refining-economics

Refinery Planning & Economics

Topics 1- Oil Markets 2- Crude Oil Pricing 3- Refining 4- Refined Products Prices (Asia/AG) 5- LPG 6- Shipping

Oil Markets • Crude Oil Markers (Benchmarks) • World Refining Centers • Oil Movement & Trade Paths • Petroleum Trade Markets • Petroleum Stocks

Crude Oil Markers The Three Main Crude Oil Markers are: • West Texas Intermediate - America • Brent - Europe & Africa • Dubai - Asia/Pacific

Crude Oil Prices 40

$/BBL

Dubai

36.1

35

Brent

WTI

30 25.9

25 20 15 10 5 0 77

79

81

83

85

87

89

91

93

95

97

99

01

03

Contango & Backwardation 27

Brent Crude Oil Prices

$/ BBL

Dated Brent Future (Month 2)

25

Current (Month 1)

23 WHEN FUTURE PRICE IS HIGHER

21 19 WHEN FUTURE PRICE IS LOWER THAN TODAY'S

17 15

Source: Platt's - 2001

1 Jan

9 Jan

17 Jan

25 Jan

2 Feb

10 Feb 18 Feb 26 Feb

6 Mar 14 Mar 22 Mar

WORLD REFINING CENTERS

NWE US

MED ASIA

OIL MOVEMENT & TRADE PATHS

BRENT WTI DUBAI

Arbitrage

• The Trade Between Geographical Areas to Earn Profit • The Arbitrage is Open When the Price in the Loading Port Plus Freight is Less Than the Price at the Discharge Port

Arbitrage

Demand

Naphtha Arbitrage (Japan/MED)

$21/MT $177/MT

$14/MT $200/MT

$14 /MT $30 /MT

MAR ‘97

“THE ARB IS OPEN”

$228/MT

Naphtha Arbitrage (Japan/MED)

– $5/MT $177/MT $176/MT

$7/MT $180/MT

$13 /MT $29 /MT

SEP ‘97

“THE ARB IS CLOSE”

$200/MT

Saudi Aramco International Crude Oil Storage

Petroleum Stocks Reports American Petroleum Institute (API) – Weekly Report Covering the US

Energy Information Agency (EIA/DOE) – Weekly Report Covering the US - Official

International Energy Agency (IEA) – Monthly Report Covering OECD

API Report API STATISTICS API NATIONAL PETROLEUM REPORT - SUMMARY (STOCKS THOUSAND BARRELS) 08/06/99 07/30/99 CRUDE OIL STOCKS 323073 326234R DISTILLATE STOCKS 139050 139697R GASOLINE STOCKS 206627 210103 JET NAPHTHA STOCKS 126 43 JET KERO STOCKS 45468 45303 CRUDE RUNS 15366 15371 PCT OF CAPACITY 95.0 99.1

CHANGE ON 08/07/98 WEEK 344736R -3161 144358R -647 215351 -3476 49 +83 40987 +165 15247 -5 97.8 -4.1

API NATIONAL PETROLEUM REPORT - SUMMARY (OUTPUT/IMPORTS THOUSAND B/D) 08/06/99 07/30/99 CRUDE PRODUCTION 5950 5950 GASOLINE OUTPUT 8236 8157 REFORM MOGAS OUTPUT 2548 2535 OXYG MOGAS OUTPUT 567 528 OTHER MOGAS OUTPUT 5121 5094 JET KERO OUTPUT 1590 1589

CHANGE ON 08/07/98 6285R 7892 2576 421 4895 1479

August 6, 1999

WEEK +0 +79 +13 +39 +27 +1

YEA -2166 -530 -872 +7 +448 +11 -2.

