Prospects for North American Petroleum Product Exports Lucian Pugliaresi President Energy Policy Research Foundation, Inc. Washington, DC Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 1
The North American Petroleum Renaissance Take Aways (part 1) North America is at the early stages of a game changing surge in liquids output which will radically alter product trade in the Atlantic Basin (& beyond). Infrastructure requirements to move upstream output to downstream centers in U.S. are massive. Execution risk in infrastructure and political interference will yield extreme volatility in WCS-WTI-Brent-LLS spreads & Atlantic Basin products trade. Shale oil, like shale gas, is now benefitting from the same technology (horizontal drilling and HF) that delivered the shale gas boom. North America to expand at 400-500k bbls/d of liquids per annum. Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 2
The North American Petroleum Renaissance Take Aways (part 2) This transformation is leading to large scale opportunities for value added upstream and downstream operations (crude oil, NGLs, refining, petrochemicals, LNG, etc.). + higher U.S. economic growth. There is now a real potential for the U.S. to separate from the world oil market (not necessarily a good thing), as has been the case with nat gas. U.S. regulatory programs/political resistance is largest risk to the renaissance. Presenter is not taking any special medications!!!!!
tcf per year of LNG $/MMBTU Projected Imports of LNG vs. Actual (or why forecasters should have humility) 3.00 10 9 2.50 8 2.00 1.50 7 6 5 Reference Case - Net U.S. imports of LNG (tcf) - 2008 EIA Annual Energy Outlook Actual US Net LNG Imports 1.00 4 3 Henry Hub Gulf Coast Natural Gas Spot Price ($/MMBTU) (right axis) 0.50 0.00 2 1 0 Prices at $2.50 to $2.80 in Feb 2012 Source : EIA data and forecasts Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 4
tcf of gas $ per MMBTU Disposition of US Natural Gas 30 10 9 25 8 20 15 10 7 6 5 4 3 U.S. Natural Gas Total Consumption (Red Area is Net Imports) U.S. Natural Gas Marketed Production Shale Production Henry Hub Natural Gas Spot Price ($/MMBTU) 5 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e 0 Source: EIA data, Navigant data, EPRINC calculations Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 5
North American Production Potential Source: EIA Data Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 6
Total Canadian Oil Production (NEB Reference Case) Source: Canada s Energy Future: Energy Supply and Demand Projections to 2035. Nov 2011. NEB Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 7
Cost of Oil Sands Production Source: Canada s Energy Future: Energy Supply and Demand Projections to 2035. Nov 2011. NEB Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 8
Canadian Imports Source: EIA Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 9
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Rig Count and Permits Source: Photo Baker Hughes Interactive Rig Count Jan 25, 2012 Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 11
Oil and Gas Permits Source: HPDI Feb 13, 2012 Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 12
Rigs by Product Type Source: HPDI Feb 13, 2012 Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 13
1/1/1995 11/1/1995 9/1/1996 7/1/1997 5/1/1998 3/1/1999 1/1/2000 11/1/2000 9/1/2001 7/1/2002 5/1/2003 3/1/2004 1/1/2005 11/1/2005 9/1/2006 7/1/2007 5/1/2008 3/1/2009 1/1/2010 11/1/2010 9/1/2011 7/1/2012 5/1/2013 3/1/2014 1/1/2015 11/1/2015 9/1/2016 7/1/2017 million barrels per day Unconventional Liquids 2011 to 2017 5 Raymond James 4.5 4 3.5 3 2.5 Eagle Ford Liquid Daily Average Bakken/Three Forks Liquid Daily Average Niobrara/Codell Liquids Daily Average 2 1.5 1 0.5 0 Source: EPRINC, Building Blocks of the NA Petroleum Renaissance Permian Basin Liquids Daily Average Note: Sustainable rates of NA upstream Liquids Growth now Likely at 500 kbbls/yr. 14
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U.S. Production Increases Source: EIA and EPRINC estimates from NDPA and HPDI Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 16
