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Transcript of Distillate in Depth – The Supply, Demand, and Price Picture Distillate in Depth – The Supply,...
Distillate in Depth – The Supply, Distillate in Depth – The Supply, Demand, and Price PictureDemand, and Price Picture
John Hackworth
Joanne Shore
Energy Information Administration
Winter Fuels Conference
October 12, 2005
www.eia.doe.govwww.eia.doe.gov
Distillate and Gasoline Relationships --Distillate and Gasoline Relationships --Temporary or Fundamental Change?Temporary or Fundamental Change?
• Unusual distillate and gasoline prices in 2005 – Not just a U.S. issue
• Explore Europe/US light product supply/demand balance to illustrate market dynamics– Europe’s product imbalance– U.S. product imbalance– How they fit together
• Current distillate market and supply response
2005: Continuation of High Product 2005: Continuation of High Product Prices – Especially DistillatePrices – Especially Distillate
-250
255075
100125150175200225
Ja
n-9
9
Ja
n-0
0
Ja
n-0
1
Ja
n-0
2
Ja
n-0
3
Ja
n-0
4
Ja
n-0
5
$/B
arr
el
U.S. New York Monthly Average Spot Prices
Gasoline
No. 2 Heating Oil
Gasoline - No. 2 Heating Oil
Note: Gasoline is conventional regular
Source: Bloomberg
Unusual 2005 Distillate Prices Unusual 2005 Distillate Prices InternationallyInternationally
-30
-20
-10
0
10
20
30
40Ja
n-9
5
Jan
-96
Jan
-97
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Ce
nts
Pe
r G
allo
n
Spot Gasoline - Heating Oil Price Differences
NY Harbor
Northwest Europe
Source: Bloomberg NY Conventional Gasoline, No. 2 Heating Oil; NW Europe 0.2% Heating Oil and Regular Gasoline
Atlantic Basin 1995-2004Atlantic Basin 1995-2004Business As UsualBusiness As Usual
75
80
85
90
95
10019
95
1996
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Per
cen
t
Capacity Utilization
U.S.
EU-15
Note: European Union-15 (EU-15): Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, United Kingdom
Source: IEA
Europe Is Unique In Degree of Shift to Europe Is Unique In Degree of Shift to Middle DistillateMiddle Distillate
40%
45%
50%
55%
60%
65%
70%19
85
1987
1989
1991
1993
1995
1997
1999
2001
2003
Middle Distilate Share of Gasoline and Distillate Consumption
EU-25
World Excl FSU and EU-25
Note: European Union-25 (EU-25): former European Union-15 plus Estonia, Latvia, Lithuania, Czech Republic, Slovakia, Hungary, Poland, Slovenia (beginning in 1992/93), Cyprus, Malta
Source: BP Statistical World Review 2005
EU’s Contribution: Price is Not Just EU’s Contribution: Price is Not Just About Volumes, But Quality As WellAbout Volumes, But Quality As Well
0
5
10
15
20
25M
ay-0
3
Jul-
03
Sep
-03
No
v-03
Jan
-04
Mar
-04
May
-04
Jul-
04
Sep
-04
No
v-04
Jan
-05
Mar
-05
May
-05
Jul-
05
Sep
-05
Cen
ts P
er G
allo
n
Diesel 10ppm-Heating Oil
Diesel 50ppm - Heating Oil
European ULSD - Heating Oil Prices
Note: ULSD is ultra-low sulfur diesel
Source: Bloomberg NWE Barge
Distillate and Gasoline Relationships --Distillate and Gasoline Relationships --Temporary or Fundamental Change?Temporary or Fundamental Change?
• Unusual distillate and gasoline prices in 2005 – Not just a U.S. issue
• Explore Europe/US light product supply/demand balance to illustrate market dynamics– Europe’s product imbalance– U.S. product imbalance– How they fit together
• Current distillate market and supply response
Europe and the U.S. – Example of Europe and the U.S. – Example of International Product TradeInternational Product Trade
• We know the U.S. depends on product imports – especially those from Europe
• Product trade between Europe and U.S has increased from 1995 to 2005
• Working together because it benefits both due to different supply/demand balances
• Distillate product supply concerns may grow more for EU, but impacts U.S.