YEA -33 +34 -2 +14 +22 +11

Stocks’ Impact On Prices 400,000

$/BBL

1,000 BBL

18 16 14 12 10 8

350,000

300,000

US Total Crude Stocks (API)

26-Oct

19-Oct

12-Oct

5-Oct

28-Sep

21-Sep

14-Sep

7-Sep

31-Aug

24-Aug

17-Aug

10-Aug

3-Aug

200,000

2 0

27-Jul

250,000

6 4

WTI Cushing Mth1

Topics 1- Oil Markets 2- Crude Oil Market 3- Refining 4- Refined Products Prices (Asia/AG) 5- LPG 6- Shipping

Crude Oil Market • Evolution of Crude Oil Pricing • Crude Oil Value • Petroleum Oil Price Reporting • Crude Oil Contracts • Crude Oil Supply & Demand

Evolution of Crude Pricing • Posted Price: – Set by Governments of Producing Countries – Price Changes Infrequently & Varies by Producer

• Netback Price: – Based on Product Prices Less Refining Fee – Guaranteed Refiners a Positive Margin

• Market-Related Price: – Related to Published Quotation of a Marker Crude – Differentials Applied are Standard – Refining Margins are not Protected

Crude Oil Value Crude Oil Value is Related to the Value of the Refined Products • API • Sulfur Content

Other Factors • Refinery Type (Configuration) • Paraffinic/Naphthenic

Oil Price Reporting • Who Report Oil Prices? – Platt’s – Petroleum Argus – London Oil Reports (ICIS-LOR)

Oil Price Reporting • How are Oil Prices Published? – Published Quotations Represent FixedPrice Spot Transactions, Confirmed Bids & Offers and Market Talk. – Price Reporting Agencies have Different Bases for Trade Reporting, Freight Assessment and Freight Calculation

Platt’s Crude Oil Marketwire Report PLATT'S CRUDE OIL MARKETWIRE VOL. 21 NO. 167 AUG 26, 1999 New York (Platt's)--26AUG99 BRENT(SEP)+20.69-20.73+ BRENT(OCT)+20.65-20.67+ BRENT(NOV)+20.43-20.47+ BRENT(DTD)+20.34-20.38+ FORTIES +20.38-20.44+ EKOFISK +20.24-20.33+ STATFJORD +20.23-20.29+ OSEBERG +20.37-20.45+ FLOTTA +19.69-19.78+ BONNY LT +20.52-20.59+ QUA IBO +20.54-20.62+

DUBAI(OCT)19.94-19.99 DUBAI(NOV)19.72-19.80 DUBAI(DEC)19.50-19.60 OMAN (OCT)19.97-20.08 OCT "MPM" 0.27-0.30 URAL(MED) 19.71-19.80 URAL(RDAM)19.76-19.82 ILT(SIDI) 19.12-19.18 IHVY(SIDI)18.66-18.72 SUEZBLEND 18.42-18.50 ESSIDER 20.18-20.24

WTI(OCT)21.09-21.11 WTI(NOV)21.14-21.20 P-PLUSWTI2.71-2.73 WTI(MID)20.89-20.94 WTS 20.02-20.08 EUGENEI 20.32-20.38 BONITO 20.49-20.56 MARS 19.42-19.48 POSEIDON19.42-19.48 LLS 21.26-21.32 HLS 21.07-21.13

Platt’s Crude Oil Marketwire Report CRUDE QUALITY AT RUSSIAN BLACK SEA PORT OF NOVOROSSIISK HAS FALLEN IN RECENT WEEKS AS A RESULT OF INTERRUPTED FLOW OF AZERI LIGHT CRUDE THROUGH BAKU-NOVOROSSIISK PIPELINE, TRADING SOURCES SAID THURS. TRANSNEFT-OPERATED PIPELINE, LINKING AZERI OIL FIELDS INTO URALS SYSTEM THROUGH DAGESTAN AND SEPARATIST REPUBLIC OF CHECHNYA, HAS SUFFERED REPEATED STOPPAGES THIS YEAR FROM SABOTAGE IN CHECHNYAN SECTION. ALSO, RUSSIAN FORCES ARE BOMBING INSIDE CHECHNYA IN PURSUIT OF MUSLIM REBELS IN AREA. A HEAVIER MIX OF SOUR CRUDES ENTERING URALS PIPELINE SYSTEM IN RUSSIA MEANT A SHIPMENT LOADED ON AUG 23 HAD AN API OF 30.48, COMPARED WITH EXPECTATIONS OF AROUND 32.4, TRADERS SAID.