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The Route Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org
PAD Districts and Refinery Locations Source: NPRA Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 19
Canadian Imports and Potential Markets Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 20
North American Pipes Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 21
Choke Points Source: Savage, Presentation Bakken Product Markets and Take-Away Denver Jan 31-Feb 1 2012 with EPRINC Additions Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 22
State of the Industry: A Tale of Two PADDs Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 23
Atlantic Basin Refinery Closures PADD I closures, 2009 2012 estimated at over 700,000 b/d Main causes include: Rising federal and state regulatory costs (and uncertainties on future regs) High refiner acquisition cost for feedstock Limited infrastructure for accessing rising volumes of lower cost domestic feedstock Low cost gasoline imports from European refiners as U.S. Gulf Coast refiners face obstacles for moving volumes by ocean tanker Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 24
Jan-2004 May-2004 Sep-2004 Jan-2005 May-2005 Sep-2005 Jan-2006 May-2006 Sep-2006 Jan-2007 May-2007 Sep-2007 Jan-2008 May-2008 Sep-2008 Jan-2009 May-2009 Sep-2009 Jan-2010 May-2010 Sep-2010 Jan-2011 May-2011 Sep-2011 $ per barrel Refinery Acquisition Cost of Crude 160 140 120 100 80 60 40 20 0 East Coast (PADD 1) Crude Oil Composite Acquisition Cost by Refiners (Dollars per Barrel) Midwest (PADD 2) Crude Oil Composite Acquisition Cost by Refiners (Dollars per Barrel) Gulf Coast (PADD 3) Crude Oil Composite Acquisition Cost by Refiners (Dollars per Barrel) Rocky Mountain (PADD 4) Crude Oil Composite Acquisition Cost by Refiners (Dollars per Barrel) West Coast (PADD 5) Crude Oil Composite Acquisition Cost by Refiners (Dollars per Barrel) PADD 1 has the highest RAC in the U.S. and the least heavy crude processing capability Source: EIA Data Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 25
% utilization Refinery Utilization by PADD 100 95 90 85 80 75 70 65 60 55 50 East Coast (PADD 1) Percent Utilization of Refinery Operable Capacity Midwest (PADD 2) Percent Utilization of Refinery Operable Capacity Gulf Coast (PADD 3) Percent Utilization of Refinery Operable Capacity Rocky Mountains (PADD 4) Percent Utilization of Refinery Operable Capacity West Coast (PADD 5) Percent Utilization of Refinery Operable Capacity Low Utilization in PADD I PADD I refiners face high feedstock and regulatory costs declining demand leading to capacity losses. Source: EIA Data Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 26
Refining Labor Income and Value Added by PADD (2009) Source: PwC Economic Impact & Employment Report 2011; Wood Mackenzie analysis Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 27
Upstream Will Drive the Downstream Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 28
U.S. and North Dakota Rig Count Source: Baker Hughes Oct 4 2011. All but 50 rigs nationwide are onshore. Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 29
Estimated Ultimate Recovery Source: Brigham Exploration via World Oil Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 30
Bakken Producing Wells and Activity 2001 to 2011 2011 Source: HPDI Production Data Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 31
Technology Matters Overtime companies in the Bakken have improved their techniques Only a few years ago frac stages were minimal, but now they are 30 plus with some trying to go as high as 60 Typically, more fracturing means more production, but this also increases cost, usually more than paid for by the increased production Horizontal laterals now common in the Bakken and across the country were once around 4,000 ft and are now as long as 10-15,000 ft 40 fracture stimulations are now pushing ultimate recovery figures to well over 600,000 and 700,000 barrels of oil. (Oil Patch Hotline) Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 32