• Product quality issues important -- but not part of this presentation
EU-15 Demand Mix Projected to See EU-15 Demand Mix Projected to See Declining Gasoline DemandDeclining Gasoline Demand
0
500
1000
1500
2000
2500
3000
3500
4000
1990
1995
2000
2005
2010
2015
Th
ou
san
d B
arre
ls P
er D
ay Diesel Fuel
Gasoline
EU-15 Demand Mix
Source: History IEA; Forecast Purvin & Gertz
European Preference for Diesel Grew European Preference for Diesel Grew Quickly since Late 1990s Quickly since Late 1990s
48.2
0
10
20
30
40
50
Per
cen
t o
f N
ew
Reg
istr
atio
ns
1990 1992 1994 1996 1998 2000 2002 2004
W. Europe Diesel-Fueled Vehicle Share of New Passenger Car Registrations
Source: ACEA www.acea.be
EU Distillate Refining Yield Growing as EU Distillate Refining Yield Growing as Gasoline Yield ShrinksGasoline Yield Shrinks
20
25
30
35
40
45
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Yie
ld P
erce
nt
EU-15 Refinery Yields (Production/Crude Inputs)
Gasoline Yield
Distillate Yield
Note: Distillate is heating oil and diesel.
Source: IEA
EU Hydrocracking Growing, But Not as EU Hydrocracking Growing, But Not as Fast as Diesel Demand ShiftFast as Diesel Demand Shift
0
2
4
6
8
10
12
14
16
1819
90
1992
1994
1996
1998
2000
2002
2004
Per
cen
t o
f D
isti
llati
on
Cap
acit
y
FCC (Mainly Gasoline)
Hydrocracking (More Distillate)
EU-11 Capacity As Percent of Distillation
Note: FCC - Fluid Catalytic Cracking
Source: EIA, Oil and Gas Journal
Europe’s Growing Product ImbalanceEurope’s Growing Product Imbalance
-1000
-800
-600
-400
-200
0
200
400
600
800
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Th
ou
san
d B
arre
ls P
er D
ay
EU-15 Product Net Imports
Gasoline Net Exports
Middle Distillate Net Imports
Source: IEA
Europe Using Imports and Exports to Europe Using Imports and Exports to Balance Product Supply: 1995-2004Balance Product Supply: 1995-2004
• Diesel/gas oil imports increased 400 MB/D with 3/4 from Former Soviet Union
• Kero/Jet imports rose 200 MB/D with 56% from Middle East
• Even with large distillate imports, had to export about 400MB/D gasoline to balance
• Three quarters of gasoline exports went to U.S. and 10% to Africa
Source: IEA
Europe: 1995-2004 -- SummaryEurope: 1995-2004 -- Summary
• Diesel demand growing and gasoline demand declining
• European refiners production mix -- too much gasoline, too little diesel
• Hydrocrackers being built to increase diesel yield, but not keeping up with demand shift
• Historically, Europe achieved balance by finding economic import sources for distillates and export destination for gasoline
• Future: Still see increasing gasoline exports for some time – but will economic distillate imports be available – especially ULSD imports?