Contracts • Contract Types: – Term – Spot

• Sales Types: – – – –

FOB CIF C&F Others storage, …

Free On Board Cargo, Insurance & Freight Cargo & Freight Lightering, ex-ship, ex-

Saudi Arabia Production:

8.3

MBD

Consumption: 1.8 MBD

Export: 6.5 MBD Far East: 48% Europe: 25% US 22% Others 5% 2000 Data

Saudi Arabia's 5-Year Crude Production Plan 8.60

Million BBL/Day

8.40 8.20

8.30 8.20 8.10

8.00

8.02

8.00

8.00 7.90

7.80 7.60 7.40 7.20 7.00 2001

2002

2003

2004

2005

2006

2007

Saudi Arabia's 5-Year Crude Production Plan (by Grade) 9

Million BBL/Day

8 7

5 4

Actual

6

A SL A XL

3

AL

2

AM

1

AH

0

2001

2002

2003

2004

2005

2006

2007

Top 10 Oil Production -2002

9

Million BBL/Day

8 7

0

Source: BP

* Production

UK

Canada

Venezuela

N orway

1

Iran

2

TOTAL WORLD: 73.94 Million BBL/Day China

Mexico

3

USA

4

Russia federation

5

Saudi Arabia

6

Oil Production -2002 FSU 11%

Asia Pacific 11%

Africa 10%

Europe 10% Other Americas 9%

North America 19%

Middle East 30%

Total World Oil Production: 73.94 Million BBL/Day

Oil Production -2002

Non-OPEC 42%

OECD 25%

OPEC 33%

Total World Oil Production: 73.94 Million BBL/Day

Top 10 Oil Consumption -2002 25

Million BBL/Day

20

0

Source: BP Amoco Statistical Review - 1999.

Italy

France

Canada

India

Russia

J apan

China

Germany

5

USA

10

South Korea

Total World: 75.8 Million BBL/ Day

15

Oil Consumption - 2002 Europe 22% Asia Pacific 27% Other Americas 6% Middle East 6%

North America 31%

FSU 5% Africa 3%

Total World Oil Consumption: 75.8 Million BBL/Day

World Total Oil Consumption 25 USA

20

Million BBL/Day

Total World: 75.8 Million BBL/ Day

15

0

Source: BP Amoco Statistical Review - 1999.

Saudi Arabia

Spain

Ukrania

Mexico

Canada

Brazil

Italy

France

Canada

India

S Korea

Russia

Germany

5

J apan

China

10

Global Supply/Demand Balance 2.0

Million BBL/Day

1.5 1.0

SURPLUS

0.5 0.0 1992 1993 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 -0.5 -1.0 -1.5 -2.0

DEFICIT

50

0 113

Russia

98

Azerbaijan

Brazil

Iran

Kuwait

264

Kazakhstan

Algeria

Norway

Nigeria

China

Mexico

USA

Libya

Iraq UAE

100 Venezuela

Saudi Arabia

Proven Oil Reserve by country 2002

300 Billion Barrel

250

200

World Total: 1,034

150

Proven Oil Reserve by region

Reserve/Production Ratio 2002 100

Years

90 87

80 70 60 50 40

41

30 20 10 0 North Other Europe America Americas

Africa

FSU

Asia Pacific

Middle East

World Average

Organization of the Petroleum Exporting Countries (OPEC) • Founded in Baghdad in 1960 • Objective: To Coordinate and Unify Policies Among the Members in Order to Secure Fair and Stable Prices for Petroleum Producers

OPEC COUNTRIES: IRAN, IRAQ, KUWAIT, SAUDI ARABIA, VENEZUELA, QATAR, INDONESIA, LIBYA, UAE, ALGERIA, & NIGERIA

OPEC PRODUCTION LEVEL 30 29

40 Million BBL

$/BBL

35

28

30

27 26

25

25

20

24

15

23

10

22 21

5

20

0 Apr 01 J un 01 Aug 01 Oct 01 Dec 01 Feb 02 Apr 02 J un 02 Aug 02 Oct 02 Dec 02 Feb 03

TOPICS 1- Oil Markets 2- Crude Oil Pricing 3- Refining 4- Refined Products Prices (Asia/AG) 5- LPG 6- Shipping

