Download - Crude Oil in Europe: Production, Trade and Refining … Oil Production, proportional Crude Oil Production, volume Note: does not include forecast crude volumes / commercial adjustments

Crude Oil in Europe: Production, Trade and Refining Outlook

Steve Cooper,

Senior Downstream Analyst

Wood Mackenzie, London

StocExpo - Antwerp

March 2013

www.woodmac.com

Delivering commercial insight

Contents

© Wood Mackenzie 2

2

1 European crude production outlook

Crude oil production from near neighbours

3 European refinery crude needs

4 Evolving crude oil trade patterns

5 Implications for the storage industry


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North Sea crude / NGL production declined sharply in recent years; mid-term

outlook is flat, with further declines post-2020

© Wood Mackenzie 3


0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

2000 2005 2010 2015 2020 2025 2030'0

00 b

/d

Netherlands

Denmark

UK

Norway

Source: Wood Mackenzie

North Sea output makes up 88% of

Europe’s crude / NGL production, down

from 93% in 2000

Norway accounts for over half of total

European output

Medium-term rate of decline dependent on

new developments surrounding largest,

mature fields

Recent discoveries have arrested near-

term UK decline

UK output generally from mature fields

with lower exploration potential than

Norway

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

2000 2005 2010 2015 2020 2025 2030

'000 b

/d

Netherlands

Denmark

UK

Norway

Total Europe

Source : Wood Mackenzie

Europe Crude Production

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Different types of crude oil are of very different quality…

© Wood Mackenzie 4


63%

44% 38%

16%

27%

22%

7%

10%

9%

14% 18%

29%

0,03% 0,95% 1,92%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Maya Azeri Light Brent

Cru

de

Dis

tilla

tio

n Y

ield

s

LPG

Naphtha

Kerosene

Gasoil /Diesel

Residue


-16,00

-14,00

-12,00

-10,00

-8,00

-6,00

-4,00

-2,00

0,00

2005 2006 2007 2008 2009 2010 2011 2012

$ / b

arr

el

Differential, Maya FOB vs DatedBrent FOB, $/barrelSource: Argus

;

Crude Oil Distillation (assay basis) Crude Oil Price Differential

Light Medium Heavy

Not all refineries can process heavier,

more challenging crude oils

This leads to market discounts / premia

for different grades

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Refinery profitability is driven by ability to convert less profitable residue into

more valuable light products

© Wood Mackenzie 5


6%

8%

11%

39%

7%

20%

6%

2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

NWE, 2012Ref.

Yie

lds

, %

wt

LPG

Naphtha

Gasoline

Jet/Kerosene

Diesel/Gasoil

Fuel Oil

Otherproducts

Refinery Fuel& Loss

63%

44% 38%

16%

27%

22%

7%

10%

9%

14% 18%

29%

0,03% 0,95% 1,92%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Maya Azeri Light Brent

Cru

de

Dis

tilla

tio

n Y

ield

s, %

wt

LPG

Naphtha

Kerosene

Gasoil /Diesel

Residue


Crude Oil Distillation (assay basis) Refinery Output

Light Medium Heavy

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Value of crude derived from value of refined products;

residue is upgraded in order to minimise lower-value fuel oil production

© Wood Mackenzie 6


-40

-30

-20

-10

0

10

20

30

40

199

5

199

7

199

9

200

1

200

3

200

5

200

7

200

9

201

1

201

3

201

5

201

7

201

9

202

1

202

3

202

5

Cra

ck s

pre

ad

vs B

ren

t $

/bb

l .

