market development for western canadian crude oil...market development for western canadian crude...
TRANSCRIPT
Market Development for pWestern Canadian Crude Oil
Prepared for:COQG / CCQTA Joint Meeting
Calgary, AlbertaCalgary, AlbertaJune 2008
Steve Fekete
1
Steve FeketeSenior PrincipalCalgary
Purvin & Gertz and Oil Sands
International Energy ConsultancyPrivate and Independent
Firm established in 1947Headquartered in HoustonMaintained office in Calgary since 1973
30 years in oil sands (Canada and Venezuela)y ( )Maintain short-term and long-term forecasts
Supply / DemandPricingPricing
Refining and upgrading Technologies, Costs / Economics
Independent Engineer for banks/investorsIndependent Engineer for banks/investorsInitial project reviews and project reportsProject monitoring and certification of progress
2
Topics
Oils Sands Supply OutlookBiBitumenSCO
Markets for Oil Sands ProductsMarkets for Oil Sands ProductsCanadaPADD II (US Midwest / Mid ti t)Midcontinent)PADD III (USGC)PADD I (US East Coast)PADD I (US East Coast)
Netback Outlook
3
Potential Markets for Incremental Supplies of Western Canadian Crude Oil
Current Markets
Developing/Potential Markets
Current markets include Canada/U.S. Midwest, Rocky Mountains and PNW
4
PNWDeveloping and potential markets for incremental exports include Midcontinent, USGC, Pacific Rim, US East Coast
Despite Challenges, Oil Sands Production Growth to 2015 will Offset Conventional Decline
4,500
5,000Thousand Barrels per Day
3,500
4,000
4,500East CoastSCOBitumenConventional Heavy
Total Western Canada
2,500
3,000
yConventional Light & C5s
1 000
1,500
2,000
0
500
1,000
5
1990
1995
2000
2005
2010
2015
Gross Bitumen Production
2500Thousand Barrel per Day
2000 Athabasca/WabascaCold Lake/PrimroseOther
1000
1500OtherAnnounced Capacity
500
1000
0
995
000
005
006
007
008
009
010
015
6
199
200
200
200
200
200
200
201
201
Gross bitumen (not diluted)Does not include mining projects with an integrated upgrader
Bitumen Processing Options…
BitumenSynthetic Crude
(no Resid)
Upgrading Refining
Refined Products Bitumen (no Resid)
Naphtha &Lighter Gasoline18%
Distillate &Lighter 20%
Resid
Distillate
Gas Oil
Diesel / Jet FuelRFO A h lt
50%
32% Gas Oil45%
35%+
57%
35%
8 API4.8 % Sulfur
33 API0.2% Sulfur
>50 API<0.003% Sulfur
light products only
RFO, Asphalt35%+8%
Coking Refinery
7
Significant conversion and refining needed to reduce C:H ratio
Market Development For Bitumen Blends
100%
Coking RefineriesCrude Capacity, % of Total
25%
30%Coking/Asphalt as % of Crude
Upper MW
60%
80%PADD II
PADD V
PADD III
15%
20%
25% pp
PADD IVSouth MW
PNW PADD III
California
20%
40%
Ontario
PADD IVW.Canada
5%
10%
15%Midcont
W.Canada/Ont
0%0 2 4 6 8
Crude Capacity (Million B/D)
0%
5%
0 2 4 6 8 10Total Crude (Million B/D) Crude Capacity (Million B/D)Total Crude (Million B/D)
USGC is a very large market with high complexity. Need pipeline.Midwest (PADD II) has large coking. Main market for Canadian heavy crude.