Wells, Rigs, and Jobs 1,100 to 2,700 wells/year = 2,000 expected 100-225 rigs = 12,000 27,000 jobs = 20,000 expected 225 rigs can drill the 5,000 wells needed to secure leases in 2.5 years 225 rigs can drill the 28,000 wells needed to develop spacing units in 14 years 33,000 new wells = thousands of long term jobs Source: North Dakota Industrial Commission Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 33
Value of an Oil Well in North Dakota Typical 2011 North Dakota Bakken well will produce for 28 years (enhanced oil recovery efforts could extend the life of well) During those 28 years the average Bakken well will Produce approximately 550,000 barrels of oil Generate over $20 million net profit Pay approximately $4,360,000 in taxes, $2,100,000 gross production taxes, $1,900,000 extraction tax, $360,000 sales tax Pay royalties of $7,600,000 to mineral owners Pay salaries and wages of $1,600,000 Pay operating expenses of $2,300,000 Cost $7,300,000 to drill and complete Source: North Dakota Industrial Commission Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 34
Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Williston Basin Production 600,000 500,000 400,000 300,000 200,000 North Dakota Eastern Montana South Dakota TOTAL 100,000 0 North Dakota Now Accounts for 8% of US Production!!!! Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 35
NDPA Forecast Drivers 1) Completion Time 2) Rig Count 3) Decline Rates Source: North Dakota Pipeline Authority Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 36
Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 $/Barrel North Dakota Discounts 140 120 100 80 60 40 20 North Dakota Light Sweet WTI Spot Brent Spot 0 Source: Flint Hills, EIA, and estimates Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 37
Bakken and Three Forks Natural Gas Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 38
North Dakota Crude Oil Transportation Tesoro refinery takes in 58,000 b/d and will be expanding to 68,000 b/d Source: North Dakota Pipeline Authority Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 39
$/Barrel Various Crude and NG Prices 140 120 100 80 60 40 20 0 North Dakota Light Sweet WTI Spot Brent Spot Henry Hub Natural Gas Spot ($ per 6 MM Btu) Source : EIA data, Flint Hills data, EPRINC Calculations Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 40
Source: Hart Energy and Others Niobrara Upper Cretaceous, interbedded marine chalk, limestone, organic rich shale Self-sourced hydrocarbon system Total Organic Carbon Content (TOC) between 1-7% Deep portions of the play are thermally mature Type II marine oil-prone kerogen Low permeability, low porosity Low pressure system Interbedded chalk helps with brittleness and natural fractures, enhanced with structural features (anticlines, faults, etc ) Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 41
Niobrara Production Source: HPDI Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 42
The Basics The Eagle Ford stretches across south Texas more than 180 miles. It is a shale oil, condensate/ngl, and dry gas play that increases in depth and maturity as you move south and slightly to the west. Estimates of recoverable liquids range from three to seven billion barrels The play produces low sulfur (low in oil window and only minimal in condensate window) high API gravity oil and condensate ranging from 45 degrees to 65 degrees and increases in gravity as you move south from oil to gas Current production is nearly 200,000 boe/d and set to continue in the coming months and years, especially as the necessary take-away capacity comes in mid to late 2012 Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 43