Jet Diesel Gasoil

1 wt%S FO 3.5 wt%S FO

Source: history Argus Media , forecast Wood Mackenzie

Value of heavy fuel oil (FO) products is

consistently below crude oil cost

Light products trade at a premium to crude

oil

Value of crude oil ultimately derived from

value of refined products

• Supply-side: crude oil quality

• Light / Medium / Heavy

• Sweet / Sour

• Demand-side: availability of refining

capacity to match crude quality to

refinery processing capabilities

Challenge for refineries is to minimise FO

output through careful selection of crude

oil grades (and therefore costs)

NWE Crackspreads (Product vs Brent, FOB)

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0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

200

0

200

2

200

4

200

6

200

8

201

0

201

2

201

4

201

6

201

8

202

0

202

2

202

4

202

6

202

8

203

0

‘00

0 b

pd

Extra light Light Medium Heavy Extra heavy

© Wood Mackenzie 7



European crude oil production to become heavier as output declines;

some rebalancing of trade flows required to maintain current crude quality

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

200

0

200

2

200

4

200

6

200

8

201

0

201

2

201

4

201

6

201

8

202

0

202

2

202

4

202

6

202

8

203

0

Note: does not include forecast crude volumes / commercial adjustments of unknown quality

Crude Oil Production, proportional Crude Oil Production, volume

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Average sulphur content of European crude is forecast to remain largely

unchanged

© Wood Mackenzie 8



0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

200

0

200

2

200

4

200

6

200

8

201

0

201

2

201

4

201

6

201

8

202

0

202

2

202

4

202

6

202

8

203

0

Sour Medium sweet Sweet

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

200

0

200

2

200

4

200

6

200

8

201

0

201

2

201

4

201

6

201

8

202

0

202

2

202

4

202

6

202

8

203

0

‘000 b

pd

Crude Oil Production, proportional Crude Oil Production, volume

Note: does not include forecast crude volumes / commercial adjustments of unknown quality

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Contents

© Wood Mackenzie 9

2






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0

5

10

15

20

25

30

35

40

200

0

200

2

200

4

200

6

200

8

201

0

201

2

201

4

201

6

201

8

202

0

202

2

202

4

202

6

202

8

203

0

mb

/d

Latin America Caspian FSU West Africa North Africa

Growing production in other regions will have impact on trade flows and

storage within Europe; incremental sour crude provided by Middle East

© Wood Mackenzie 10



Crude Oil Production, volume

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6% 4%

46% 39%

48% 57%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2020

%vo

l

Extra Light Light Sweet Light Sour Medium Sweet Medium Sour

Heavy Sweet Heavy Sour Extra Heavy Sweet Extra Heavy Sour

Caspian

86%

73%

12%

24%

2012 2020

FSU

16% 13%

67% 71%

14% 13%

2012 2020

West Africa

Global analysis of crude production by quality drives assessment of future

crude allocation, ensures regions can be supplied with appropriate crude

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Changing quality of crude will determine future trade flows into Europe; this

will be necessary to offset declining long-term domestic supply




6% 4%

46% 39%

48% 57%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2020

%vo

l

Extra Light Light Sweet Light Sour Medium Sweet Medium Sour

Heavy Sweet Heavy Sour Extra Heavy Sweet Extra Heavy Sour

7% 6%

5% 5%

18% 30%

62%

59%

8%

2012 2020

North Africa

4%

16%

41% 21%

37%

39%

16% 22%

2012 2020

Latin America

5% 10%

77% 74%

8% 7%

6% 6%

2012 2020

Middle East

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Contents


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10

11

12

13

14

15

16

17

18

2000

200

2

200

4

200

6

200

8

201

0

201

2

201

4

201

6

2018

Mb

/d

Series1 2007 Forecast 2012 Forecast

Demand in Europe has fallen and will not recover to pre-recession levels


1.8 Mb/d

Europe GDP forecast, 2007 and 2012 Europe Demand forecast, 2007 and 2012

80

90

100

110

120

130

140

150

200

0

200

1

2002

200

3

2004

200

5

2006

200

7

2008

200

9

201

0

201

1

201

2

201

3

201

4

201

5

Re

al G

DP

In

de

x (

20

01

=1

00

)

