Ippai infrastructure f_ alan troner

Ways & Means: Infrastructure for Security, Efficiency & Profitability

By

Al Troner

ASIA PACIFIC ENERGY CONSULTING Houston, Texas, USA Phone: +1-281-759-4440; Fax: +1-281-759-4441; Email: [email protected]

Asia Energy Security Summit Colombo, Feb 29 – March 01, 2012

2 ASIA PACIFIC ENERGY CONSULTING

Infrastructure Equals Ways & Means

Small ticket items often equally important

Usually plant, often physical things

Sometimes operational, i.e. problem-solving

“Big picture” view can’t ignore the small details

Remember, problem-solving, like trade, uses two hands


Objectives – The Big Picture

Decrease cost; improve profitability

Allow greater choices in base materials, feedstock

Increase security of supply

Improve product quality; reduce environmental damage

Meeting government mandated regulations

Increase competitive edge on domestic and international markets


Nuts & Bolts – Tank Storage

Simple investment allows sophisticated operations

Large cargo shipments, reduced transport cost

Strategic stocks bolster security

Allow vast expansion of products trade/refining, i.e. Singapore

Singapore’s refinery output less than blended exports


Singapore Storage Detailed

Site Operator Ownership

Capacity ('000 CM) Products

Banyan Basin, Jurong Vopak Vopak 69.5%; PSA 30.5% 1,261.32

Products, Chemicals

Banyan Basin, JurongHorizon Singapore Terminals

Horizon Terminals ENOC 52%; IPG 15%; SK Energy 15%; Martank BV 10%; UAE's Boreh Int'l 8% 1,237.40 Products

Jurong Helios Terminal Chemoil 270.00 Products

Jurong Universal TerminalHin Leong 65%, PetroChina 35% 2,300.00 Products

P. Busing Tankstore Kuo International 929.50 Products, Chemicals

P. Sebarok Vopak Vopak 69.5%, PSA 30.5% 1,261.00

Products, Chemicals

P. Seraya Oiltanking 100% 1,165.68 ProductsTotal Operating 8,424.90


Nuts & Bolts – Ports/Berthing

In 1980s large cargoes easy to track

Less than a dozen 300,000 DWT berthing/SBM

Tankers need large support infrastructure

Storage, ports & berthing underpin blending trade

China’s ballooning infrastructure typical


China Ports

PortMax. Capacity

(DWT) Oil Receiving Operator StartupCapacity by 2004 900,000 Dagushan Port at Dalian 300,000 Petrochina 2004Qingdao 300,000 Sinopec by 2004Zhanjiang Port at Maoming 300,000 Sinopec 2002

Added Capacity by 2011 3,375,000 Zhou Shan port at Zhejiang (1) 300,000 Sinopec 2005Yangpu port at Hainan 375,000 Sinopec 2006Huizhou port 300,000 CNOOC 2007Huangdao Port at Qingdao 450,000 Sinopec 2008Caifeidan Port at Tangshan 300,000 Sinopec 2008Xianrendao Port at Yingkou 300,000 Petrochina 2009Nanjiang port at Tianjin 300,000 Sinopec 2008Douwei port at Quanzhou, Fujian 300,000 Sinopec 2009Daxie port at Ningbo 300,000 Sinopec 2009Xingang Port at Dalian 450,000 Petrochina Under ConstructionGRAND TOTAL 4,275,000

Source: China National Statistics Yearbook


Nuts & Bolts – Crude & Products Pipelines

Distinction on all pipelines – trunk vs. distribution

Crude generally trunk; products generally distribution

Asia Pacific lags behind Western & ME Gulf in both

Pipelines can create captive suppliers or buyers

Crude pipelines already reshaping trade, prices, blends


Nuts & Bolts – Gas Pipelines

Physical nature of gas makes big difference

Long run-up to commissioning (Trans-ASEAN pipeline)

Level of captiveness much higher than oil

Needs steady, uninterrupted supply and offtake/ consumption

Heavily impacted by regulatory regime

Gas trunklines lagging far behind crude

Gas transport underpins growth in NGL supply


Crude Pipelines to China

PipelineService

DateLength (Miles)

Pipeline Fill (MM BBLs)

CPC 2001 948 7.8

BTC 2005 1,061 10.6

West-East Pipeline 2008 2,029 6.0

ESPO-Phase 1 2009 1,713 20.2

West –East Pipeline Expanded * 2012 2,600 13.5

ESPO Expanded * 2014 2,100 46.0

Note: * Partially estimated.


Nuts & Bolts – Expanded Refining

Recession accelerated refinery closures in West.

Mideast downstream grew only slowly.

Asia Pacific remains expansion leader.

India’s/China’s share of Asia-Pacific downstream steadily growing

China’s expansion outpacing India


India/China Share at Asia-Pacific Refining Capacity

0

5

10

15

20

25

30

35

40

2008 2011

million barrels/day

India/China Asia Pacific

42.6%

52.6%

28.4 MM B/D

33.9 MM B/D


Refining for More Yield of Lighter Products

Lighter products have higher value per volume unit.

Transport fuels generally lighter; focus of growth

Lighter product better quality within product group

Extracting most value out of residual, VGO


Refining for Better-Quality Products

Massive, broad-based buildup across Asia Pacific

Mideast Gulf has lagged behind.