What is Happening Now? Most activity is in the condensate window (located in the middle between the oil and gas, corresponding to depth and thermal maturity). Condensate is receiving prices similar to oil. With low natural gas prices, the gas window is not exceptionally hot, but is still being targeted by some companies due to its richer content enabling it to fetch higher than Henry Hub prices. EOG is the largest liquids producer in the Eagle Ford, dominating oil production and oil acreage in the Eagle Ford. Many companies have yet to fully push the oil portion of the play give lack of necessary take-away infrastructure and therefore we may see this increase mid 2012 with significant infrastructure projects set to begin operation Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 44
Three Window Map of Eagle Ford Wet Gas/Condensate Oil Dry Gas Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 45
Eagle Ford Rig Count Source: Baker Hughes provide by Hart Energy Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 46
Eagle Ford Production Source: HPDI Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 47
1/1/1985 2/1/1986 3/1/1987 4/1/1988 5/1/1989 6/1/1990 7/1/1991 8/1/1992 9/1/1993 10/1/1994 11/1/1995 12/1/1996 1/1/1998 2/1/1999 3/1/2000 4/1/2001 5/1/2002 6/1/2003 7/1/2004 8/1/2005 9/1/2006 10/1/2007 11/1/2008 12/1/2009 1/1/2011 Barrels Per Day mcf/day Permian Basin Oil and Gas Production 1800000 7000000 1600000 6000000 1400000 1200000 5000000 1000000 4000000 Texas LIQ 800000 3000000 New Mexico LIQ Texas GAS 600000 2000000 New Mexico GAS 400000 200000 1000000 0 0 Source: HPDI Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 48
The Permian Basin The Permian Basin province is a gift that keeps on giving. The Basin has been producing oil for 90 years and is currently in the heart of both a vertical and horizontal boom. Nearly 500 rigs are running in the Permian Basin and over the past few years production has risen around 200,000 b/d putting Basin production over 1,000,000 b/d and accounting for about a fifth of U.S. production The historical province includes multiple geologic shelves and basins, reservoirs, and producing fields. Recent activity is somewhat confusing given the use of both field and reservoirs being used interchangeably referring to production What is unique about this Basin is the significant vertical drilling activity targeting what is termed by many as the Wolfberry or Spraberry field. This presentation breaks down this area of activity through the Trend Area reservoir and the Strawn reservoir in the Midland Basin of the Permian Basin Province The notable horizontal drilling is being done in the Bone Spring and the Wolfcamp which encompass both New Mexico and Texas Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 49
Permian Basin Prominent Reservoirs and Fields Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 50
1/1/1985 11/1/1985 9/1/1986 7/1/1987 5/1/1988 3/1/1989 1/1/1990 11/1/1990 9/1/1991 7/1/1992 5/1/1993 3/1/1994 1/1/1995 11/1/1995 9/1/1996 7/1/1997 5/1/1998 3/1/1999 1/1/2000 11/1/2000 9/1/2001 7/1/2002 5/1/2003 3/1/2004 1/1/2005 11/1/2005 9/1/2006 7/1/2007 5/1/2008 3/1/2009 1/1/2010 11/1/2010 9/1/2011 Barrels Per Day mcf/day Trend Area Daily Average Production 250000 600000 200000 500000 LIQ GAS 400000 150000 300000 100000 200000 50000 100000 0 0 Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 51
1/1/1985 10/1/1985 7/1/1986 4/1/1987 1/1/1988 10/1/1988 7/1/1989 4/1/1990 1/1/1991 10/1/1991 7/1/1992 4/1/1993 1/1/1994 10/1/1994 7/1/1995 4/1/1996 1/1/1997 10/1/1997 7/1/1998 4/1/1999 1/1/2000 10/1/2000 7/1/2001 4/1/2002 1/1/2003 10/1/2003 7/1/2004 4/1/2005 1/1/2006 10/1/2006 7/1/2007 4/1/2008 1/1/2009 10/1/2009 7/1/2010 4/1/2011 Barrels Per Day mcf/day Bone Spring Daily Average Production 45000 250000 40000 35000 30000 LIQ GAS 200000 25000 150000 20000 15000 100000 10000 50000 5000 0 0 Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 52
The older, deeper, and more liquid rich brother of the Marcellus...?...The Utica Source: Oil and Gas Investor July 2011 Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 53
Utica Oil and Gas Potential in Ohio Source: Ohio Government Department of Natural Resources http://www.dnr.state.oh.us/geosurvey/tabid/23014/default.a spx Source: Baker Hughes Interactive Rig Count, Ipad, Dec 2, 2011 Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 54
