Issues and opportunities in Europe, Middle East and Africa ... EMEA... · Outlook for FCCs Issues...

Outlook for FCCs

Issues and opportunities in Europe, Middle East and AfricaMiddle East and Africa

April 2015Barcelona

Trusted commercial intelligencewww.woodmac.com

Agenda

1. Market Overview

2. Outlook for gasoline and propylene

3. FCCs - Issues and Opportunities


2

4. Key risks and uncertainties

Review of 2014 - Oil demand growth weakness and Saud i behaviour have been the key changes

� Year-on-year growth in oil demand for 2014 was less than what we forecast in September 2013.

� This was due to milder than normal winter weather earlier this year in Europe and a downward shift in China’s diesel demand.

� The initial plunge in oil prices was mostly due to rising concerns about economic

Change in oil supply/demand forecast for 2014

Unconventionals

Non-OPEC

Global demand

Sep 2013 fcst Sep 2014 fcst Dec 2014 fcst


3

due to rising concerns about economic weakness

� US tight oil production growth during 2014 was strong, as expected, with a modest upside adjustment

� Saudi has not cut production to support prices.

� The change in OPEC behaviour has been critical to the pricing collapse

Source: Wood Mackenzie

-0.5 0.0 0.5 1.0 1.5 2.0

Total supply

OPEC NGLs

OPEC crude

Proc Gains

Unconventionals

Million Barrels Per Day

Global demand growth of ~800 kbd projected for 2015 and 2016: Steady growth in China, large swings in US

% growth in Chinese and US oil demand Volume growth in Chinese and US oil demand

2%

3%

4%

5% China US

400

600

800

1,000 China US


4

-3%

-2%

-1%

0%

1%

2011 2012 2013 2014 2015(600)

(400)

(200)

-

200

2011 2012 2013 2014 2015


US tight oil production growth remains strong throu gh H1 2015, but significant volumes eroded thereafter

Monthly US tight oil production forecast

Tight oil production flexes earliest, levelling off in late 2015 and then recovering during 2016

US tight oil outlook (Autumn 2014)

4,000

5,000

6,000

7,000

'000

b/d

Other tight oil

Utica

Bone Spring/Wolfcamp

Niobrara

Eagle Ford

Bakken/Three Forks4,000

5,000

6,000

oil p

rodu

ctio

n ('0

00 b

/d)

Tight oil early-Feb 2015Pre-oil price fall outlookTight oil mid-Dec 2014


5

0

1,000

2,000

3,000

4,000

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

'000

b/d

0

1,000

2,000

3,000

Jan-

14M

ar-1

4M

ay-1

4Ju

l-14

Sep

-14

Nov

-14

Jan-

15M

ar-1

5M

ay-1

5Ju

l-15

Sep

-15

Nov

-15

Jan-

16M

ar-1

6M

ay-1

6Ju

l-16

Sep

-16

Nov

-16

oil p

rodu

ctio

n ('0

00 b

/d)


80

100

120

140

US

$/bb

lPrice forecast through 2016: moderate price recover y in second half of 2015 and 2016

Brent and WTI price history and forecast to 2016

Weaker than expected global economic growthLower than expected oil price floor for US tight oilSupply outages ease

Forecast


6

0

20

40

60

Jan

-12

Apr

-12

Jul-

12

Oct

-12

Jan

-13

Apr

-13

Jul-

13

Oct

-13

Jan

-14

Apr

-14

Jul-

14

Oct

-14

Jan

-15

Apr

-15

Jul-

15

Oct

-15

Jan

-16

Apr

-16

Jul-

16

Oct

-16

US

$/bb

l

Brent WTI

OPEC policy – decision to cutOil market anticipates supply responseStronger oil demand recovery

Source: History - Argus; Forecast - Wood Mackenzie

60

80

100

120

140

Pric

e re

qui

red

in

201

5 to

mai

ntai

n cu

rren

t ne

t d

ebt l

evel

s (U

S$/

bb

l Bre

nt)

