapore Utilization Pattern

50556065707580859095

100Ja

n-9

8

Jul-

98

Jan

-99

Jul-

99

Jan

-00

Jul-

00

Jan

-01

Jul-

01

Jan

-02

Jul-

02

Jan

-03

Jul-

03

Jan

-04

Per

cen

t

Capacity Utilization (Gross Inputs/Distillation)

Source: EIA, IEA, BP

Downstream Capacity ProfilesDownstream Capacity Profiles

U.S

.

Eu

rop

e (6

)

Asi

a (6

)

Mid

dle

Eas

t (E

xpo

rter

s)

0

10

20

30

40

50

60

70

80

Per

cen

t o

f D

isti

llat

ion

C

apac

ity

FCC Hydro-Cracking Hydro-Treating

Source: Oil and Gas Journal Refinery Survey, December 2003

Capacity Additions – Asia & M.E.Capacity Additions – Asia & M.E.

0

1000

2000

3000

4000

5000

6000

Planned

Historical (1995-2004)

0

500

1000

1500

2000

2500

3000

Crude FCC Hydro-cracking

Hydro-treating

PlannedHistorical (1995-2004)

Asia (6)

Middle East

Exporters (4)

Source: Oil and Gas Journal & Press Releases

Thousand Barrels Per Day

Capacity Additions – Europe & U.S.Capacity Additions – Europe & U.S.

0

500

1000

1500

2000

2500

3000

Planned

Historical (1995-2004)

0

500

1000

1500

2000

2500

3000

Crude FCC Hydro-cracking

Hydro-treating

Planned

Historical (1995-2004)

Europe (6)

U.S.

Thousand Barrels Per Day

Source: Oil and Gas Journal & Press Releases

Refining Margin ComparisonsRefining Margin Comparisons

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

1Q-9

3

1Q-9

4

1Q-9

5

1Q-9

6

1Q-9

7

1Q-9

8

1Q-9

9

1Q-0

0

1Q-0

1

1Q-0

2

1Q-0

3

$/B

arre

l

USGC West Texas SourCokingNWE Brent Cracking

Singapore DubaiHydrocracking

Refining Margins

Source: BP Statistical Review 2004

Looking Ahead 3-5 Years: Looking Ahead 3-5 Years: Capacity Growth Less Than Demand GrowthCapacity Growth Less Than Demand Growth

• Capacity lagged demand for past 5 years• Forecasted gasoline demand implies the

need for 1 to 2 MMB/D of added capacity in the next 5 years.

• Improved margins will encourage capacity• But other environment investment

requirements may detract• New product specifications reduce yield in

short term

Looking Ahead 3-5 Years:Looking Ahead 3-5 Years:Import Availability Still A QuestionImport Availability Still A Question

• While the need for product imports increases, changing U.S. specifications may reduce the number of import sources in the short term

• Some changes were met this year, but future specifications more stringent.

• Worldwide refinery utilization increases will have little impact on U.S. import availability

ConclusionConclusion

• Petroleum demand will likely increase over the near term.

• Increases in both U.S. capacity and product imports will be needed

• However, the balance between the 2 supply sources is uncertain

• Both capacity expansion and import growth face large challenges