ASPHALT SUPPLY IN A VOLATILE OIL WORLD Bill Haverland Bill - - PowerPoint PPT Presentation

ASPHALT SUPPLY IN A VOLATILE OIL WORLD

Bill Haverland Bill Haverland ConocoPhillips Company ConocoPhillips Company

Issues to be Discussed

• Crude Oil Supply

Crude Oil Supply

• Crude Oil Pricing

Crude Oil Pricing

• Refining Capacity

Refining Capacity

• Products Supply

Products Supply

• Products Pricing

Products Pricing

• Future of the Industry

Future of the Industry

CRUDE OIL SUPPLY

A WORLD LOOK A WORLD LOOK

Crude Oil Supply (2006)

World Crude Oil Production World Crude Oil Production Millions of Barrels Per Day Millions of Barrels Per Day World Proven Crude Oil World Proven Crude Oil Reserves Reserves Billions of Barrels Billions of Barrels

• W. Europe

US/Canada Asia/Pacific Africa Middle East FSU/E. Europe Latin America 11.3 6.3 10.6 8.4 9.8 FSU/E. Europe

• W. Europe

15 Latin America US/Canada Asia /Pacific Africa Middle East 743 201 116 79 102 36 Asia/Pacific Africa 26.0 12.6 Middle East

Total: 1,292 BB Total: 85MMB/D

Crude Oil Demand

• Demand has risen by 7 MMBD (9%) since 2002.

Demand has risen by 7 MMBD (9%) since 2002.

• Demand at 85 MMBD or 98% of world daily

Demand at 85 MMBD or 98% of world daily delivery capacity. delivery capacity.

• Vulnerable to supply disruptions caused by

Vulnerable to supply disruptions caused by storms, accidents, breakdowns, political unrest. storms, accidents, breakdowns, political unrest.

• 65% of proven reserves within national oil

65% of proven reserves within national oil companies and 16% held by Russia. companies and 16% held by Russia.

• Traditional companies have full access to 7% of

Traditional companies have full access to 7% of reserves and 12% through partners (if allowed). reserves and 12% through partners (if allowed).

CRUDE OIL PRICING

WTI Price by Year

10 20 30 40 50 60 70 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

WTI Price by Quarter

10 20 30 40 50 60 70 80 1 Q 2 1 1 Q 2 2 1 Q 2 3 1 Q 2 4 1 Q 2 5 1 Q 2 6

REFINING CAPACITY

Topping Refinery Topping Refinery

DU CRUDE OIL GASES NAPHTHA AND 6OIL or ASPHALT (if heavy crude) GASOIL FEEDSTOCKS 650- 650+

“Tea Pot” Not A Refinery Really Just A Crude Distiller

Simple Refinery Simple Refinery

650-

CRU NHT KHT DHT

GASES

TO MOGAS JET/KER O 6OIL or ASPHALT (if heavy crude) TO NO.2 DU CRUDE OIL 650+

“Hydroskimming” Refinery, many exist all over the world

CCU CCU -

• “

“Complex Complex” ” Refinery Refinery

CRU NHT KHT DHT

ALKY

CCU

DU CRUDE OIL GASES

VAC

GASES 650- 1050 TO MOGAS TO MOGAS JET/KER O TO 2OIL TO MOGAS TO 2OIL 650- 650+ TO MOGAS 6OIL ASPHALT

GASOLINE GASOIL

1050 +

CCU/HCU/Coker CCU/HCU/Coker -

• “

“Very Complex Very Complex” ” Refinery Refinery

ISOM

CRU NHT KHT DHT HCU

ALKY

CCU DU

GASES CRUDE OIL GASES

VAC

GASES

650-750 750-1050

COKER

GASES COKE H2 PLANT TCU/VIS

DEASPHALTER

TO MOGAS TO MOGAS TO MOGAS TO MOGAS TO MOGAS TO MOGAS TO 2OIL

MTBE

Refinery Yield (% of Crude Intake)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 110% 120% TOPPING RFY SIMPLE RFY CCU RFY COKER RFY OTHER MOGAS JET LT NAPH HVY NAPH GAS OIL NO.2 NO6 or Asphalt COKE