Buy-backs

Dividends

Exploration

Development and financing

At US$50/bbl no IOC is free cash flow positive (fro m Upstream)This has a major impact on the budgets/plans of oil majors

Brent price required to maintain current net debt l evels in 2015


7

0

20

40

60

Inp

ex C

orpo

ratio

n

Tu

llow

Oil

Nob

le E

ner

gy

To

tal

New

field

San

tos

Kos

mos

Con

tinen

tal

Che

sape

ake

Rep

sol

CN

RL

BG

OM

V

Lund

in

Che

vron

Ta

lism

an

Ana

dark

o

Enc

ana

Con

oco

Phi

llip

s

Sta

toil

Ma

rath

on

Pio

nee

r

Pet

robr

as

Apa

che

Occ

iden

tal

Eni

Sun

cor

Ene

rgy

Can

adi

an

Oil

San

ds

Hes

s

Dev

on

Pac

ific

Rub

iale

s

Cen

ovu

s

BP

Hus

ky

Mu

rph

y O

il

LUK

OIL

Exx

onM

obi

l

She

ll

EO

G

Pre

mie

r

Oil

Sea

rch

Den

bur

y

Pric

e re

qui

red

in

201

5 to

mai

ntai

n cu

rren

t ne

t d

ebt l

evel

s (U

S$/

bb

l Bre

nt)

Adjusted for announced cost cuts

Upstream only, including buybacks, dividends, exploration, development and financing costs. Dividend and buy-back estimates allocated in proportion between business segments. Assumes equity financing for all projects. Calculated using previous Wood Mackenzie estimates, except for those which have announced updated 2015 guidance as of December 2014 (Apache / COS / Cenovus / ConocoPhillips / Denbury / LUKOIL / Pacific Rubiales, Premier, Santos and Tullow).


-5

0

5

10

15

20$/bbl

In 2013, Russian refiners dominated the first quart ile, but overall financial performance was poor.....European net cash margins were lower during 2013 than 2012

Weighted Average NCM : $1.76/bbl

Trusted commercial intelligence© Wood Mackenzie

8

-25

-20

-15

-10

-5

Africa Europe FSU 2012 NCM


� Weighted Average Net Cash Margin for the region was $1.76/bbl for 2013 versus $3.28/bbl for 2012

� An near perfect 50/50% split exists between positive and negative margins

� Russian refiners primarily sit in the first quartile thanks to the local export taxation system

� African refiners are spread evenly across the curve. Some reach the first quartile thanks to configuration or cost of crude acquisition advantages.

The majority of Middle East refineries evaluated in 2013 were cash negative. The new regional projects are expected t o be first quartile

Refinery Net Cash Margins, ($/bbl)

0

5

10

15

$/bbl

1st

Quartile 2nd

Quartile 3rd

Quartile 4th

Quartile

Trusted commercial intelligence© Wood Mackenzie

9

� Average NCM of Asian refineries in 2013 was $1.6/bbl, an annual decline of nearly 50%, in line with weaker fundamentals in 2013 primarily driven by a slow down in China.

� Middle East refiners mostly secured third or fourth quartile ranking apart from 4 refineries which were spread out in the top two quartiles. Average NCM of Middle East refineries in 2013 was negative $2.80/bbl.

� Chinese and Indian refineries dominated the cash positive refineries, while cash negative refineries were mostly in the Middle East and Japan.

� Of the 66 Chinese refineries assessed in 2013, 35 refineries were in the top quartile, but only 5 Indian refineries could garner a top-quartile ranking.

