Refining Outlook

What Happened?

What Will?

Presenter: John Auers, P.E., Sr. Vice PresidentCo-Authors: Bob Funk & Charles Miller, P.E.
Turner, Mason & Compa

• International engineering consulting 

1971.

• Downstream focus.• Publish semi-annual Outlook to inter

subscribers.

– Petroleum supply/demand– Survey of refinery projects– Detailed price forecast (crude/prod
Presentation Outline

• What Happened – Historical Perspective.

– 1970’s through 2007 – 2008

• Current Situation.• What Will Happen – TM&C Outlook.

– Petroleum product demand– Crude oil price– Refinery construction activity– Alternative fuels– Summary
REFINING OUTLOOK

A recent history with focus on the U.S.

What Happened?
What Happened: 1970s

• Three de

but stablended.

• Geopolit

oil price 

REFINING OUTLOOK
What Happened: 1970s

• Massive 

and dowinvestme

• Demand 

1978 and precipitospiked in 
What Happened: 1980s

• High oil pric

worldwide eslowdown

• Oversupply 

decontrol caprice collap80’s, with sotowards end decade.
What Happened: 1980s

• Transpo

demand resumed

• Residua

continue

• U.S. dem

below 19
What Happened: 1980s

• Less com

downstrerationaliz

• However

capacity exceed n
What Happened: 1990s

• Control e

investmeadequate through t

• By the ea

world oil growth pparticula
What Happened: 1990s

• After the troug

Gulf War, US gdistillate demasurpassed 197(gasoline in 19in 1997).
What Happened: 1990s

• Prelude to 

Age of Re

– High U.S

utilizatio

– U.S. refi

increasethe deca

– Imports 

importansupply s
What Happened: 1990s

• Although 

capacity worldwidremained holding tAge” at b
What Happened: Early 2

• Asia cris• U.S. rece

9/11 terr

• Then, oil 

recovereoil prices 
What Happened: Early 2

• The Gold

Refining 

– Tempo

econom9/11.
What Happened: 2004

• Largely unanticipated, 2004 wa• World oil demand jumped 2.9 m

an increase of 3.7%.

• China & the US were the princi

– Demand in China grew by almos

(17%).

– US demand grew by 0.7 MMBPD 
What Happened: 2004 - 

• World oil d

1.4 %/year

• Prices mov

upward tra

• Crude oil s

tightness eby natural geopolitica
What Happened: 2004-2

• U.S. dem

record raeconomi

• U.S. refin

limited band mainissues.

• Worldwid

short: ReGolden A
What Happened: 2004 - 

• Worldwid

plans exincluding refinery cadditions
What Happened: 2007 - 

• Factors, other than supply/demand funda

to affect oil prices 

– Dollar decline vs. other currencies – Geopolitical tensions in key producing countrie

Nigeria, Iraq). 

– Speculation of world oil production peak & dec

• Considerable outside money moved into 

– Hedges against the falling dollar – Bets on future supply shortages– Flight from securities
What Happened: 2008

• Long developing subprime credit pr

became a crisis in the US in Sept. ’

• Impact spread rapidly worldwide.• Banking Crisis; some failed, others 

supported by national governments

• Short term credit vanished & marke

negatively
What Happened: 2008

• WTI spike

July.

• OECD de

sharply wiprices.

• In mid-Jul

ran out of started to rapidly.

• WTI < $ 5
Current Situation

REFINING OUTLOOK

What Happening?
Current Economic Situa

• Experiencing worldwide busine

recession, possibly the deepesdecades.

• Significant government intrusio

financial institutions likely, unknon longer term capital markets.
Current Oil Market Outlo

Demand• Developed nations –

reduced demand.

• Developing nations –

reduced growth rate.

• Mandated increased biofuels penetration in U.S.• Bio-fuels penetration 

relaxed in E.U.

Supply• OPEC pro

reduced.

• High-cost 

expanded

• Reduced c

projects dcancelled.
TM&C Long Term Outlook

REFINING OUTLOOK

What Will Happen?
Key Questions

• Demand drop

– How much– How long – Effect on product mix (gasoline vs. dis– Demand recovery growth rate

• Impact on production and refining p• Industry consolidation?• Impact of alternate fuel developmen• Impact of carbon emission regulatio• Prices & Margins
Economic and Demand Assu

• Worldwide GDP

– Close to zero growth in 2009– Growth back to 4 %/year after 2 t

• World Oil Demand

– Flat in 2008 & 2009– Growth returning to 1.5 %/year a

economy recovers
Crude Oil Outlook

• World crud

capacity in5 million Bnext two y2008).

• Gap tighte

demand g

• Oil prices 

stay in the barrel rang2010 and trajectory.

