Energy and commodity price benchmarking and market insights

Transcription

1 Energy and commodity price benchmarking and market insights London, Houston, Washington, New York, Portland, Calgary, Santiago, Bogota, Rio de Janeiro, Singapore, Beijing, Tokyo, Sydney, Dubai, Moscow, Astana, Kiev, Porto and Johannesburg

2 North American shale oil: reducing US imports & prospects for a global supply revolution Singapore Jeff Kralowetz 19 April 2013

3 The shale phenomenon what is happening in North America? Will the US become self-sufficient in crude? Supply, demand, price and trade Future relevance of WTI as a price benchmark Refiners moves to capture advantaged crude The domino effect of the US shale oil boom Potential for US crude oil exports Bakken/Canadian blends can they replace declining Alaska crude? Don t forget California is another flood of US crude in the offing? Q&A

4 Argus: a leading price reporting agency for energy markets The world s largest independently-held price reporting agency for energy markets Price indexation, news, data and analysis for energy and commodities Founded in 1970, 450 staff in 23 countries More than 8000 price assessments a day across 80 energy publications Publisher of ASCI (Argus Sour Crude Index), used by Saudi Arabia, Kuwait & Iraq for crude sales to the Americas Benchmark for US Gulf Coast grades, including LLS, and Russian ESPO Blend Copyright 2012 Argus Media Ltd. All rights reserved.

5 US shale oil production revolution

6 US output to rise by 2.6mn b/d from 2008 to 2019

7 US shale production exceeding 1.8mn b/d

8 Utica newcomer may produce 350,000 b/d in 2015

9 US crude logistics: more than just pipelines

10 Shale decline requires steady capital flows

11 Effects on trade flows

12 US crude imports fall to their lowest since 1990s

13 US imports to keep falling to 37pc of consumption

14 Competitive shale oil boosts US products exports

15 Shale displaces unprecedented amount of imports

16 New oil s effect on WTI: The battle for relevance

17 $/bl Cushing oil glut undermines WTI as benchmark WTI dislocated since late 2010 Canadian + Midcon shale have perpetuated discount to Brent Historic shift more Brent financial trade in 2012 than WTI: Ice Brent - 142bn bl Nymex light sweet crude (WTI) 141bn bl Brent-WTI differential WTI will reconnect with LLS as new pipelines come on 1.4mn b/d of new pipeline capacity is being added from Cushing to the Gulf coast over the next two years But LLS will hold discount to Brent

18 Crude stocks at Cushing at historically high levels

19 LLS tracks Brent; but will new crude dislodge it? ICE Brent Nymex WTI LLS

20 Jumping the price wall: will WTI reconnect? $16/bl diff between Cushing and St James New pipes and rail may move the supply overhang to coast by 2014

21 Will US government allow exports of crude? Unlikely look at LNG as a precedent Valero has a one-year exemption to export US crude to eastern Canada (Montreal) from Nov 2012 Exports to Canada & Mexico may be an exception Quality swaps: light for heavy South Korea & other free trade partners: Will national security/iran sanctions outweigh reluctance to export?

22 Jones Act: the root of dysfunctional logistics Precedents for suspension of Jones Act: Hurricane Sandy 2012 SPR release Need for ships carrying ANS is declining Several Jones Act ships already serving USAC Pentagon seems to have the trump card wants to secure a US fleet for war time

23 Market adjustments: Refiners seize the moment

24 Phillips 66 case study in advantaged crudes Copyright 2012 Argus Media Ltd. All rights reserved.

25 Race to capture advantaged crude US Gulf Valero building new light crude CDUs; replaced all light crude imports for US Gulf refineries and Memphis as of 4Q12 Marathon using Eagle Ford and Bakken in Louisiana, looks to blend Canadian instead of foreign sour at Galveston Bay Kinder Morgan building condensate splitter & rail/barge condensate operation at Galena Park Barges of Eagle Ford condensate going to St. James to go up Capline to Southern Lights and Cochin

26 Race to capture advantaged crude - USAC PBF has 100,000 b/d of rail off-load at Delaware City 60,000 b/d of shale oil Enbridge building pipeline links to get Bakken to reversed Line 9 Irving railing in Bakken to St. John Albany, NY becomes big rail hub to supply USAC Bakken going east & west as Eagle Ford takes over US Gulf coast. Marathon configuring Ohio & Kentucky refineries for Utica

27 Race to capture advantaged crude - USWC Tesoro tapping Bakken for Washington State & California Alon developing Bakersfield oil terminal; Plains Kinder Morgan Freedom pipeline to California