-15

-10

-5

2013 Asia Pacific 2013 Middle East 2012

However, H2 2014, European refining margins were st rong, as product prices lagged crude, so supporting corporat e earnings

China 7.3%

European FCC gross refining margins

4

6

8

10

12

14

($/b

bl)


10


-4

-2

0

2

4

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

($/b

bl)

NWE Brent FCC Med Urals FCC

So what about 2015… ECA’s in Europe and US to shift demand from fuel oil to diesel/gasoil, but on the assumption of ‘full compliance’

2015 Emission control areas regulation

Demand shift from fuel oil to diesel is 215 kb/d

NWE


11

Emission Control Area


oil to diesel is 215 kb/d

0

100

200

300

400

500

600

2014 2015

NWE

Fuel Oil Distillate

…..which is difficult to spot from the gas oil crack spread. Gasoline cracks have also started 2015 at low levels

NWE Gasoline Crack Spreads versus Brent NWE Gas oil (0.1%S) Crack Spread versus Brent

10

15

20

25

$/bb

l

15

20

25

$/bb

l


12


-5

0

5

Jan

Feb

Mar

Apr

May Jun

Jul

Aug

Sep Oct

Nov

Dec

$/bb

l

5-yr range Series1 2014 2015 2016 5-yr avg

Source: History Argus, Forecast Wood Mackenzie

0

5

10

Jan

Feb

Mar

Apr

May Jun

Jul

Aug

Sep Oct

Nov

Dec

$/bb

l

5-yr range Series1 2014 2015 2016 5-yr avg

Source: History Argus, Forecast Wood Mackenzie

Agenda

1. Market Overview




13


Future gasoline demand driven by growth in Asian ca r ownership versus efficiency gains in developed markets

Gasoline Demand Change, 2013-2020

1.0

1.5

2.0

Dem

and

Cha

nge,

mill

ion

b/d


14

China

-0.5

0.0

0.5

1.0

Asia Pacific Russia &Caspian

Greater Europe Latin America Middle East North America Sub-SaharanAfrica

Dem

and

Cha

nge,

mill

ion

b/d


Upgrades and changes to crude slate raise average g asoline yields in most regions

Change in Gasoline Supply, 2013-2020

4.0%

6.0%

8.0%

400

600

800

1,000

Ave

rage

ref

iner

y yi

eld

chan

ge

Sup

ply

Cha

nge,

kb/

d

Refinery Supply Non-Refinery Supply Yield Change


15

-6.0%

-4.0%

-2.0%

0.0%

2.0%

-600

-400

-200

0

200

400

Asia Pacific Russia &Caspian

Greater Europe Latin America Middle East North America Sub-SaharanAfrica

Ave

rage

ref

iner

y yi

eld

chan

ge

Sup

ply

Cha

nge,

kb/

d


Gasoline trade volumes fall, as the North American and Middle East deficits reduce challenging European refinery utili sation

203040

-50-40-30-20-10

010203040

-50-40-30-20-10

010203040

-50-40-30-20-10

010203040Europe

Russia & Caspian

Middle East

North America

The Middle East deficit falls, thereby prompting lower imports from Europe and higher exports to Africa and Asia

North American imports from Europe fall

Gasoline Trade Forecast


16

-50-40-30-20-10

01020

-50-40-30-20-10

010203040

-50-40-30-20-10

010203040

-50-40-30-20-10

010203040

Key net trade 2013 (mtpa)

Key net trade 2020 (mtpa)

Gasoline flows to the ME from Asia reverse as new refining capacity in the ME meets with strong gasoline demand in Asia

Latin America

East

Asia

Africa

Asia North American exports to Latin America, Asia and Africa rise

To N. America2013 balance

2020 balance

Arrow width proportional to trade volume

Balances do not total zero – please see Balancing the World Methodology

Source: IEA, GTIS, Wood Mackenzie

In Europe, steam cracker feedstock switching in pro pylene supply declining…

Europe Propylene Production by Technology

10.0

12.0

14.0

16.0

Million Tons


17

0.0

2.0

4.0

6.0

8.0

2005 2010 2015 2020

Steam Cracking Refinery Propane Dehydrogenation Metathesis

Olefins Interconversion Methanol-to-Olefins OthersSource: Wood Mackenzie

Globally, on-purpose supply will be needed to match demand growth, though there is a risk of over-investment in Asia a nd North America