2007 Forecast 2012 Forecast

Source: History IEA, Forecast Wood Mackenzie Source: Wood Mackenzie

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Refining capacity has been rationalised, but a large gap between supply and

demand persists … as do Europe’s large product imbalances


Europe Refining Capacity and Utilisation Europe Product Balances


70%

72%

74%

76%

78%

80%

82%

84%

15.0

15.5

16.0

16.5

17.0

17.5

2006 2007 2008 2009 2010 2011 2012

mil

lio

n b

/d

Refinery Capacity Total Demand Average Utilisation

-1,000

-800

-600

-400

-200

0

200

400

600

800

1,000

1,200

2006 2007 2008 2009 2010 2011 2012k

b/d

Gasoline Diesel/Gasoil

Deficit

Surplus

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Product imbalances a result of transportation fuel demand trends; refineries

struggle to adapt due to predominance of gasoline-oriented FCC configuration


NWE Product Yields by Refinery Configuration


6% 5% 6%

17%

38%

22%

22%

20%

25%

12%

14%

17%

38%

13% 21%

2% 10% 6%

4% 1% 3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

BrentFCC

BrentHSK

UralsHCU

Refi

ne

ry Y

ield

s,

%w

t

LPG

Naphtha

Gasoline

Jet/Kerosene

Diesel/Gasoil

Fuel Oil

Otherproducts

RefineryFuel & Loss

Note:

HSK = Hydroskimming

FCC = Fluid Catalytic Cracking

European refineries are predominantly

FCC configuration, with some HCU and

to a lesser extent, HSK and COK.

FCC units were designed to upgrade

residue to maximise gasoline

production

Hydrocracking units produce a greater

diesel yield. Some hydrocracking

investments have taken place in Europe

to increase output of diesel…

… but this requires significant capital

investment that is not presently taking

place, given the uncertain product

demand outlook and weak economic

environment

HCU = Hydrocracking

COK = Coking

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Contents


2






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Europe is well-positioned to import crude from a number of different regions.

It therefore has considerable flexibility over selection of crude quality




Latin

America

West

Africa

Middle

East

FSU

Caspian

North Africa

Europe runs a mixed crude slate, as its

refineries are of high complexity. It is

neither constrained by:

• lack of upgrading capacity, nor

• significant prior capital investment in heavy

crude processing capability that requires

cheaper, heavier crude to generate returns.

We assume that the current European

crude slate is well-suited to regional

refinery capabilities

Therefore, reduction in European

domestic crude supply of any given

quality…

…would be expected to result in

substitution by imports of a similar

quality from one of the regions shown

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Crude slate analysis and forecast trade flows take into account a number of

key variables, on a global basis


Europe Crude Slate by Source


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014 2015 2016 2017 2018

So

urc

e (

%)

Russia Europe Middle East

North Africa Caspian West Africa

Other

Analysis based on forecast oil production

on a field-by-field basis, forecast trade

flows, forecast refinery throughput volumes

Investments and announced closures /

capacity reductions are used in determining

future changes in crude quality requirement

Some proportional decline in West African

and Middle Eastern crude in Europe on

account of increased demand for crude in

Asia

Increased share of Russian, North African

and Caspian crude

European domestic crude volumes remain

broadly stable

This is due to flat North Sea output, much of

which is expected to remain in-region

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Crude quality is not expected to change to any great extent within Europe,

despite changes in crude source



A very limited number of refinery

investment projects is taking place

A small number of Med coking projects has

increased heavy sour crude requirements

but only very slightly

Impact on total Europe crude slate quality

is therefore low

Some replacement of Middle East crude

with Caspian crude will result in imported

medium density grades becoming sweeter

Europe Crude Slate by Quality

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014 2015 2016 2017 2018

Heavy Sour Heavy Sweet Medium Sweet

Medium Sour Light Sour Light Sweet

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Europe should be able to source the type of crude it needs, albeit from

different places


Europe Crude Slate by Source


0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

So

urc

e (

Mb

/d)

North America Latin America West Africa Caspian Middle East Russia North Africa Europe

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Near-term, European crude runs fall, with little significant change in origin;

crude slate gets sweeter and slightly heavier



Change in Europe Crude Slate by Source, 2011-2018 Change in Europe Crude Slate by Quality, 2011-2018