28 Rail captures coastal arbitrage opportunities

29 New infrastructure: Break the logjam & reconnect markets

30 US pipelines expand, help bring shale to market

31 Major pipeline projects to break the logjam Keystone XL politically infamous Enbridge Flanagan South, Seaway expansion, new light crude access plan, Bakken lines, Trunkline to St James New lines into Cushing Pony Express, Mississippian New lines from Permian: Longhorn and Bridge-Tex New lines for Eagle Ford: Flooding to Corpus Christi, meandering into Houston (less swt crude demand there) Connecting the coast: HoHo & Westward Ho Long shots: Kinder s Freedom line, etc

32 Keystone XL pipeline Capacity: 830,000 b/d Route: Hardisty, Alberta to Steele City, Nebraska (connections to US Gulf) Operational: 2015? Awaiting presidential permit Expected to carry primarily heavy Canadian; some Bakken Southern leg moving ahead for late 2013 Gulf Coast Pipeline Project Includes lateral pipe to Houston Source: Enterprise

33 Enbridge reaching east so is TransCanada

34 Seaway pipeline reversed to reconnect Cushing Capacity: 400,000 b/d Route: Cushing, Oklahoma to Freeport, Texas Operational: June 2012 Ramped up to 400,000 b/d in Jan 2013 Twinned to 850,000 b/d in 2014 Will include lateral pipes to ECHO terminal and from ECHO to Beaumont/Port Arthur Source: Enterprise

35 Enbridge s Flanagan South Pipeline Project Capacity: 585,000 b/d Route: Flanagan, Illinois to Cushing, Oklahoma Operational: mid-2014 Adjacent to Enbridge s Spearhead Supplements 190,000 Spearhead Will move Canadian and Midcon crudes from Enbridge's 2.6mn b/d Mainline to Cushing Source: Enbridge

36 Multiple new pipes to Texas coast relink WTI

37 Ho-Ho pipeline one link cut, another created

38 Shale crudes and impact on the USGC refining industry

39 Blending condensate, heavy crudes = dumbell crudes

40 Lighter crude does not necessarily fit well in PADD 3 Upgrade Capacity in % of CDU Capacity for PADD 3 Coking Alkylation Cracking Reforming Isom Aromatics Vacuum Louisiana BPT HTX Corpus Christi

41 Without investment, US refineries could lose capacity Theoretical Calculation Derate Refineries with Eagle Ford Crude LE/Naphtha Capacity Limited Brent Eagle Ford Comment Crude Throughput, B/D 100,000 83, API Eagle Ford Lt ends +Naphtha, % LE + Naphtha Produced, b/d 29,400 36,750 LE/Naphtha Processing capacity 36,750 36,750 Limit of Facility Margin before Discounts, $/bbl Adjusted for higher Fixed Costs Discount to Brent,$bbl 4 Discount below Brent Daily Op Income, $/day 500, ,185 Despite the reduction of input, with US domestic crude discounts, refiners can make more money running less crude Several companies (VLO, P66) are working on projects to process more shale crudes and maintain throughputs at design

42 US naphtha and condensate exports are on the rise Source EIA and Argus DeWitt: Source: CERI Condensate exports include natural gasoline; Major export path is Southern Lights Pipeline via CAPLINE connection

43 Bakken/Canadian crude blends: Replacing declining ANS

44 Alaska production to continue decline

45 California oil production in decline 2-3pc/yr

46 USWC finally embraces shale crude Bakken/Canadian heavy blends = blended ANS Rail to existing pipelines Permian by rail or pipe

47 US west coast crude imports steady so far

48 ANS/USWC is a Brent market since early Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 ICE Brent Nymex WTI ANS

49 Conclusions US shale production growth expected to continue WTI Cushing likely to remain primary US crude benchmark & financial contract, augmented by LLS Products exports help relieve crude oil oversupply; help refiners optimize. Look for exceptions to crude export ban + quality swaps Some US Atlantic refineries viable with Bakken + Eagle Ford crude US west coast rapidly building shale receiving capacity; will see more shale oil blends replacing ANS

50 Thank you Jeff Kralowetz Vice President, Business Development Phone: URL: Copyright notice All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence from Argus. Without limiting the foregoing, by reading this presentation you agree that you will not copy or reproduce any part of its contents (including, but not limited to, single prices or any other individual items of data) in any form or for any purpose whatsoever without the prior written consent of Argus. Trademark notice ARGUS, ARGUS MEDIA, the ARGUS logo, FMB, DeWitt, ARGUS publication titles and ARGUS index names are trademarks of Argus Media Ltd. Visit for more information. Disclaimer All data and other information presented (the Data ) are provided on an as is basis. Argus makes no warranties, express or implied, as to the accuracy, adequacy, timeliness, or completeness of the Data or fitness for any particular purpose. Argus shall not be liable for any loss or damage arising from any party s reliance on the Data and disclaims any and all liability related to or arising out of use of the Data to the full extent permissible by law.