Severe secondary capacity for lighter products

Quality improvement to meet tightening specs

Asia-Pacific refining almost a third (32.4%/28.406 MM B/D) of world’s 87.73 MM B/D.


Asia-Pacific Refining Capacity

1/2008 1/2011 1/2014

MM B/D MM B/D % Rise MM B/D % Rise

Base Capacity (Working capacity incl. Condensate Splitters)

28.406 33.919 19.4% 37.168 9.6%

Severe Secondary (incl. coking, Hydrocracking (HDC), Fluid & Residual Catalytic Cracking (R/FCC)

8.172 12.114 48.2% 13.329 10.0%

Quality Improvement Units (Distillate Hydrotreating (Dist. HDT), Gas Oil & Residual Hydrodesulfurization (GO Desulf. & Resid. Desulf)

12.870 17.226 33.8% 18.285 6.1%


Mideast Gulf Refining Capacity

1/2008 1/2011 1/2014

MM B/D MM B/D % Rise MM B/D % Rise


6.952 7.818 12.5% 9.761 24.9%


1.118 1.382 23.6% 1.962 42%

Quality Improvement Units (Distillate Hydrotreating (Dist. HDT), Gas Oil & Residual Hydrodesulfurization (GO Desulf. & Resid. Desulf)

2.489 3.148 26.5% 4.807 52.7%


Refining Infrastructure Observations

Asia Pacific added lion’s share of new refining since 2000.

Increasing efficiency, profitability – MAINLY operational flexibility

Increasing dieselization of Asia Pacific – including China

Mideast’s push to improve product quality has lagged Asia Pacific.

China has been Asia Pacific’s leader in adding capacity.


The Heart of the Matter: India & China

Demand Giants remain the demand growth drivers.

China outstripping India in infrastructure, not only in refining

This allows imports of crude, products & LNG at less cost from more suppliers.

China now focusing on quality as well as India – squeeze point ADO

Essential difference – India looks outward, China inward

Lack of infrastructure will hamper India’s product export drive.


India & China – A Comparison in Refining 2008/2011

2008 2011

India ChinaIndia as % of China



3.083 9.927 31.1% 4.323 13.517 32.0%


1.152 3.786 30.4% 1.809 6.303 28.7%

Reforming

299 513 58.3% 437 872 50.1%

Quality Improvement Units (Dist. Hydrotreating, GO & Resid. Desulf.)

1.123 1.863 60.3% 1.869 3.841 48.7%

Of which: GO & Resid. Hydrodesulf.

0.961 1.502 64.0% 1.497 2.929 51.1%


India & China – A Comparison in Refining 2011/2014

2011 2014




4.323 13.517 32.0% 4.906 15.767 31.1%


1.809 6.303 28.7% 2.049 7.035 29.1%

Reforming

437 872 50.1% 437 1.084 40.3%

Quality Improvement Units (Dist. Hydrotreating, GO & Resid. Desulf.)

1.869 3.841 48.7% 1.973 4.608 42.8%

Of which: GO & Resid. Hydrodesulf.

1.497 2.929 51.1% 1.601 3.388 47.3%


Infrastructure & Pipelines

Pipelines can make seller or buyer dependent.

Pipelines are usually single-market focused.

Pipelines have strategic geo-political impacts.

Pipelines, particularly for crude, reduce transport cost.

Pipelines cannot easily divert supply to alternative buyers.


Crude Pipeline Impacts

Will provide Asian refiners dream crude – mid/heavy & sweet.

Piped sales encourage sellers to assure supply flow.

Pipelines avoid maritime chokepoints (Hormuz; Melaka).

Incremental piped supply pressures traditional crude sellers.

Mideast exporters must reconsider heavy/light, sweet/ sour price deltas.

New crude blends to emerge?


Listing Emerging Trade Routes

The Northeast Passage: Circum-polar from Norway, Western Russia to East Asia

Expanded Panama Canal: South American crude from Columbia, Venezuela & Brazil

East African Exports: New South Sudan and Uganda pipelines to coast (Kenya, Tanzania?)

UAE Bypass Trunkline: Crude pipeline bypassing Hormuz; June 2012.

Canadian Syncrude Pipelines: Bringing Alberta production to the Pacific Coast


Transportation Infrastructure

This sector not sexy, but necessary – like socks

But can quickly reshape oil economics

Impacts cost, operation flexibility and efficiency

Too often ignored for big-ticket items, such as refineries


Operational Ways & Means

Increasing Ways & Means can be done in other non-traditional ways: By reorganizing use of physical assets, i.e. shifting strategic

stocks to working stock basis.

By creative use of supporting non-physical assets, i.e. hedging, paper trade, futures

Working with government to achieve better supply security

Always remembering that Ways & Means rely not only on physical assets


Conclusions Oil & gas are physical commodities that must be moved, stored and

processed.

Ways & Means include physical infrastructure, but also non-physical operating tools – finance, management, regulation.

Asia Pacific has become too big for world energy to ignore.

Yet Asia Pacific has lagged in creating regional energy infrastructure.

Demand giants China and India will lead Asia Pacific through 2020.

Yet India is lagging in Ways & Means.

Better infrastructure increases supply security, while raising commercial profits, efficiency and operating flexibility .

Trade, pricing and supply soon will be reshaped by new energy infrastructure.

Ippai infrastructure f_ alan troner

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