World Propylene Supply by Technology

20%

25%

30%

80

100

120

140

Million Tons Propylene % On-Purpose


18

0%

5%

10%

15%

0

20

40

60

80

2005 2010 2015 2020

Others MTO/P PDH Refinery Purification Steam Cracker % On-Purpose


Agenda

1. Market Overview




19


Issue: A global surplus of light products develops, so challenging gasoline crack spreads

Change in Product Balances Before Yield Shift, 2014 -2020Change in Product Balances Before Yield Shift, 2014 -2020

5

10

15

MtSurplus


20


(20)

(15)

(10)

(5)

-

5

LPG Naphtha Gasoline Jet/Other Kerosene Diesel/Gasoil Fuel Oil

Deficit

Issue: Many FCC refiners are part of sites that are competitively weak, so threatened by closure

European/Africa NCM 2013 curve highlighting FCC ref inersEuropean/Africa NCM 2013 curve highlighting FCC ref iners

0

5

10


21


-15

-10

-5

0

FCC/RCC refiners Others

Opportunity: Propylene’s relative pricing strength to gasoline is to moderate after peaking this year

Seasonality further complicates this outlook

Annual Pricing relationships (weight basis)

1.5

2.0

2.5


22

0.0

0.5

1.0

1.5

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Gasoline to Brent Propane to Brent Propylene to Brent

The opportunities and challenges for FCC refineries vary by region

� Europe» On a global basis, the region with the most challenging market environment (weak

demand, strong competitive threat from other regions and significant over-capacity)» As a minimum, at least 4 – 6 refineries need to close to provide a sustainable platform

for European refinery utilisation. Improvement in reducing cost and carbon emissions essential

� Middle East

Site specific factors further complicate the regional dynamics


23

� Middle East» Current high FCC utilisations supported by regional deficit position. Region moves to a

gasoline surplus so impacting utilisation and blending, competing into East Africa » Fuel specifications tightening

� CIS - Refinery operations strongly influenced by the country balances and export tax regime. High FCC run rates challenged by growing surplus that needs to be exported, along with Sulphur product quality specifications in Russia being tightened.

� Africa - Region is structurally deficit refined products, particularly gasoline in West Africa. High utilisation anticipated, along with maximising gasoline yield whilst processing deep into vacuum residue fraction (to maximise feedstock)

Agenda

1. Market Overview




24


The oil market and refining sector are exposed to a multitude of competing forces

Key risks are price – in both absolute and differential terms

Uncertainty Risks

� Strength of oil demand growth

� Global economic growth

� Reaction of tight oil to low oil price –uncharted territory

� Low absolute price


25

� Lifting US export ban

� US refining investments (light oil processing)

� Stranded US refining assets, but higher oil supply

� Differentials narrow, supporting oil supply

� Oil supply/demand balance

» Iranian sanctions

» Middle East stability

» Venezuelan fuel supply

� OPEC response

� Absolute price

� Light/heavy differentials

� Refining margin upside

Disclaimer

� This presentation has been prepared for WR Grace’s 15th FCC Technology Conference in Barcelona during April 2015 by Wood Mackenzie Limited. The presentation is intended solely for the benefit of attendees and its contents and conclusions are confidential and may not be disclosed to any other persons or companies without Wood Mackenzie’s prior written permission.

� The information upon which this presentation comes from our own experience,

Strictly Private & Confidential


26

� The information upon which this presentation comes from our own experience, knowledge and databases. The opinions expressed in this report are those of Wood Mackenzie. They have been arrived at following careful consideration and enquiry but we do not guarantee their fairness, completeness or accuracy. The opinions, as of this date, are subject to change. We do not accept any liability for your reliance upon them.


27

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Wood Mackenzie* is a global leader in commercial intelligence for the energy, metals and mining industries. We provide objective analysis and advice on assets, companies and markets, giving clients the insight theyneed to make better strategic decisions. For more information visit: www.woodmac.com

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Issues and opportunities in Europe, Middle East and Africa ... EMEA... · Outlook for FCCs Issues...

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