REFINING • Refined Products Supply/Demand • World Refining Capacity • Refined Products Applications • Refined Products Specifications • Regional Quality Variations Refined Products supply/demand figures are based on Purvin & Gertz report (March 2001 update) World refining capacity date are based on BPAmoco Statistical Review 1999

World Supply & Demand Refined Products 2015

Naphtha

2009 2007

Gasoline

2005 J et/Kero

2003 2001

Gasoil

1999 1997

Deficit (1,500) (1,000)

Surplus

1995

(500)

0

500

1,000

1,500

2,000

2,500

Fuel Oil

Thousand BBL/Day

Demand Refined Products by Region 2015 2009

Middle East FSU

2007

Asia

2005

Europe

2003

Latin America

2001

Africa 1999

Canada 1997

Net Importer (6,000)

(4,000)

Net Exporter

1995

(2,000)

0

2,000

4,000

6,000

United States Thousand BBL/Day

90 80

MillionBBL/Day

World Refining Capacity

82.0

74.86

70 60 50 40 30 20 10 0 1991

1992

North America

1993

1994

Other Americas

1995 Europe

1996

1997

1998

Former Soviet Union

1999 Middle East

2000

2001

Africa

2002

Asia Pacific

Refined Products Applications • Propane:

Petrochemical Industry/Home

• Butane: Petrochemical/Home/Gasoline • Naphtha:

Petrochemical/Gasoline

• Jet:

Jet Fuel/Domestic Appliances

• Gasoil:

Automotive Fuel/Heating Oil

• Fuel Oil: Bunker/Power/Industrial Boilers

Products Specifications • Naphtha – Naphthenic / Paraffinic

• Gasoline – Octane Number (RON/MON) – Sulfur Content / Olefins Content

• Gasoil – Sulfur Content – Cetane Number

• Fuel Oil – Sulfur Content – Viscosity – Straight-Run vs. Cracked

Regional Quality Variations • End Use Requirement • Climate Conditions • Refinery Technology

• Environmental Issues

Regional Quality Variations • Gasoline – – – –

Lead-Free MTBE Concern Benzene Content Volatility

• Diesel – 0.05% Sulfur

• Fuel Oil – 1.0% Sulfur

NORTH AMERICA

Regional Quality Variations • Gasoline – Lead-Free – Benzene Content – Following the US

• Diesel – 0.05% Sulfur

• Fuel Oil – 1.0% Sulfur WESTERN EUROPE

Regional Quality Variations • Gasoline – Leaded/Unleaded – MTBE

• Diesel – 1.0 - 0.25% Sulfur

• Fuel Oil – 4.0% Sulfur ASIA/PACIFIC

TOPICS 1- Oil Markets 2- Crude Oil Pricing 3- Refining 4- Refined Products Prices (Asia/AG) 5- LPG 6- Shipping

REFINED PRODUCTS (ASIA/Arab Gulf) • Regional Products Balance • Products Seasonality • Spreads • Refined Products Sales • Refining Margins

Regional Products Balance - 2002 1.2

Million BBL/Day

1.0 0.8

DEFICIT

0.6 0.4 0.2 0.0

Other

Vietnam

Thailand

Taiwan

S. Korea

Singapore

SURPLUS

Philippines

Pakistan

Malaysia

J apan

Indonesia

India

China

-0.4

Australia

-0.2

-0.6

L PG

Naphtha

Mogas

K erojet

Diesel

Fuel Oil

Regional Products Balance - 2005 1.6

Million BBL /Day

1.4 1.2 1.0

DEFICIT

0.8 0.6 0.4 0.2 0.0

Other

Diesel

Vietnam

K erojet

Thailand

Mogas

Taiwan

Naphtha

S. Korea

L PG

Singapore

SURPLUS

Philippines

Pakistan

Malaysia

J apan

Indonesia

-0.8

India

-0.6

China

-0.4

Australia

-0.2

Fuel Oil

Refined Products Sales • Naphtha – Naphtha C&F Japan - Freight

(Japan/AG)

