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Meeting Future Distillate Needs

Meeting Future Distillate Needs. Jean Sentenac President & CEO. Worldwide refining: recent past context Future global demand for refined products 2020 Interest in heavier crudes Refining economics: “ The New Deal ” Impact on refining investments . Recent Past Context Facts.

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Meeting Future Distillate Needs

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  1. Meeting Future Distillate Needs Jean Sentenac President & CEO

  2. Worldwide refining: recent past context • Future global demand for refined products 2020 • Interest in heavier crudes • Refining economics: “The New Deal” • Impact on refining investments OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006

  3. Recent Past Context Facts • Last decade characterized by • Low level of investment in refining during the 1990’s • due to overcapacity and low margin • Limited investments in crude exploration and production • due to low crude prices • A sharp increase of world oil demand since 2003 • Market driver China, to a lesser extent emerging countries & the US Mbpd Oil Demand Growth Source: AIE OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006

  4. Projected Refined Products Demand 2005 - 2020 2005 Demand Geographical Breakdown 2005-2020 Incremental Demand by Region Mbpd Source: Hart WRFS, 2004 Edition OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006

  5. 38% Middle Distillate* 25% Gasoline Naphtha 2020 ~ 105 Mbpd Trend in Global Demand for Refined Products 70% 7% Middle Distillate* 31% 62% Gasoline 27% Naphtha 4% 1990 ~ 66 Mbpd OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006

  6. Global Demand for Refined Productsin 2020 Continuous change in product mix OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006

  7. Imbalances & Major Flows2005 4 Europe 35 23 4 25 North America 18 CIS -25 -10 6 -28 -4 Asia - Pacific 20 4 6 7 27 6 -10 Africa & Middle East -8 6 3 -5 Central & South America 12 Gasoline Jet/Kerosene All figures in Mt/y Diesel OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006 Fuel Oil

  8. Imbalances & Major Flows2015 50 30 Europe North America 40-45 CIS 40 -45 -60 Asia - Pacific 15 Africa & Middle East -45 -12 Gasoline Jet/Kerosene All figures in Mt/y Diesel OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006

  9. Crude Oil QualityWorld Trends Excluding Condensate Sulfur, wt.% API Gravity 1.70 34.7 1.65 34.2 1.60 Sulfur 1.55 33.7 Gravity 1.50 33.2 1.45 1.40 32.7 1.35 1.30 32.2 2000 2004 2010 2020 Source: Axens 2005 OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006

  10. Supply & Demand Tension • Trends • Average barrel of crude: heavier, more sulfur • Distillate demand is increasing • Residual fuel oil demand is decreasing • Product qualities will continue to rise • Consequences • Investments on the • Supply side: SCO production (non-conventional resources) or new refineries (conventional crudes) • Demand side: Hydrocrackers, cokers, FCCs • Hydrotreatreaters everywhere OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006

  11. Attractive Economics • High crude prices accompanied by increased product spreads • Increased HSFO - gas oil price differential • Beginning of 2004: 150 $/t • Today above 300 $/t  attractive investment conditions to convert residues into lighter products OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006

  12. HSFO & Diesel Prices1998 – Apr. 2006 $/ton Source: Platts On-Road Diesel FOB NWE 2005: Diff. > 300 $/t 2003: Diff. ~ 130 $/t HSFO (3.5%S) FOB NWE Brent Dated Prices, $/bbl OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006

  13. Light-Heavy Differential • Widening price differential betweenlight-sweet and heavy-sour crudes • Declining demand for HSFO • Lack of sufficient heavy-sour crude processing capacity • Widening price differentials have significantly contributed to increasing refining margins for refineries with heavy upgrading capacity OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006

  14. Refining Diff. vs. Crude Diff.1998 – Mar. 2006 Cracking – Hydroskimming Diff. Refining Margins, $/bbl Source: IEA, Platts Urals (API=31.3) 2004-2006 period Crude Price Diff: ~ 4 $/bbl Ref. Marg. Diff: ~ 2.5 $/bbl Brent (API=38.6) 2001-2003 period Crude Price Diff: ~ 1.5 $/bbl Ref. Marg. Diff: ~ 1 $/bbl Brent – Urals Crude Price Differential, $/bbl OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006

  15. The Market Direction • As crude prices increase, the light-heavy price spread increases • Operating margins are higher with heavier and more sour feeds • Margins increase further with increased refinery complexity Treating heavy, extra-heavy crudes requires more complex refineries: added conversion technology OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006

  16. Impact on Refining Industry • To satisfy additional demand, significant conversion capacity will be required through 2020 • Conversion capacity: + 12.3 Mbpd • Each year + 800,000 bpd • Middle distillate HDS capacity: + 10.4 Mbpd OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006

  17. Refining Investment Strategies • Europe, US, Japan  Continued investments in regulation attainment and conversion capacity  Creep capacity expansion will continue • Product demand growth areas (Asia)  New world-scale refineries • Producing countries  Refineries dedicated to export (Middle East)  Upgrading of non conventional hydrocarbon reserves (Canada, Venezuela) to produce synthetic oil to be refined in US / Europe OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006

  18. Projected Conversion Capacity Expansion 2005 - 2020 2005 Capacity Geographical Breakdown 2005-2020 Additional Capacity by Region Mbpd Source: Hart WRFS, 2005 Edition OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006

  19. Capacity Expansions 2005-2020 Geographical Breakdown Coking : +3.3 Mbpd (55 – 70 units) Catalytic Cracking: + 5 Mbpd (60 – 75 units) Hydrocracking: + 4 Mbpd (+1.1 AR/VRDS) (80 – 90 units) Source: Axens & Hart WRFS, 2005 Edition OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006

  20. Conclusions • Steadily increasing product demand • 1.6 - 1.7 %/y • Continuous change in product mix in favor of light transportation fuels • Declining crude quality (API, sulfur) • Increasingly stringent fuel specifications • Need 12.3 Mbpd additional conversion capacity by 2020 OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006

  21. Conclusions • Attractive operational margins • Tight supply – additional investments required • High sulfur FO/GO differential above 300 $/t and expected to remain there for the foreseeable future • Widening LS and HS crude differential • Conditions favorable for investing in conversion technologies OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006

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