8
For West Coast (PADD V or Asia) need new or expanded pipeline and marine terminal
Many Announced Refinery Projects Focus on Bitumen
Projects Targeting BitumenPetro-Canada, EdmontonPetro-Canada, Montreal
BP - Whiting, INBP/Husky – Toledo, OH
ConocoPhillips/EnCana – Wood River, ILConocoPhillips/EnCana – Borger, TX
Flint Hills - Pine Bend, MN
H k Li OHHusky – Lima, OH
Marathon - Detroit, MIMarathon – Catlettsburg, KYMarathon – Robinson, ILMarathon Robinson, IL
Coffeyville Refining – Coffeyville, KS
Frontier – El Dorado, KS
Si l i T l OK
9
Sinclair – Tulsa, OK
Western Canadian Heavy Crude Oil Disposition
Thousand Barrels per Day
2 500
3,000 At present, most heavy crude blends go to the
2,000
2,500 OtherPADD IICanada
gUS Midwest (PADD II)
Continued growth expected in supply and PADD II use
1,000
1,500in supply and PADD II use
Runs in Canada will increase
0
500
5 0 5 0 5
Large increase in heavy crude demand in PADD II could consume most
1995
2000
2005
2010
2015 II could consume most of incremental supply
10
Most SCO production growth to come from integrated oil sands projects
3000Thousand Barrel per Day
2000
2500 Midstream UpgradingIntegrated ProductionA d C it
1500
2000 Announced Capacity
500
1000
0
995
000
005
006
007
008
009
010
015
11
199
200
200
200
200
200
200
201
201
Distillation Comparison – Light Sweet Crude
80%90%
100%Volume Percent
50%60%70%80%
10%20%30%40%
0%10%
densa
te
SCO
MSW
LLS WTI
ny Light
Cond
Bonny
Resid Vac Gas Oil Distillate Naphtha
Bottomless
12
p
Note: Missing fraction is light ends
Non-Coking Refineries with High VGO Conversion Ideal for SCO Processing
80%
100%Non-Coking Refinery Capacity, % of Total
PADD I
PADD IIIW.Canada/Ont
South MW25%
30%
40%
45%Hydrocracking% of Crude
FCCU,% of Crude
60%
80%OntarioPADD IVW.Canada
PADD ICalifornia
Midcont
PNW
PADD IVCaliforniaUpper MW
15%
20%
25%
30%
35%
20%
40%PADD II
PADD V
PADD IIIPADD III
W.Canada/OntPNW
South MW
PADD IV Upper MW5%
10%
10%
15%
20%
0%0 1 2 3
Crude Capacity (Million B/D)
PADD IMidcont
PADD IV Upper MW
0%
0 2 4 6 8 10Total Crude (Million B/D)
0%
5%
Western Canada:Western Canada: Small and saturatedMidwest (PADD II):Midwest (PADD II): Large market but needs hydrocrackingUSGC (PADD III):USGC (PADD III): Has hydrocracking capacity; mostly coking refineries
p y ( )( )
13
USGC (PADD III):USGC (PADD III): Has hydrocracking capacity; mostly coking refineriesWest Coast (PADD V):West Coast (PADD V): Large market (hydrocracking, mostly with coking)East Coast (PADD I): High concentration of cracking (FCCU) capacity
Downstream VGO Conversion Capacity Required
VGO conversion capacity additions required in
1,600PADD II VGO SupplyCapacity w/ 2.0% Creep
Thousand Barrels per Day
qtraditional markets to process incremental SCOEstimated capacity
1,400
Capacity w/ 1.0% Creep
Estimated capacity requirements in excess of creep additions
Requirements exceed 1%1,200
Requirements exceed 1% annually
Access to USGC may provide some relief
1,000some relief
Large VGO market, active trade
800
14
2005 2010 2015 2020
Conversion Capacity Focus on SCO Projects is Limited to Date…
Projects Targeting SCOSun – Toledo, OH
Projects Targeting BitumenPetro-Canada, EdmontonPetro Canada Montreal ,
Suncor – Denver, COSuncor – Sarnia, ON
Petro-Canada, Montreal
BP - Whiting, INBP/Husky – Toledo, OH
ConocoPhillips/EnCana – Wood River ILFlint Hills - Pine Bend, MN (combined
with bitumen)
ConocoPhillips/EnCana – Wood River, ILConocoPhillips/EnCana – Borger, TX
Flint Hills - Pine Bend, MN
Husky – Lima, OHHusky Lima, OH
Marathon - Detroit, MIMarathon – Catlettsburg, KYMarathon – Robinson, IL
Coffeyville Refining – Coffeyville, KS
Frontier – El Dorado, KS
Sinclair – Tulsa, OK
15
Sinclair Tulsa, OK
SCO Growth Dependent on Traditional and New Markets
2,000Most SCO has
Thousand Barrels per Day
1,500OtherPADD IICanada
historically been processed in CanadaMost future SCO growth
500
1,000 Most future SCO growth will go to the US Midwest / Mid-continent
0
5 0 5 0 5
New markets required to absorb incremental SCO
1995
2000
2005
2010
2015
16
Sour, Heavy SCO Expected to Increase…
2,000Sour / Heavy SCO
Lower capital requirements for the
d
Thousand Barrels per Day
1,500
Sour / Heavy SCOSweet SCO
upgraderRefiner assumes the “load” of hydrotreating product to meet specs
