U.S. Petroleum Exports Developments, Prospects and Markets

Argus Crude and Refined Products Exports Conference

Houston, TX June 20, 2017

John R. Auers

Executive Vice President

Presentation Outline

• Where Are We?/How Did We Get Here?

• Crude Exports • Refined Product Exports

2

U.S. Moving Away From Dependence

-10

-5

0

5

10

15

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017YTD

Mill

ion

BPD

Crude Imports Product Imports Crude Exports Product Exports Net Imports

3

Major Changes in Petroleum Balance 2005 to Present

(Million BPD) Crude Products

Imports decrease 2.0 1.4

Exports increase 0.9 3.5

Refinery Throughput: 1.0 MBPD Increased U.S. Refining Competitiveness

Demand: 1.7 MBPD Great Recession; Biofuel Mandates, Increasing Efficiency, Demographics

Domestic Crude Production: 4+ MMBPD Light Tight Oil Boom

4

Drivers of U.S. Competitiveness

5

Upstream Competitiveness

Free Market Principles, Economically and Politically Stable, Property Rights

Downstream Competitiveness

Highly Skilled, Flexible and Deep Workforce

Growing Volumes of Crude and Natural Gas

Most Advanced Refineries

Significant Resource Base - LTO,

Conventional, Offshore

Facilitates Development

Presentation Outline

• Where Are We?/How Did We Get Here?

• Crude Exports • Refined Product Exports

6

Production Rebound Leading to Exports

0

200

400

600

800

1000

1200

0

100

200

300

400

500

600

2015 Q1_2016 Q2_2016 Q3_2016 Q4_2016 Q1_2017 Apr-17

Tota

l (Th

ousa

nd B

PD)

Reg

iona

l (Th

ousa

nd B

PD)

Latin America

Europe

Asia Pacific

Canada

Other

Total

Non-Canada Total

source: EIA / U.S. Census

Crude export restrictions lifted Dec 18, 2015

7

Crude production declines > 1 MMBPD 4/15 to 9/16

Since 9/16, crude production up by 0.8 MMBPD

U.S. Crude Export Destinations 2017 YTD

0

50

100

150

200

250

300

Thou

sand

BPD

8

Crude Production Growth Will Drive Exports 2016 to 2025

9

Permian 2.2 MMBPD Lt

Bakken 250 MBPD Lt

Eagle Ford 600 MBPD Lt

Gulf of Mexico 30 MBPD Lt 50 MBPD Med

Other U.S. 20 MBPD Lt 20 MBPD Med -50 MBPD Hvy

The Future – How Much? • Most incremental production growth will be exported

– Essentially all USGC light sweet imports have been displaced

– Economic access to USAC and USWC not available

– Displacement of heavier imports not economic; especially post-2020

– Limited new processing capacity will be added • About 150 MBPD currently under construction on USGC

• Additional capacity will be “brownfield” expansions; justified on product export economics

• WTI vs. Brent discount of $2.00 to $4.00 will prevail

– Based on relative refining values and transportation to clearing destinations

– Assumes no logistical limitations between Cushing/W. Texas and tidewater

• U.S. crude exports will exceed 2 million BPD before 2025

– Most crude exports will be the lightest grades

– IMO LS bunker rules will make lowest sulfur crudes particularly attractive

10

IMO Rules Provide Added Value For U.S. LTO – Especially Permian

Permian LTO WTI Eagle Ford Bakken Brent

Bonny Light

Arab Light

API Gravity 43 to 50+ 40 40 to 55+ 41 38.5 33.5 34

Sulfur, wt% <0.10 0.30 to 0.40 0.10 to 0.60 0.20 0.35 0.25 1.90 2020 Low Sulfur Bunker Spec: 0.50 wt%

VTB Yield , LV% 2 to 10 8 to 10 <1 to 7 5.2 10.0 5.5 16 Resid - Sulfur, wt% <0.50 (1) 1.00 to 1.50 0.70 to 1.50 0.75 1.25 0.75 4.00

ATB Yield, LV% 20 to 30 32 8 to 32 30 34 29 39

ATB - Sulfur, wt% <0.30 0.70 0.20-1.40 0.45 0.80 0.50 3.20 (1) Much of the volume is very low (less than 0.20% sulfur)