U.S. Demand Growing for Both Gasoline and U.S. Demand Growing for Both Gasoline and DistillateDistillate
0
2000
4000
6000
8000
10000
12000
1990 1995 2000 2005 2010 2015
Th
ou
san
d B
arre
ls P
er D
ay
U.S. Gasoline & Distillate Demand
Gasoline
Distillate
Source: EIA, Annual Energy Outlook 2005
U.S. Refinery Throughput Has U.S. Refinery Throughput Has Increased to Help Meet DemandIncreased to Help Meet Demand
0
2
4
6
8
10
12
14
16
18Ja
n-9
0
Jan
-92
Jan
-94
Jan
-96
Jan
-98
Jan
-00
Jan
-02
Jan
-04
Mil
lio
n B
arre
ls P
er D
ay
U.S. Refining Capacity & Inputs
Gross Inputs
Operable Capacity
Source: EIA
U.S. Middle Distillate Yield Has U.S. Middle Distillate Yield Has Increased While Gasoline Stayed FlatIncreased While Gasoline Stayed Flat
20
25
30
35
40
45
50
55
60
1990 1992 1994 1996 1998 2000 2002 2004
Yie
ld P
erc
en
t
Gasoline Excl Oxygenates, Butane
Gasoline With Oxygenates, Butane
Middle Distillate
U.S. Gasoline & Middle Distillate Yields
Source: EIA
6500670069007100730075007700790081008300850019
90
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
0200400600800100012001400160018002000
U.S. Gasoline Imports & Production (MB/D)
Total Net Imports
Total Production Excl. Blending Compontent Net Imports
Gasoline Imports Have Supplied Half Gasoline Imports Have Supplied Half Demand Growth in Recent YearsDemand Growth in Recent Years
Source: EIA
Gasoline Import SourcesGasoline Import Sources
• Nearby dedicated suppliers– Canada– Virgin Islands– Venezuela
• Nearby economic sources– Western Europe – symbiotic relationship– Eastern Europe– Latin America– Africa
• Other incremental supply– Middle East and Asia
Western Europe Growing Source of Western Europe Growing Source of Gasoline ImportsGasoline Imports
0
200
400
600
800
1000
120020
00
2001
2002
2003
2004
2005
Th
ou
sa
nd
Ba
rre
ls P
er
Da
y Other
Other Latin America
Brazil
E Europe
Venezuela
W Europe
Virgin Islands
Canada
U.S. Total Gasoline Imports Jan-Jul
Note: Total gasoline is finished product plus blending components.
Source: EIA, Form EIA-814
Low-Sulfur Years
Distillate Imports Become Critical During Distillate Imports Become Critical During Cold Snaps: Relief from Different LocationsCold Snaps: Relief from Different Locations
0
100
200
300
400
500
600
700
800
900
No
v-9
9
De
c-9
9
Ja
n-0
0
Fe
b-0
0
Ma
r-0
0
Ap
r-0
0
No
v-0
0
De
c-0
0
Ja
n-0
1
Fe
b-0
1
Ma
r-0
1
Ap
r-0
1
Th
ou
sa
nd
Ba
rre
ls P
er
Da
y
Other
Far & Middle East
Latin America
Western Europe
Eastern Europe
Canada, Venezuela,Virgin Islands
U.S. Distillate Imports
Source: EIA, Form EIA-814
Winter 99-00
Winter 00-01
United States: 1995-2004 -- SummaryUnited States: 1995-2004 -- Summary
• Gasoline:– Gasoline demand growth met almost equally by
increased throughput and increased imports
– Europe is major source of increased gasoline imports
• Distillate:– Increase in distillate supply mostly from refinery
production -- higher throughput and higher yield
– However distillate imports are critical during unexpected cold snaps
Summary of European and U.S. Summary of European and U.S. BalancesBalances
-1000
-500
0
500
1000
1500
U.S.Gasoline
U.S. Dist + K/J
EU-15Gasoline
EU-15 Dist + K/J
Th
ou
sa
nd
Ba
rre
ls P
er
Da
y
Net ImportsChange
YieldChange
ThroughputChange
How Added Demand Was Met: 1995-2004
Source: EIA, IEA
United States European Union 15
Distillate and Gasoline Relationships --Distillate and Gasoline Relationships --Temporary or Fundamental Change?Temporary or Fundamental Change?
