Roger Diwan Managing Director, IHS Energy Insight
Transcript of Roger Diwan Managing Director, IHS Energy Insight
Presentation at CSIS
February 2014
Roger Diwan
Managing Director, IHS Energy Insight
US Crude Production and Exports | © PFC Energy | Page 2 | January 2014
U.S. Light Crudes: How Long Can Refiners
Absorb the Shale Oil Tsunami
US Crude Production and Exports | © PFC Energy | Page 3 | January 2014
The Supply Light Surge and a Static Crude Slate
U.S. crude production grew close to 1 million b/d in 2013, and ~830 mb/d in 2012. Since
early 2011, U.S. production grew from around 5.5 mmb/d to some 8 mmb/d currently.
The qualitative makeup of U.S. production has changed, with light crude production
increasing by 3 mmb/d from 2008 to 2013 (share of U.S. production from 50% to +70%)
2,956
5,523
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
mb/d
US Crude Oil Production by Quality
Light Medium Heavy
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
mb/dUS Crude Oil Production
PADD 5 PADD 4 PADD 3 PADD 2 PADD 1
US Crude Production and Exports | © PFC Energy | Page 4 | January 2014
Import Changes: Light Imports Hit the Hardest Infrastructure constraints buffer the decline…for now
• Domestic crude now accounts for over half of total U.S. inputs.
• PADDs 2 and 3 have already displaced almost all their light non-Canadian imports.
• PADDs 1 and 5 have faced infrastructure constraints and have been slower to receive domestic crude. This should be alleviated in 1H2014.
40%
45%
50%
55%
60%
65%
70%
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
2011 2012 2013 2014
mmb/d Reliance on Imported Crude Steadily Decreasing
Net Imports
US Production
% Demand Covered by Imports (R axis)
-500
0
500
1000
1500
2000
mb/d Quarterly Average Light Sweet Crude Imports
PADD 3 Total Remainder PADD 1
Forecast
US Crude Production and Exports | © PFC Energy | Page 5 | January 2014
U.S. Imports Composition Changing, Not Refining Input
26.0
27.0
28.0
29.0
30.0
31.0
32.0
1.20 1.70 2.20
API
Sulfur
US Import Characteristics
2010
2011
2012
2013
29.0
29.5
30.0
30.5
31.0
31.5
32.0
1.2 1.3 1.4 1.5 1.6 1.7
API
Sulfur
US Input Characteristics
2010
2011
2012
2013
29.0
29.5
30.0
30.5
31.0
31.5
32.0
1.4 1.5 1.6 1.7 1.8 1.9
API
Sulfur
PADD 3 Input Characteristics
2010
2011
2012
2013
24.0
25.0
26.0
27.0
28.0
29.0
30.0
1.40 1.90 2.40
API
Sulfur
PADD 3 Import Characteristics
2010
2011
2012
2013
US Crude Production and Exports | © PFC Energy | Page 6 | January 2014
Outlook for U.S. Light Balances
When Will the Levee Break?
US Crude Production and Exports | © PFC Energy | Page 7 | January 2014
Where Is Light Absorption Capacity Still Available?Limited “Relief Valves”
1
2
3
4
Complete Import Substitution in PADDs 1 & 5
Refining Capacity Additions
Exports to Canada
Lightening of Slates or Blending
US Crude Production and Exports | © PFC Energy | Page 8 | January 2014
PADD 1: A Relief Valve at Work
Light, sweet imports to PADD 1 continue to decline. They averaged 375 mb/d in 3Q-13 versus an average 168 mb/d in October and November
PADD 1 reliance on imported crude oil fell to 53% in November (from virtually 100% in 2010)
30.5
31.5
32.5
33.5
34.5
35.5
0.45 0.65 0.85 1.05 1.25
API
Sulfur
PADD 1 Import Characteristics
2010
2011
2012
2013
0100200300400500600700800900
1,000
mb/dBakken Crude Transport by Type
Rail Truck to Canada Tesoro Refinery Pipeline Export
Nov
0
200
400
600
800
1000
1200
mb/d PADD 1 Imports
Light Sweet & Sour Medium Sweet & Sour Heavy Sweet & Sour
US Crude Production and Exports | © PFC Energy | Page 9 | January 2014
0
100
200
300
400
500
600
Oc
t-1
3
No
v-1
3
Dec-1
3
Ja
n-1
4
Fe
b-1
4
Ma
r-1
4
Ap
r-1
4
Ma
y-1
4
Ju
n-1
4
Ju
l-14
Au
g-1
4
Se
p-1
4
Oc
t-1
4
No
v-1
4
De
c-1
4
Ja
n-1
5
Fe
b-1
5
Ma
r-1
5
Ap
r-1
5
Ma
y-1
5
Ju
n-1
5
Ju
l-1
5
Au
g-1
5
Se
p-1
5
Oc
t-1
5
No
v-1
5
De
c-1
5
mb/d Waterborne Light Imports by PADD
PADD 5
PADD 3
PADD 1
U.S. Light Imports Likely Fully Backed Out by 4Q14
Import picture using crude processing + import substitution +
grassroots light crude processing investment
Total US light crude imports effectively minimized by 3Q14
Minimal imports into PADD 3 and Hawaii continue after 1Q15
US Crude Production and Exports | © PFC Energy | Page 10 | January 2014
Refining Capacity Additions: Too Little Too Late
Projects coming online mostly in PADDs 2 & 3, no game-changers
there with most coming towards end-2015
Type Location Region Owner Capacity In-Service
Condensate Splitter Pasadena, TX PADD 3 BP/Kinder Morgan 50 1Q14
