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London
Houston
Singapore
Moscow
Dubai
New York
Calgary
Santiago
Rio de Janeiro
Beijing
Shanghai
Tokyo
Sydney
Astana
Kiev
Cape Town
Riga
San Francisco
Washington
Market Reporting
Consulting
Events
International Markets for
Crude, Refined Products and LPG
IPAA’s Annual Meeting – Napa, FL
Kristine Klavers
9 November 2017
• The Argus Media group (hereinafter referred to collectively as “Argus”) makes no representations or warranties about the accuracy or suitability of any information in this presentation and related materials (such as handouts, other presentation documents and recordings); all such content is provided to Argus presentation registrants on an “as is” basis without any warranty, condition or other representation as to its accuracy, completeness, or suitability for any particular purpose. Data and information contained in the presentation come from a variety of sources, some of which are third parties outside Argus’ control and some of which may not have been verified. All analysis and opinions, data, projections and forecasts provided may be based on assumptions that are not correct, being dependent upon fundamentals and other factors and events subject to change and uncertainty; future results or values could be materially different from any forecast or estimates described in the presentation.
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• The information contained in this presentation and related materials is provided for general information purposes only and not intended to constitute legal advice or the rendering of legal, consulting, or other professional services of any kind. Users of these materials should not in any manner rely upon or construe the information or resource materials in these materials as legal, or other professional advice and should not act or fail to act based upon the information in these materials.
Argus Media group notices
Copyright © 2017 Argus Media group. All rights reserved.2
Argus Consulting Services
Market Studies
Due Diligence
Forecasts
Strategy Development
Supply, demand and price forecasts
Project feasibility studies & financial modeling
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Quantitative risk analysis
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Transportation vehicle forecasts
Logistics analysis
Process technology development & licensing support
Operating cost reduction
Regulations analysis
Training
Copyright © 2017 Argus Media group. All rights reserved.3
Population and energy demand growth
Supply will diversify
Demand will diversify and shift
Environmental pressure will continue
Trade flows will change
Shale oil and gas boom – New technologies
Geopolitical events
Copyright © 2017 Argus Media group. All rights reserved.4
Global energy market in transition – International markets
Population keeps growing
Copyright © 2017 Argus Media group. All rights reserved.5
0.0
0.5
1.0
1.5
2.0
2.5
0
3
6
9
12
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
pcbillion Population Annual Growth Rate (pc)
Population growth vs annual growth rate 1950-2050
Source: U.S. Census Bureau, International Data Base.
Rank by
populationCountry Population
Energy
consumption
kgoe per 1000
capita
1 China 1,379,302,771 2.2
2 India 1,281,935,911 0.6
3 United States 326,625,791 7.0
4 Indonesia 260,580,739 0.9
5 Brazil 207,353,391 1.5
6 Pakistan 204,924,861 0.5
7 Nigeria 190,632,261 0.8
8 Bangladesh 157,826,578 0.2
9 Russia 142,257,519 4.9
10 Japan 126,451,398 3.5
11 Mexico 124,574,795 1.5
19 Germany 80,594,017 3.8
22 United Kingdom 64,769,452 2.8
Source: World Bank
2010-2015 2015-2020
Russia and central Asia 3.7% 3.4%
Western Europe 2.5% 3.6%
Southeast Asia 5.8% 7.1%
North America 3.9% 4.0%
Middle East 4.5% 5.2%
China 9.7% 8.3%
India 8.5% 9.9%
Source: IMF, Argus Consulting
Global GDP PPP outlook
Copyright © 2017 Argus Media group. All rights reserved.6
Review of market fundamentals for:
Crude
Refined products
LPG
Copyright © 2017 Argus Media group. All rights reserved.7
Topics
Technology: Shale & Offshore
US is a growing oil exporter 2015
Oil peak demand?
