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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

Meeting Future Distillate Needs

Jean Sentenac

President & CEO


OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006


Recent past context facts
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


Projected refined products demand 2005 2020
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


Trend in global demand for refined products

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


Global demand for refined products in 2020
Global Demand for Refined Productsin 2020

Continuous change in product mix

OAPEC-IFP Joint Seminar – Rueil-Malmaison, 2006


Imbalances major flows 2005
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


Imbalances major flows 2015
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


Crude oil quality world trends excluding condensate
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


Supply demand tension
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


Attractive economics
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


Hsfo diesel prices 1998 apr 2006
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


Light heavy differential
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


Refining diff vs crude diff 1998 mar 2006
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


The market direction
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


Impact on refining industry
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


Refining investment strategies
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


Projected conversion capacity expansion 2005 2020
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


Capacity expansions 2005 2020 geographical breakdown
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


Conclusions
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


Conclusions1
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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