Condensate Splitter Pasadena, TX PADD 3 BP/Kinder Morgan 50 1Q15
Crude Unit Dickinson, ND PADD 2 Calumet 20 1Q15
Condensate Splitter Canton, OH PADD 2 Marathon 15 1Q15
Crude Unit Woods Cross, UT PADD 4 HollyFrontier 14 1Q15
Crude Unit McKee, TX PADD 3 Valero 15 2Q15
Condensate Splitter Catlettsburg, KY PADD 2 Marathon 20 3Q15
Crude Unit Makoti, ND PADD 2 Three Affiliated Tribes 20 4Q15
Crude Unit Houston, TX PADD 3 Valero 90 4Q15
Crude Unit Corpus Christi, TX PADD 3 Valero 70 4Q15
Crude Unit El Paso, TX PADD 3 HollyFrontier 25 4Q15
2015
US Crude Production and Exports | © PFC Energy | Page 11 | January 2014
Exports to Canada: Already Well Under WayUS crude nearly half of Atlantic Canada’s light import in November
426
209
28
0
100
200
300
400
500
600
700
2012
mb/d
Atlantic Canada Imported Crude Slate
Heavy
Medium
Light
0
50
100
150
200
250
Jan-08 Sep-08 May-09 Jan-10 Sep-10 May-11 Jan-12 Sep-12 May-13
mb/dU.S. Crude Exports to Canada
-1
-1
0
1
1
2
2
Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14
Average of Eastern Canadian Crude Differentials to Brent
$/b
050
100150200250300350400450500mb/d US Exports to Canada
PADD 3 PADD 2
US Crude Production and Exports | © PFC Energy | Page 12 | January 2014
When Will The Levee Break?How much is too much?
*Baseline Forecast Assumptions: Light import substitution in PADDs 1,3 & 5, light processing capacity increases, 200 mb/d
exports to Canada (based on 4Q13 historical data)
Structural
Oversupply
0
200
400
600
800
1,000
1,200
Oct-
13
No
v-1
3
De
c-1
3
Ja
n-1
4
Fe
b-1
4
Ma
r-1
4
Ap
r-1
4
Ma
y-1
4
Ju
n-1
4
Ju
l-1
4
Au
g-1
4
Se
p-1
4
Oct-
14
No
v-1
4
De
c-1
4
Ja
n-1
5
Fe
b-1
5
Ma
r-1
5
Ap
r-1
5
Ma
y-1
5
Ju
n-1
5
Ju
l-1
5
Au
g-1
5
Se
p-1
5
Oct-
15
No
v-1
5
De
c-1
5
mb/d Monthly US Light Crude “Oversupply” Based on Baseline Relief Valve Assumptions*
PADD 3 Onshore
Bakken & Other PADD 2
Remaining
Canada Light
Substitution
Capacity
US Crude Production and Exports | © PFC Energy | Page 13 | January 2014
Could All Surplus Crude Be Absorbed Domestically?
Implications of “Oversupply”
It would likely be challenging for US refiners to absorb the projected light crude growth at present
Assuming PADD 3 refiners swapped imported medium crude for light domestic blends, the average
API of the industry’s slate would exceed 33 degrees by end-2015
30.0
30.5
31.0
31.5
32.0
32.5
33.0
33.5
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
mb/dPADD 3 Crude Slate Assuming Full
Absorption
Heavy RunsMedium RunsLight RunsPADD 3 Slate Avg. API
Degrees API
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
mb/d How Light is Too Light ?
Waterborne Medium Imports
Waterborne Light Imports
PADD 3 Light Processing (Imports + Domestic)
US Crude Production and Exports | © PFC Energy | Page 14 | January 2014
Displacing Medium Imports: Easier Said Than Done
A number of US refineries have been optimized to run medium crudes, most of them originating in
the Middle East
As long as these crudes are available on competitive, refiners will keep them, reducing
incentives to invest to change their crude diets
0
200
400
600
800
1000
1200
Ja
n-1
0
Ma
r-1
0
Ma
y-1
0
Ju
l-1
0
Se
p-1
0
No
v-1
0
Ja
n-1
1
Ma
r-1
1
Ma
y-1
1
Ju
l-1
1
Sep-1
1
No
v-1
1
Ja
n-1
2
Ma
r-1
2
Ma
y-1
2
Jul-12
Se
p-1
2
No
v-1
2
Ja
n-1
3
Ma
r-1
3
May-1
3
Ju
l-1
3
Se
p-1
3
No
v-1
3
mb/dPADD 3 Saudi Imports
Saudi MotivaImports
PADD 3 SaudiMedium Imports
US Crude Production and Exports | © PFC Energy | Page 15 | January 2014
-30
-25
-20
-15
-10
-5
0
5
10
$/b US Crude Spreads to Brent
LLS Thunderhorse Mars WTI
Implications of OversupplyWhat does it mean for prices?
The ease with which U.S. refiners can absorb the “surplus” will eventually determine the magnitude of
the price discount witnessed across domestic light grades.
This “near-saturation” environment implies that domestic crude pricing will become increasingly
correlated to stock builds and seasonality of refining throughputs in US VS global trends
High ThroughputMaintenance MaintenanceHigh Throughput
US Crude Production and Exports | © PFC Energy | Page 16 | January 2014
Impact of Prices on US ProductionAttractive Economics in the Bakken and Eagle Ford Likely to Prop Up Production
$-
$25
$50
$75
$100
$125
$150 Dollars per Barrel
Breakeven Prices by Play Quintile (PV-10)
Majority of US Production Growth Marginal Production Plays
US Crude Production and Exports | © PFC Energy | Page 17 | January 2014
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