• Unusual distillate and gasoline prices in 2005 – Not just a U.S. issue
• Explore Europe/US light product supply/demand balance to illustrate market dynamics– Europe’s product imbalance– U.S. product imbalance– How they fit together
• Current distillate market and supply response
In Response to Price, U.S. Distillate In Response to Price, U.S. Distillate Yields Have Been Unusually HighYields Have Been Unusually High
20%
21%
22%
23%
24%
25%
26%
27%
28%
J F M A M J J A S O N D
2005
Average (01-04)
Weekly U.S. Distillate Yields
Source: EIA Weekly Data
PADD 3 Estimated Lost Crude Refinery PADD 3 Estimated Lost Crude Refinery Input Volumes from Katrina and RitaInput Volumes from Katrina and Rita
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
AugWk5
SepWk1
SepWk2
SepWk3
SepWk4
OctWk1
OctWk2
OctWk3
OctWk4
NovWk1
NovWk2
NovWk3
NovWk4
DecWk1
Th
ou
san
d B
arre
ls P
er D
ay
U.S. Weekly Distillate ProductionU.S. Weekly Distillate Production
9/30/05
2000
2500
3000
3500
4000
4500
5000
1/7/05 3/7/05 5/7/05 7/7/05 9/7/05 11/7/05
Th
ou
sa
nd
Ba
rre
ls P
er
Da
y
2005
2004
Estimate
180
190
200
210
220
230
240
Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Jun-05
Sep-05
Dec-05
Mil
lio
n B
arre
ls
NOTE: Colored Band is Normal Stock Range
U.S. Total Gasoline Inventories End of Month
Gasoline Inventory: Fall 2004 and 2005 Are Gasoline Inventory: Fall 2004 and 2005 Are Quite DifferentQuite Different
Source: EIA
Estimates
80
90
100
110
120
130
140
Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Jun-05
Sep-05
Dec-05
Mil
lio
n B
arre
ls
NOTE: Colored Band is Normal Stock Range
U.S. Distillate Inventories End of Month
Ivan
Distillate Stocks Impacts: Ivan- 2004, High Distillate Stocks Impacts: Ivan- 2004, High Distillate Margins- 2005, Katrina & RitaDistillate Margins- 2005, Katrina & Rita
Source: EIA
Estimates
Pre Katrina: 2005 Distillate Not Flowing In or Pre Katrina: 2005 Distillate Not Flowing In or Out of U.S. in Unusual AmountsOut of U.S. in Unusual Amounts
-300
-200
-100
0
100
200
300
400
50019
95
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Th
ou
san
d B
arre
ls P
er D
ay
Imports
Exports
Net Imports
U.S. Distillate Imports, Exports Jan-Jul
While All Fuel Prices are High, Natural While All Fuel Prices are High, Natural Gas Gains Favor Fuel SwitchingGas Gains Favor Fuel Switching
-4
-2
0
2
4
6
8
10
8/1/
2005
8/8/
2005
8/15
/200
5
8/22
/200
5
8/29
/200
5
9/5/
2005
9/12
/200
5
9/19
/200
5
9/26
/200
5
10/3
/200
5
$/M
MB
tu
New York Price Differences
NY Natural Gas - NYH Residual Fuel
NY Natural Gas - No.2 Fuel Oil
Notes: Transco Z6 Spot Natural Gas, NY Harbor No. 2 and Resid (.31-1.0% S)
Source: Reuters
U.S. Distillate Market Leading Up to U.S. Distillate Market Leading Up to WinterWinter
• In 2004, excess gasoline supply developed, while the distillate market tightened
• The two products returned to similar balances by mid Summer 2005– High distillate prices in 2005 provided incentive to
increase distillate yields to winter levels, and resulting increased production caused inventories to build
– High availability of gasoline imports kept gasoline inventories high, despite strong demand and high distillate yield
• But the Hurricanes Katrina and Rita have caused major gasoline and distillate supply problems
Winter: Low Stocks Likely; High Winter: Low Stocks Likely; High Prices; Considerable UncertaintyPrices; Considerable Uncertainty
• Low distillate stocks – Reduced refinery distillate production from hurricanes– Diesel & jet supply affected more than heating oil– But heating oil supply and prices affected by other
distillates
• Uncertainties in distillate supply and demand– Timing of refinery restarts uncertain– Challenge to increase diesel fuel imports in competitive
Atlantic Basin – Potential for fuel switching distillate demand increase