Geopolitical events
Wildcards
• Demand diversity
• Environmental pressure:
o Cleaner fuels
o Fracking regulations, activities
Copyright © 2017 Argus Media group. All rights reserved.8
Crude market dynamics
Annual historic crude price
0
20
40
60
80
100
120
140
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
$/bl
Copyright © 2017 Argus Media group. All rights reserved.9
0
200
400
600
800
1,000
1,200
1,400
8.0
8.2
8.4
8.6
8.8
9.0
Q1-2014
Q2-2014
Q3-2014
Q4-2014
Q1-2015
Q2-2015
Q3-2015
Q4-2015
Q1-2016
Q2-2016
Q3-2016
Q4 -2016
Q1 -2017
Q2 -2017
Mill
ion
bb
ls
Bill
ion
bb
l/q
uar
ter
World Oil Demand, Supply and Cumulative Oversupply
Global oil demand (left axis)
Global oil supply (left axis)
Cumulative oversupply since Q1, 2014 (right axis)
July, 2017 Update Data Source: IEA
Calculations by Argus
Copyright © 2017 Argus Media group. All rights reserved.10
Global oil supply, demand and cumulative oversupply
Rebalancing process has started
Copyright © 2017 Argus Media group. All rights reserved.11
Opec will become key marginal supplier again
25
27
29
31
33
35
37
39
2011 2016 2021 2026
mn b/d
Copyright © 2017 Argus Media group. All rights reserved.12
Continued growth, but a slowdown from 2030
Copyright © 2017 Argus Media group. All rights reserved.13
US crude exports – More than 1mn b/d and climbing
— EIA monthly and weekly data
0
200
400
600
800
1000
1200
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2012 2013 2014 2015 2016 2017
Copyright © 2017 Argus Media group. All rights reserved.14
Asia is the growing destination for US exports
Source: EIA and US Customs data
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Jan 16 Apr 16 Jul 16 Oct 16 Jan 17 Apr 17 Jul 17
mn b/d
US crude exports
Canada Asia-Pacific Europe Other Prelim total
Copyright © 2017 Argus Media group. All rights reserved.15
US crude accelerates relative decline of ME into China
Source: Argus China Petroleum
Copyright © 2017 Argus Media group. All rights reserved.16
Source: EIA Drilling Productivity Report, Sept 2017
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
Jan
-07
Au
g-0
7
Mar-
08
Oct
-08
May-0
9
Dec-
09
Jul-
10
Feb
-11
Sep
-11
Ap
r-12
No
v-1
2
Jun
-13
Jan
-14
Au
g-1
4
Mar-
15
Oct
-15
May-1
6
Dec-
16
Jul-
17
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Jan
-07
Sep
-07
May-0
8
Jan
-09
Sep
-09
May-1
0
Jan
-11
Sep
-11
May-1
2
Jan
-13
Sep
-13
May-1
4
Jan
-15
Sep
-15
May-1
6
Jan
-17
Sep
-17
Permian
Bakken
-
500,000
1,000,000
1,500,000
2,000,000
Jan
-07
Sep
-07
May-0
8
Jan
-09
Sep
-09
May-1
0
Jan
-11
Sep
-11
May-1
2
Jan
-13
Sep
-13
May-1
4
Jan
-15
Sep
-15
May-1
6
Jan
-17
Sep
-17
Copyright © 2017 Argus Media group. All rights reserved.17
Eagle Ford
Permian is leading recovery in shale oil output growth
Prolific low cost Permian Basin driving US growth
0
50
100
150
200
250
300
350
400
450
500
wells/rigs
Permian drilled Permian wells completed
Copyright © 2017 Argus Media group. All rights reserved.18
Don’t forget about the US offshore growth
515
344
310
17
0
100
200
300
400
500
600
Permian Federal offshore Eagle Ford Bakken Other
Forecast US crude output growth
(Jun '17 - Dec '18, in '000 b/d)
Copyright © 2017 Argus Media group. All rights reserved.19
0
2,000
4,000
6,000
8,000
10,000
Jan-09 Jan-11 Jan-13 Jan-15 Jan-17
000 bpd
Canadian Oil Imports to US versus US Oil Production and Mexican and Venezuelan Imports
US Oil Production
Canadian Crude Imports
Mexican Oil Imports
Venezuelan Oil Imports
Alberta heavy oil import growth continues
Copyright © 2017 Argus Media group. All rights reserved.20
Multiple export routes safeguard liquidity during storms
Copyright © 2017 Argus Media group. All rights reserved.21
World has been turning back to WTI/US Gulf pricing
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
bn bl
Futures open interest
(combined Nymex and Ice contracts)
WTI Brent
Copyright © 2017 Argus Media group. All rights reserved.22
Most likely scenario – Sticking in the shale band
Copyright © 2017 Argus Media group. All rights reserved.23
Supply/production
Demand
Environmental pressure
• Sulfur regulations
• Biofuels/CO2
• Café – Corporate Average Fuels
Replacements
• Alterative fuels
• Battery
Copyright © 2017 Argus Media group. All rights reserved.24
Refined product market dynamics
Global refining
0
15
30
2000 Now
North America
0
15
30
2000 Now
South America
0
15
30
2000 Now
Europe & Eurasia
0
15
30
2000 Now
Middle East
0
15
30
2000 Now
Africa
0
15
30
2000 Now
Asia & Pacific*
0
15
30
2000 Now
China
0
15
30
2000 Now
India
* less China & India
Copyright © 2017 Argus Media group. All rights reserved.25
5,000
5,500
6,000
6,500
7,000
7,500
8,000
8,500
9,000
9,500
10,000
2000 2002 2004 2006 2008 2010 2012 2014 2016
US - Yearly Domestic Gasoline Component Demand and
US Refinery Oil-Derived Gasoline Production
Ethanol
Imports
US-produced oil derived gasoline for domestic use
Total gasoline (oil-derived) production
-Data from EIA. Calculations by Argus.
’000 bpd
2017 data through June
US gasoline demand
Copyright © 2017 Argus Media group. All rights reserved.26
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2000 2002 2004 2006 2008 2010 2012 2014 2016
US- Yearly Domestic Distillate Demand and
US Refinery Oil-Derived Distillate Production
Biodiesel Imports
US-produced distillate for domestic use Total distillate (oil-derived) production
-Data from EIA. Calculations by Argus.