11

Brent – WTI

-$1

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Jul-21 Jul-22

Bren

t - W

TI P

rice

($/B

BL)

Historic Futures

Substantial volatility in Brent-WTI differential

US Crude Export Parity Band

Crude export restrictions repealed

December 2015

Parity Band impacted by quality differences and transportation costs (both to tidewater

and price setting foreign destination). Ceiling set by investment economics for USGC

processing capacity expansions

12

The Future – Where? • Most crude exports will go to Europe and Asia • Europe has a potential for 1 million BPD of U.S. light grades

– Positive: Significant refining capacity for light crude,, especially in NW Europe; declining regional supply of crudes; relatively low transportation costs

– Negative: Declining regional refining capacity – IMO rules increase demand for LS crudes

• Asian potential is unlimited; tough competition – Positive: Rapidly growing demand for crude; significant capacity and growth

for lighter crudes/condensate – Negative: Disadvantaged transportation costs; can improve with backhauls – As in Europe, IMO rules increase demand for LS crudes, especially compared

to HS Mideast barrels • Latin America

– Potential both as refinery feedstock and diluent for bitumen blending – Max. potential is probably less than 500 MBPD

13

Canadian Market Limited

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100

200

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700

800

900

1000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Impo

rts

(MB

PD)

Eastern Canadian Imports Light (U.S.) Light (Non U.S.) Heavy

Three-month Rolling Average

300 MBPD Line 9 reversal startup in late 2015 has displacing U.S. crude with Western Canadian barrels

14

Presentation Outline

• Where Are We?/How Did We Get Here?

• Crude Exports • Refined Product Exports

15

U.S. Moves from Importer to Exporter

16

1: Russia 2: Kuwait 3: Saudi Arabia 4: Venezuela 5: Algeria

2: Japan 3: Spain 4: China 5: Indonesia

2: Russia 3: India 4: Kuwait 5: Venezuela

1: Japan 2: Singapore

4: Australia 5: Indonesia

2005 Exporters

Importers Importers

2016 Exporters

11: Mexico 6: Brazil

1: U.S.

1: U.S.

2455 MBPD

2487 MBPD

Source: EIA/IEA/Pemex/JODI

3: Mexico

U.S. Product Exports -2016

2%

19%

17%

31%

19%

12%

By Destination

Africa

Asia

EU

Latin America (ExceptMexico)

Mexico

Canada

22%

16%

29%

33%

By Product

LPG

Gasoline

Distillate Fuel Oil + JetFuel

Others

Total = 4.7 MMBPD

Foreign Refinery Projects Have Been Troubled

18

Abreu e Lima (Refinery) $16B over & 4 yrs. late

Comperj (Refinery) $15B & No Progress

Premium I & II (Refineries) Delayed 5-6 yrs., $20B each

Trinidad & Tobago (ULSD) $500M+ over, 3 yrs. late

Talara (Expansion) $3.5B, >10 yr. project

Pacific Refinery Announced 2007, $13B est., no funding

Cartagena (Refinery) $4B over & 3 yrs. late

Ruwais (Refinery) $10B, 2 yrs. late

Yanbu (Refinery) $4B over budget

Jazan (Refinery) $2B over, 2-3 yrs. late

Al-Zour (Refinery) $5B over, 7 yrs. late Jubail (Refinery)

$6B over budget Latin American Importers

Mideast Exporters

Indian private refineries more successful. Asian importers working to build

refineries, often with Mideast help. Russian modernization program. Mexican reform actually leading to lower

utilization/more U.S. imports.

Global Refining Utilization 2016

19

U.S. 90%

Latin America 72%

Middle East 85%

China 78%

Russia 89% European

Union 84%

Africa 61%

World 83%

Source: BP Statistical Review, EIA, Pemex, Others

Venezuela 54%

Mexico 61%

India 107%

Other Asia Pacific

84%

Growing Deficit in Latin America

20 20

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1980

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MBP

D

Consumption

Refinery Throughput

2016 Delta is 2,486 MBPD

Mexican Reform Has Led to More Imports

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40%

50%

60%

70%

80%

90%

100%

200

300

400

500

600

700

800

Jan-2014 Jul-2014 Jan-2015 Jul-2015 Jan-2016 Jul-2016 Jan-2017

Mex

ico

Ref

iner

y U

tiliz

atio

n

U.S

. Exp

orts

to M

exic

o an

d M

exic

o Pr

oduc

tion

MM

BPD

Mexico ProductionU.S. Exports to MexicoMexico Refinery Utilization

Mexico Energy Reform at the end of 2014

3 month rolling average

Future Challenges • Market Issues

– Ability to access exports markets increasingly important – Market saturation in traditional markets; will have to extend reach to markets where U.S.