Utica Oil and Gas Potential in Ohio Source: Ohio Government Department of Natural Resources Presentation DUG East Conference Pittsburg,Nov. 2011 Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 55
Chesapeake s Positive Outlook on the Utica Very large leasehold and the only company that has drilled a producing horizontal Utica Shale well in Ohio. Utica looks similar, but is likely superior to the Eagle Ford Shale in South Texas. Likely to be economically superior to the Eagle Ford because of the quality of the rock and the location of the asset. 1.25-million net acres of Chesapeake holdings in the Utica should be worth $15 billion to $20 billion Utica likely to key driver in the future growth of U.S. energy supplies, especially in natural gas liquids. Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 56
Break Even Prices - $50-$70/bbl Source: ITG Investment, formerly Ross Smith Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 57
Comparing Shale Oil Plays Niobrara Eagle Ford Oil Window Bakken Age Cretaceous Cretaceous Cretaceous Depth (TVD ft.) 6,000-10,000 5,000-11,000 8,000-11,000 Thickness (ft.) 150-500 80-175 <140 TOC (%) 1-8 3-6 8-10 In-Place (MMBOE/mi2) 20-50 50 5-15 IP (BOE/d) 400+ 300-2,000 300-2,000 EUR (MBOE) 200+ 200+ 200-700 Royalty (%) 17% 25% 15-20% D & C ($MM) 3-6 4-7 5-9 F & D ($/BOE) 15-30 <20 10-25 Source: Tudor Pickering Holt and Co. from Hart Energy Oil and Gas Investor Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 58
Downstream s Wild Ride Opportunities and Uncertainties Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 59
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100 103 106 109 112 115 118 121 $/bbl Low Cost NG Lowers Production Costs 10 U.S. Refiners' Effective Cost of Production 9 8 7 6 Cumulative Capacity 5 5 mbd 10 mbd 15 mbd 4 Refinery # (most complex on left, least complex on right) <<<---Higher CAPEX/OPEX, generally large, but better yields, feedstock flexibility Lower CAPEX/OPEX, generally smaller, but worse yields, less flexibility --->>> Effective Production Cost Production Cost with Low NG Price of $4/mcf = $0.75/bbl lower cost Effective Production Cost takes into account a refinery s ability to use heavy crude feedstocks (complexity), product slate (yields) and operating costs (OPEX). Source : OGJ Data for 2009, EPRINC Calculations Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 60
Building Out the Take Away Capacity is Critical Source: Deutshe Bank
U.S. GC Send us the Heavy Waterborne Imports, kbd Source: Company data, EIA, Wood Mackenzie, Bloomberg Finance LP, Deutsche Bank estimates 62
U.S. Refineries Heavy Reliance 63
Distillate Trade Flows in 2015 Note: Take away capacity stays on schedule, no export restrictions!!! Source: Deutcshe Bank, EIA, Wood Mackenziie, EIA 64
Gasoline Trade Flows in 2015 Note: Take away capacity stays on schedule, no export restrictions!!! Source: Deutcshe Bank, EIA, Wood Mackenziie, EIA 65
Where Are We Headed US refining capacity remains constant at 17.5m b/d Aggressive Canadian heavy discounting will drive heavy volumes to the Gulf Coast via Enbridge and Keystone XL. Mid-Con is short refinery capacity and product, Gulf Coast ships within PADD 3, Mid-continent and abroad. Gulf Coast wins the battle in the shrinking Atlantic Basin, IF Gulf Coast refiners are able to continue to increase product exports (U.S. product pricing reflects global levels). IF NOT, Gulf Coast and Mid-Con refiners enter winner take all death spiral, High Cost North American upstream output returns decline and U.S. disconnects from world product markets. Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 66
Two Final Points Official U.S. Government Policy Must Now Connect the Dots- -Upstream Renaissance Needs Midstream Infrastructure and Downstream Export Platforms. U.S. Regulatory Uncertainties Could Kill the Renaissance: export policy (crude and product export controls, Tier 3 Standards, GHG controls, NSPS, etc) Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org 67
Energy Policy Research Foundation, Inc. 1031 31st St, NW Washington, DC 20007 202.944.3339 www.eprinc.org