• U. S. Refining Capacity

14 14.5 15 15.5 16 16.5 17 17.5 18 18.5

1980 1995 2000 2006 more than 30 less than 30 Crude Dist Cap

Last New U. S. Refinery Built in 1976

Source: Oil & Gas Journal

319 175 158 131

60 65 70 75 80 85 90 95 100 1980 1985 1990 1995 2000 2005 2010 2015 2020

Total U.S. Capacity Utilization

Source: U.S. Department of Energy

1 Percent utilization defined as: gross input to refineries /operable capacity.

Percent utilization

1

History Forecast (DOE) 90%

• Demand growth has outpaced capacity expansion
• Investment focused on clean fuels
• Insufficient global capacity to process more difficult crudes

• U. S. Asphalt Refining Capacity

72 98 60 42

1980 1995 2000 2006

400 450 500 550 600 650 700 750 800

# Refineries Asphalt Capacity

Production Range: 600 B/D to 60,000 B/D

Source: Oil & Gas Journal

• U. S. Refining Coking Capacity

50 58 56

81 120 138

46 48 50 52 54 56 58 60

1995 2000 2006

20 40 60 80 100 120 140

# Refineries w/Cokers Coke Production, MT/D

U.S. Coker Construction Projects 2005 - 2011

• Engineering, Procurement & Const. Phase

Engineering, Procurement & Const. Phase

• Total Refineries: 245 MB per day

Total Refineries: 245 MB per day

• Asphalt Refineries: 135 MB per day

Asphalt Refineries: 135 MB per day

• Planning or Early Engineering Phase

Planning or Early Engineering Phase

• Total Refineries: 176 MB per day

Total Refineries: 176 MB per day

• Asphalt Refineries: 121 MB per day

Asphalt Refineries: 121 MB per day * * Source: Argus Asphalt Report

Source: Argus Asphalt Report

PRODUCTS SUPPLY/DEMAND

Supply Source for U. S. Demand

2 4 6 8 10 12 14 16 18 20 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05

MMB/D

Domestic Crude Production Imported Crude Imported Products

• U. S. Product Demand, MB/D

1000 2000 3000 4000 5000 6000 7000 8000 9000 10000 Gasoline Diesel Jet Resid Asphalt 1995 2000 2004 2005

Historical Asphalt Supply/Demand

Millions Tons - Liquid

10 20 30 40 50 60 1980 1995 2000 2003 2005 2006

Supply Demand

Source: Oil & Gas Journal

PRODUCTS PRICING

Prices by Quarter

20 30 40 50 60 70 80 90 100 1 Q 2 1 Q 2 1 1 Q 2 2 1 Q 2 3 1 Q 2 4 1 Q 2 5 1 Q 2 6 WTI Gasoline

Prices by Quarter

10 20 30 40 50 60 70 80 90

1 Q ' 1 Q ' 1 1 Q ' 2 1 Q ' 3 1 Q ' 4 1 Q ' 5 1 Q ' 6

WTI Gasoline Asphalt

Asphalt vs Coker Feed Value

10 20 30 40 50 60 70 80 90 J a n

• 2

M a y

• 2

S e p

• 2

J a n

• 3

M a y

• 3

S e p

• 3

J a n

• 4

M a y

• 4

S e p

• 4

J a n

• 5

M a y

• 5

S e p

• 5

J a n

• 6

M a y

• 6

S e p

• 6

WTI P&P MC Avg gulf coast coker value

Economic Analysis – 2005 YE

Gasoline/Diesel Pricing Gasoline/Diesel Pricing

• Jan., 06 Price: $70.00/BBL

Jan., 06 Price: $70.00/BBL

• Less Distribution: 6.00/BBL

Less Distribution: 6.00/BBL

• Net to Refinery: $64.00/BBL

Net to Refinery: $64.00/BBL Kansas Asphalt Pricing Kansas Asphalt Pricing 12/05 YTD: $32.94/BBL* 12/05 YTD: $32.94/BBL* ($35/Ton): 6.25/BBL ($35/Ton): 6.25/BBL $26.69/BBL $26.69/BBL

• Lost Value: $37.31/BBL

Lost Value: $37.31/BBL * * Source

Source – – Poten & Partners Poten & Partners

Coking Economics – 2005 YE

• 30,000 BBLS/Day Asphalt Production

30,000 BBLS/Day Asphalt Production

• X 70%

X 70% Gasoil Production Gasoil Production

• 21,000 BBLS Gasoil for Gasoline/Diesel

21,000 BBLS Gasoil for Gasoline/Diesel

• X $37.31

X $37.31/BBL Gasoline/Diesel diff. To Asphalt /BBL Gasoline/Diesel diff. To Asphalt