has fewer advantages/more competition – Construction of refineries in importing countries – Asia/LatAm/Africa – Competition from other export refineries - ME/India/Russia

• Demand Growth – Both Domestic and Global

• Competition From Alternatives – Direct substitutes – biofuels/CNG/LNG/CTL/GTL – Move to Electrical Vehicles (EV’s)

• Regulations

– Stifle demand/increase costs/limit access/distort markets – Increased regulation in other regions can advantage U.S. refiners

• Tighter fuel specifications in developing countries provide opportunities • IMO LS Bunker rules (2020) will be a substantial boost

22

LatAm Market Approaching Saturation?

23

31% LA gasoline supplied by US

0%

5%

10%

15%

20%

25%

30%

0

500

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

U.S

. Exp

ort %

of T

otal

La

tin A

mer

ican

Con

sum

ptio

n

U.S

. Exp

orts

to L

atin

Am

eric

a (M

BPD

)

% of Total Exports to Latin America

30% LA diesel supplied by US

Global Demand Growth 2016 to 2025

24 (1,000)

-

1,000

2,000

3,000

4,000

5,000

6,000

U.S. Mexico Centraland SouthAmerica

Europe AsiaPacific

Africa Rest of theWorld

MBP

D

Other

Distillates

Gasoline

-0.1%*

0.3%*

1.4%*

-0.3%*

1.6%*

2.3%*

1.4%*

*Average Annual Growth

Global Annual Growth (MBPD)

Gasoline Distillates Other Total %

2,751 5,466 1,293 9,510 0.9%

Alternate Fuels Impact Limited Thru 2025 • Low oil prices have made alternatives less attractive

– Growth has/will be driven by regulatory action • Essentially all growth in the U.S. has been ethanol

– limited additional room due to “blend wall” • EV replacement of gasoline vehicles difficult to predict

– TM&C doesn’t expect significant penetration before 2025 – Longer term, Autonomous Vehicle (AV) introduction could be game

changer

25

0.00.20.40.60.81.01.21.41.6

Mill

ion

BPD

Alternative Fuels Forecast - U.S.

CTL/GTL

CNG/LNG/LPG

Biodiesel

Ethanol

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Mill

ion

BPD

Alternative Fuels Forecast - Total World

Actual Forecast Actual Forecast

Incremental growth of 200 MBPD through

2025

Incremental growth of just over 1 MMBPD through

2025

2020 LS Bunker Will Advantage U.S. Refiners

26

U.S. Refineries – Limited FO production

Most refiners will benefit from: higher distillate

cracks/wider heavy crude discounts

Europe and Asia have greater fuel oil production, impacts

could be significant for some refineries – especially privately

owned European plants

TM&C estimates that 1.2 to 2.0 Million BPD of fuel oil will

be displaced by distillates.

Significant bump in ULSD vs. HSFO margin

Widening heavy/light spread $0

$10

$20

$30

$40

$50

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Spre

ad ($

/BBL

)

ULSD - LLS ULSD - No. 6 FO (3% S) LLS - Maya

Significant bump in ULSD vs. HSFO margin

Widening heavy/light spread

The Future

• U.S. Should Continue to Be World Leader in Refining – Ability to maintain and grow product exports will be critical (esp. for USGC) – Challenged by new refining capacity in both importing/exporting countries – Important not to be handicapped by excess regulation – Benefits of domestic production growth are real; limited by removal of

crude export restrictions – Can expect more rationalization of capacity in OECD Europe/Asia

• Export Product Demand Growth will Continue but Slow – Market limitations/Slowing world petroleum demand – U.S. Capacity/Throughput will stabilize at current levels – With domestic demand declining, growth will be needed to sustain rates – Should capture incremental LatAm growth and compete for West African – Asian market will be a challenge due to competition and high transit costs

27 27

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

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