John to provide data

0 

20 40 60 80 

100 120 140 

$ per barrel

West Texas Intermediate Price 

(Cushing)

Outlook Actual
Product Supply/Demand O

• Most major refinery projects for 2012-20

delayed or cancelled.

– India/China market the exception

• New refinery projects needed to meet de

2015.

• US gasoline demand

– Recovery to 2007 level by 2014– Growth at less than 0.5% thereafter

• Distillates

– Major worldwide demand driver over the long 

– Continued better margins than gasoline, but lo

levels
Major Refinery Projects

Refinery Date Crude

MBPD

Gas/Dsl

MBPD

Reliance, Jamnagar, India

2009 580 180/230

Marathon,Garyville, LA

2010 180 80/75

Motiva,Port Arthur, TX

2010 325 115/125

• Refining 

exceeds term, sqmargins

Major Projects Nearing Completion
Refining Capacity Expan

Short TermRefinery Crude

MBPD

Gas/Dsl

MBPD

United States 683 316/283

Asia/Pacific 1,839 569/721

Rest of World-Total World

989

3,511

409/446

1294/1450

• Capacity 

include mprojects world

– New re

the Miother d

– Expan

plants 

Other Projects Nearing Completion

2009/2010
Delayed Projects – North A

Refinery Date Crude

MBPD

Gas/Dsl

MBPD

Big West, Bakersfield 2009

0 11/6

Valero, Port Arthur 2011 75

All Hvy

25/20

Marathon, Detroit 2011 15

80 Hvy

5/5

Valero, Quebec 2012

0

40 Hvy

0/5

ConocoPhillips, Ferndale

2012

5

55 Hvy

2/2

• Mo

defannNoinvoconheado proimp
Delayed Projects - Mide

Refinery Date Crude

MBPD

Gas/Dsl

MBPD

Kuwait Petroleum,Al-Zour

2012 615 120/240

Qatar Petroleum,Messaieed

2012 250 80/75

Aramco/Total, Jubail 2012 400 145/165Aramco, Ras Tanura 2012 400 85/140

Aramco/ConocoPhillips, Yanbu

2013 400 150/155

Abu Dhabi Refining, Fujairah

2012 300 100/125

Abu Dhabi Refining, Ruwais

2013 400 160/130

• De

wocoregrsu& by 
TM&C Refining Margin O

($/B)

Actual Fo

2008 2009 2

WTI (Cushing) 99.56 52.00 6USGC Reg. Gas Crack 5.45 2.45 4USGC No. 2 Oil Crack 18.77 7.80 8USGC ULSD Crack 23.08 10.25 1
Alternative Fuels

• Legisl

targets should by 3-5 

– Due 

and 

– Impo

sourfract

Region Target Date PenetrationU.S. 2022 2.3 MMBPD

EU-25 2020 10% biofuelChina 2020 10% ethanol

Japan 2011 860 BPD 

voluntary

India 2017 20% biofuelBrazil Now

2010

23% ethanol5% biodiesel

Canada 2010

2012

5% in Gaso2% in Dist

Legislated Biofuel Targets

Major Markets 
Carbon Limits

• Regulatio

emissionmore slopreviousdue to slworldwidgrowth.

Climate Effort Could Be Stalled by Credit Crisis Costs Costs of Curbing Global-Warming Emissions Are a Tough Sell in U.S., Europe Amid Economic Disruption and Financial UncertaintyWall Street JournalOctober 16, 2008
2008 vs. early 1980’s

• Similarities

– Substantial crude price increase leading t

destruction and ultimate collapse in absol

– Government proposals to mandate lower 

alternative fuels

• Differences 

– Demand destruction less permanent than – Energy less significant part of overall econ

demand response to prices

– Refining capacity significantly tighter in 20
Refining Capacity Remains Tight 

Historical Basis
Refinery Rationalization 

• Tight margins and tight credit over the next year o

challenge the economic viability of some refinerie

• Slowdowns will be more prevalent in the U.S. tha

• At-risk plants include:

– Small plants with limited heavy/sour crude cap– Plants with financially weak owners– Facilities unable to meet regulatory requireme– Facilities who are located in markets threatene

regulatory regimes
What to Remember

• Crude prices will stay “depressed” for the next y

before recovering, although not to the levels se

• Surplus refining capacity worldwide through 20

improvements in margins in the short term, but increase as the supply demand balance tighten

• Economic issues will slow penetration of alterna• Long term margins will be better than those see

and 90’s but below “Golden Age” levels of 2005 
Q&A

• Questions?
Thank You

John R. Auers, P.E.

Senior Vice President

214-754-0898

jauers@turnermason.com