’000 bpd
2017 data through June
US distillate demand
Copyright © 2017 Argus Media group. All rights reserved.27
US refined products exports continue to increase
268528 587 656
8541007 1134 1101 1176 1190
1330
144
189210
336
526507
506 550618
761756
366
377391
449
499503
524 541538
574620
330
355415
405
424388
362 364326
288
304
103137
162 173181
185
197
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
kbpd
Major US Refined Product Exports(Year 2017 values are through June)
Jet fuel & other kero.
Resid fuel oil
Pet. coke
Gasoline & blendstocks
Distillate
Copyright © 2017 Argus Media group. All rights reserved.28
Gasoline – Regional surplus and established trade flows
North America
Middle East & Africa
FSU
South America
ChinaNortheast Asia
Southeast Asia
Europe
Indian
Subcontinent
Trade Flow
Structural Surplus
Copyright © 2017 Argus Media group. All rights reserved.29
Middle Distillate – Regional surplus and established trade flows
North America
Middle East & Africa
FSU
South America
ChinaNortheast Asia
Southeast Asia
Europe
Indian
Subcontinent
Trade Flow
Structural Surplus
Copyright © 2017 Argus Media group. All rights reserved.30
• Two main sources of growth
◦ Domestic demand and exports demand
• High level of uncertainty going forward
◦ US refined products demand growth rates
◦ MARPOL VI & the Light-Heavy spread
◦ RFS (RINs) and Cafe regulations (and octane requirements)
◦ Export growth outlook
◦ Oil prices
◦ Effects of Alberta distillate surplus
◦ G/D demand ratio shifts
◦ Border taxes
Prospects for growth in US refining?
Copyright © 2017 Argus Media group. All rights reserved.31
Global market ~300mn t/yr…. Expected 360mn t/yr by 2027
US production has grown 25% since 2010
US produces 25% of global production, at 67mn t/yr+
China and Saudi Arabia produce close to 10% each
US consumes about 20% of global production
China is the next largest consumer and the fastest growing market
US became exporter in 2012
US largest global exporter; almost double to over 50mn t/yr by 2027
Consumption growth will depend on the energy and petrochemical markets, prices of
competing feedstock like naphtha and ethane, and also subsidy regimes in Asia
Global overcapacity expected until 2020
Copyright © 2017 Argus Media group. All rights reserved.32
LPG market dynamics
Nomenclature – Gas, LPG, NGL, propane, butane, etc.
— International Energy Agency
Copyright © 2017 Argus Media group. All rights reserved.33
Methane (C1H4)
Ethane (C2H6)
Propane (C3H8)Butane (C4H10)Isobutane (C4H10)
Pentanes (C5H12)NaphthaNatural gasolineCondensate
Non-hydrocarbon gases such as: CO2, H2O, H2S, N2, etc.
Natural gases
NGLs
Dry gas or “natural gas”
LPG
Heavier fractions
Copyright © 2017 Argus Media group. All rights reserved.34
US LPG production
mn t
0
10
20
30
40
50
60
2010 2011 2012 2013 2014 2015 2016 2017
Gas Processing Refining
0
25,000
50,000
75,000
US Europe Middle East Asia-Pacific Russia and Central Asia
'000t2016 2017 2018
— Argus
Copyright © 2017 Argus Media group. All rights reserved.35
Regional LPG production
US LPG export market
Copyright © 2017 Argus Media group. All rights reserved.36
mn t
0
10
20
30
40
50
60
2012 2017 2022 2027
Global LPG consumption
0
50
100
150
200
250
300
350
2010 2011 2012 2013 2014 2015 2016
mn tAfrica Asia Pacific Europe
Latin America Middle East North America
Russia and Central Asia
Growth area
Copyright © 2017 Argus Media group. All rights reserved.37
0
50
100
150
200
250
300
350
2010 2011 2012 2013 2014 2015 2016
mn t Residential Agricultural
Industrial Commercial
Transport Refinery fuel
Petrochemical Other non-energy Consumption
— Argus Consulting
Notes: 2016 data is provisional
Copyright © 2017 Argus Media group. All rights reserved.38
Global LPG consumption by sector
Growth areas
297
238
286
239
0
50
100
150
200
250
300
201620152014
mn t
2013201220112010
Total Consumption
Total Production
— Argus Consulting
Notes: 2016 data is provisional
Copyright © 2017 Argus Media group. All rights reserved.39
Global LPG balances
• Production growth will continue to come from US, but other regions will also increase.
• Demand growth will be concentrated in Asia, in both the petrochemical and energy markets.
• Structural supply will outstrip demand globally – the world will be long LPG until 2025.
• The additional length in LPG must find a home, and will price lower relative to other oil products as a result.
• Despite a significant divergence in the net position of each region, the global surplus will prevent sustained arbitrages emergence.
• Trade flows will follow seasonal/temporary patterns.
• Post 2025 should see a rebalancing, which might effect LPG pricing.
Prospects for LPG marketd
Copyright © 2017 Argus Media group. All rights reserved.40
Continued growth in demand, of all products
Shift in demand centers and trade flows
Peak demand
China
MARPOL
Petrochemicals
In summary
Copyright © 2017 Argus Media group. All rights reserved.41
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