-800 -600 -400 -200 0 200 400

kbpd

Heavy Sour Medium Sour Light Sour

Heavy Sweet Medium Sweet Light Sweet

-800 -600 -400 -200 0 200 400

kbpd

Europe North Africa Russia

Middle East Caspian West Africa

Latin America North America

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From 2018-2025, we anticipate that the decline in domestic and Russian crude

will be compensated for by increased Caspian and Middle East imports



Change in Europe Crude Slate by Source, 2018-2025 Change in Europe Crude Slate by Quality, 2018-2025

-800 -600 -400 -200 0 200 400 600 800

kbpd

Europe North Africa Russia

Middle East Caspian West Africa

Latin America North America

-800 -600 -400 -200 0 200 400 600 800

kbpd

Heavy Sour Medium Sour Light Sour

Heavy Sweet Medium Sweet Light Sweet

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Contents


2






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Considerably lower European crude throughputs are forecast from 2013

onwards, with correspondingly lower storage requirements




Owing to European product supply / demand

imbalances, in particular the extremely large

gasoline surplus, it is expected that refinery

throughputs will be much lower in the future

While this is expressed as a decrease in

utilisation of existing facilities, a number of

refineries have permanently closed in Europe

We do not see this trend changing

Refineries that close are often converted to

terminal storage

There is therefore potential downward

pressure on tank storage rates within ARA

and Europe generally

Additionally, lower structural crude

throughputs will reduce strategic storage

requirements, placing further pressure on the

industry

European Refinery Utilisation

11,0

11,2

11,4

11,6

11,8

12,0

12,2

12,4

12,6

12,8

13,0

2011 2012 2013 2014 2015 2016 2017 2018

mil

lio

n b

pd

890 kbpd

620 kbpd

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0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

30,0%

2011 2013 2015 2017 2019 2021 2023 2025

Beyond 2018, further decline in North Sea production has a noticeable impact

on the European crude slate




Proportion of Domestic Crude in European Slate

Increased crude import requirements into

Europe between 2018 and 2025 work out at

820 kbpd

This corresponds to a decrease of 7% in

terms of domestic crude use

The rate of North Sea decline is lower than

has been previously anticipated,

particularly in light of recent Norwegian

exploration successes

It is expected therefore that all things being

equal, there would be increased

requirements for crude storage in Europe

from 2018 onwards

820 kbpd

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0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

30,0%

2011 2013 2015 2017 2019 2021 2023 2025

820 kbpd

11,0

11,2

11,4

11,6

11,8

12,0

12,2

12,4

12,6

12,8

13,0

2011 2012 2013 2014 2015 2016 2017 2018

mil

lio

n b

pd

Beyond 2018, further decline in North Sea production has a noticeable impact

on the European crude slate




Proportion of Domestic Crude in European Slate European Refinery Utilisation

890 kbpd

620 kbpd

Post-2018, the outlook for refinery

utilisation in Europe (and any further

capacity rationalisation) will either add to

or offset the additional crude import

requirements.

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Difficult business environment for European refining to lower European crude

requirements; stable North Sea output restricts near-term growth in imports




Low forecast refinery utilisation and possible future closures to negatively impact on

storage rates, particularly if refinery closures continue to result in conversion to storage

terminals.

Increased crude import requirements into Europe between 2018 and 2025 work out at 820

kbpd.

North Sea output is forecast as broadly stable up until 2018.

Europe region is flexible in its crude slate. Crude slate quality changes are forecast to be

minimal due to variety of import options, and lack of investment in further upgrading

capacity.

No quality-related constraints on crude supply are expected within Europe.

Crude quality of neighbouring regions is forecast to change, while output is set to

generally increase.

Europe will therefore source different quality crude from different locations, but the supply

situation will remain stable and overall crude requirements will remain relatively low.

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Antwerp 2013 Conference. It has not been prepared for the benefit of any particular attendee

and may not be relied upon by any attendee or other third party. If, notwithstanding the

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