+ Premium

• Jet – Arab Gulf Jet Quotation + Premium – Singapore Jet Quotation - Discount

• Gasoil – Singapore Gasoil 0.5%S Quotation - Discount – Arab Gulf Gasoil 0.5%S Quotation + Premium – Quality Adjustment is Incorporated as Premium/Discount

Refined Products Sales • Straight-Run Fuel Oil – Singapore HSFO 180 Quotation - Freight (Singapore/AG) + %Premium (Gasoil - Fuel Oil)

• Cracked Fuel Oil – Singapore HSFO 380 Quotation - Discount – Quality Adjustment is Incorporated in Discount

1200

Saudi Arabia Products Supply & Demand 2004 Thousand BBL/Day

Exports

Demand

1000

800

600

400

200

0 LPG

Naphtha

Gasoline

Kero/jet

Diesel

Fuel Oil

600

Saudi Arabia Products Demand 1970-2010 Forecast

500 400 300 200 100 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2007 L PG

Naphtha

Gasoline

K ero/jet

Gasoil

Fuel Oil

TOPICS 1- Oil Markets 2- Crude Oil Pricing 3- Refining 4- Refined Products Prices (Asia/AG) 5- LPG 6- Shipping

World LPG Demand 250

240

Million MT

200 Oceania Africa

150

Middle East

110

F SU / E Europe 100

L atin America West Europe

50

Asia North America

0

1985

1990

1995

1998

2000

2005

World LPG Demand 70

Million MT

60

1985

2005

50 40 30 20 10 0 North America

Asia

West Latin FSU / E Middle Europe America Europe East

Africa Oceania

Asian LPG Demand 70

Million MT

60 50 40 30

I ndian Subcontinent

20

Southeast Asia F ar East

10 0

1990

1995

1997

1998

2000

2002

2005

Asian LPG Demand by End-Use 70

Million MT

60 50

Town Gas

40

Chemicals

30

Engine Fuel

20

I ndustrial

10

Residential/ Commercial

0

1990

1995

1997

1998

2000

2002

2005

0 Pakistan

Indonesia

India

China

Philippines

Thailand

Singapore

Taiwan

Korea

Malaysia

70

J apan

Asian LPG Demand

Residential/Commercial Kilograms LPG per Capita

60

50

40

30

20

10

Asian LPG Import 35

Million MT

Other Far East

30 25

I ndian Subcontinent

20

China

15

Korea

10 5

J apan

0

1990

1995

1997

1998

2000

2002

2005

Major LPG Exporters 80

Million MT

75

70 60

53

58

F SU L America

46

50

40

Australia

40 30

S E Asia

27

Canada North Sea

20 10

12.5

19.6

23.6

25.6

22.1

29.6

M iddle E ast

0

1985

1990

1995

1998

2000

Africa

2005

Middle East LPG Exports 30

Million MT

25 Bahrain 20

Oman I raq

15

I ran Qatar

10 12.4 5

14.3

13.8

7.9

11.0

13.0

U.A.E. Saudi Arabia

0

1985

K uwait

1990

1995

1998

2000

2005

Local Petrochemical Demand

Local Petrochemical Demand 12

Million MT/Year

10 8

PROPANE

6

BUTANE

4 2

NG

0

1997

1998

1999

2000

2001

2002

TOPICS 1- Oil Markets 2- Crude Oil Pricing 3- Refining 4- Refined Products Prices (Asia/AG) 5- LPG 6- Shipping

SHIPPING • Tanker Types • Freight Calculations

AFRA • “AFRA” - Average Freight Rate Assessment • Compiled Monthly by London Tanker Broker Panel (LTBP) • Mainly Used in Oil Trade Transactions • Represents the Weighted Average of the Commercially Chartered Tonnage Employed in the Transport of Oil (16th Day of the Month - 15th Day of the Next Month)

Tanker Types Coastal Tankers Aframax Suez-max VLCC ULCC

AFRA AFRA is Assessed for Six Deadweight Groups:

1 2 3 4 5 6

General Purpose: 16,500 24,999 Medium Range: 25,000 44,999 Large Range 1 45,000 79,999 Large Range 2 80,000 159,999 VLCC 160,000 319,999 ULCC 320,000 549,999

above figures are in metric tons

Freight Calculation Freight = Worldscale x AFRA