• $783,510 per day added margin

$783,510 per day added margin

• $1 Billion / $783,510 = 1,276 days (3.5 years payoff)

$1 Billion / $783,510 = 1,276 days (3.5 years payoff)

Economic Analysis – Recent Update

Gasoline/Diesel Pricing Gasoline/Diesel Pricing

• Jan., 07 Price: $62.75/BBL

Jan., 07 Price: $62.75/BBL

• Less Distribution: 6.00/BBL

Less Distribution: 6.00/BBL

• Net to Refinery: $56.75/BBL

Net to Refinery: $56.75/BBL Kansas Asphalt Pricing Kansas Asphalt Pricing 12/06 MTD: $49.11/BBL* 12/06 MTD: $49.11/BBL* ($35/Ton): 6.25/BBL ($35/Ton): 6.25/BBL $42.86/BBL $42.86/BBL

• Lost Value: $13.89/BBL

Lost Value: $13.89/BBL * * Source

Source – – Poten & Partners Poten & Partners

Coking Economics – Recent Update

• 30,000 BBLS/Day Asphalt Production

30,000 BBLS/Day Asphalt Production

• X 70%

X 70% Gasoil Production Gasoil Production

• 21,000 BBLS Gasoil for Gasoline/Diesel

21,000 BBLS Gasoil for Gasoline/Diesel

• X $13.89

X $13.89/BBL Gasoline/Diesel diff. To Asphalt /BBL Gasoline/Diesel diff. To Asphalt

• $291,690 per day added margin

$291,690 per day added margin

• $1 Billion / $291,690 = 3,428 days (9.4 years payoff)

$1 Billion / $291,690 = 3,428 days (9.4 years payoff)

FUTURE OF THE INDUSTRY

Current Realities

• Crude production at maximum rates based on

Crude production at maximum rates based on exiting infrastructure exiting infrastructure

• U.S. refining running at maximum capacity

U.S. refining running at maximum capacity

• No new refineries in the near term

No new refineries in the near term

• Existing refinery expansions must fill gap

Existing refinery expansions must fill gap

• Increase crude capacity and conversion

Increase crude capacity and conversion capabilities to meet light product demand capabilities to meet light product demand

• Asphalt must keep pace with conversion feed

Asphalt must keep pace with conversion feed values to encourage production values to encourage production

• Asphalt not as politically charged as fuels

Asphalt not as politically charged as fuels

Factors Influencing Asphalt Price

• Absolute price of crude (WTI benchmark)

Absolute price of crude (WTI benchmark)

• Light/Heavy crude price differential

Light/Heavy crude price differential

• Light product

Light product “ “crack spread crack spread” ”

• Coking economics

Coking economics

• Impact of clean fuels (sweet

Impact of clean fuels (sweet crudes crudes) )

• Heavy crude availability (Venezuela)

Heavy crude availability (Venezuela)

• Transportation costs

Transportation costs

• Supply/Demand

Supply/Demand

Future For Asphalt

• More heavy crude being run (availability and price)

More heavy crude being run (availability and price)

• Clean fuels capital behind refiners, up

Clean fuels capital behind refiners, up-

• graders next?

graders next?

• Asphalt is more expensive in a $60.00+ crude world

Asphalt is more expensive in a $60.00+ crude world

• Asphalt has to trend faster with crude oil prices

Asphalt has to trend faster with crude oil prices

• Asphalt has to be more competitive with light products

Asphalt has to be more competitive with light products

• Transportation costs rising

Transportation costs rising – – Rail, Barge, Terminalling Rail, Barge, Terminalling

• Refiners less willing to shoulder price risk

Refiners less willing to shoulder price risk

• State asphalt price indexes reduce supplier/contractor risk

State asphalt price indexes reduce supplier/contractor risk

QUESTIONS

Worldwide Coker Additions

• Refinery Coker Additions

Refinery Coker Additions – – 1,570M Barrels 1,570M Barrels

• Crude

Crude Upgraders Upgraders

• 1,214M

1,214M

• Total

Total Resid Resid Destruction Destruction -

• 2,784M*

2,784M*

*Reduces world asphalt and #6 oil supply *Reduces world asphalt and #6 oil supply

Source Source – – Argus Asphalt Report Argus Asphalt Report

Light-Heavy Product Price Spread Drives Refinery Investment Cycle

5 10 15 20 25 30

1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 1 9 9 1 9 9 1 1 9 9 2 1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 2 1 2 2 2 3 2 4 2 5 2 6

1995-2000 Six New Cokers