1,000product to meet specs
Potentially unique processing / transport i
0
500issuesOlefins, nitrogen, sulfur, gravity
0
2000
2005
2010
2015
2020
Issues with traditional processingPipeline limitations
17
Considerations in screening potential markets for oil sands crudes
15Complexity
Initial screening based on capacity, complexity
California
Texas GC12
p y, p y
Other considerations:Future heavy crude supply
UMW/Chi
PADD IPADD IV
South MW
Japan
Midcont
WC/Ont
9
to large, complex USGC marketStrong growth in Asia suggests current and new-Japan
Chi
South Korea
PNWWC/Ont
6
suggests current and newbuild opportunitiesCalifornia will need more heavy importsI t f l tChina
30 2 4 6
Impact of regulatory constraints on market development
18
0 2 4 6Total Crude Capacity (Million B/D)
Canadian Markets for Western Crude
Refinery Capacity(Thousand B/D)
West is fully suppliedOntario receives crude
West 627Ontario 468Montreal 255
225 MB/D from west150 MB/D from east*
Montreal receives all crude from east*Montreal 255
Total 1,350 *Newfoundland and imports
Uncertain ProjectsUncertain ProjectsReversal of Enbridge Line 9 from Sarnia to Montreal
- could increase western crude delivery by 250 MB/D- or more if one of Portland pipelines also reversed from Montreal to Maine- displaced crudes are mostly light
Petro-Canada coker at Montreal to use heavy crudeShell grassroots refinery at Sarnia for oil sands crudes
19
- would add more than 80 MB/D to Ontario
PADD II Markets for Canadian Crude Oil
%Lt S t
CRUDE TYPES REFINERY CONFIGURATION
44%
25%Lt Swt
Lt Sour
Hvy Sour
2%
31%Coking
Cracking
31%
y
High Tan67%
HydroSkim
3.6 million Barrel per Day (design)
13%Domestic
SOURCE
53%34%
13%Domestic
Foreign
C di 11%
71% Lt Swt
Lt Sour
Hvy Sour
20
53%Canadian 11%18%
y
PADD II Refinery Crude Runs – By Source
5,000Canadian ImportsOther ImportsDomestic Receipts From Other PADDsIndigeno s Prod ction
Thousand Barrels per Day
B Pi li
3,000
4,000 Indigenous Production Forecast By Pipeline
2,000
from North
1,000 from South
01990 1995 2000 2005 2010 2015
internal
PADD II is the largest market for Canadian crude.
21
Canadian crude runs forecast to rise strongly.
More pipeline capacity needed.
PADD III Markets for Canadian Crude Oil
32%Lt Swt
CRUDE TYPES REFINERY CONFIGURATION
34%
32%Lt Sour
Hvy Sour 79%20%
Coking
Cracking
2%32%High Tan 1%
HydroSkim
8.4 million Barrel per Day (design)
Domestic86% Lt Swt
SOURCE
32%
1%42%OtherForeign
Canada9%
86% Lt Swt
Lt Sour
Hvy Sour
22
25%Mexico /Veneuzela
9% 5%
Heavy Crude Production From Venezuela
3.0 Most production from Venezuela is heavy sour
Million Barrels per Day
2.0
2.5 Extra Heavy Heavy Four Orinoco upgraders upgrade extra heavy Orinoco production to produce about 700 KBPD synthetic crudes, which vary from 16 to 30+ °API
1 0
1.5which vary from 16 to 30+ APICrude production is declining in current political environment and the inflection point is uncertain
0.5
1.0 pNew fiscal and operating terms delaying development of new Orinoco projects, despite a new group of
ti i t0.0
1990 1995 2000 2005 2010 2015 2020
participantsResource base is huge
V l d ti ddi hi h d f
23
Venezuela production adding a high degree of uncertainty to heavy crude balances
Heavy Crude Production From Mexico
3.0Maya produced from Cantarell
Million Barrels per Day
2.0
2.5
Maya produced from Cantarell offshore field has peaked
Other heavy production from Ku-
1.5
Maloob-Zaap is increasing
New production may come from exploration and production
0.5
1.0exploration and production further offshore and in deeper water - eventually
0.01990 1995 2000 2005 2010 2015 2020
M i d ti ld th i t
24
Mexico production could resume growth or go into long-term decline adding further uncertainty
PADD I refiners process significant volumes of imported sweet crude, and should continue
1 6001,800Thousand Barrels per Day
1 6001,800
Thousand Barrels per Day
1 0001,2001,4001,600
1,2001,4001,600
600800
1,000
600800
1,000
0200400
0200400
2000 2005 2010 2015 Heavy Sour Crude Runs Light Sour Crude Runs Sweet Crude Runs
2000 2005 2010 2015Other Imported CrudeCanadian CrudeDomestic Crude
25
Oil sands crudes have similar distillation characteristics to selected PADD I imports
100%Volume Percent
60%
80%
40%
60%
0%
20%
0%SCO Bonny
LightSynBit Arab Hvy
26
Resid VGO Distillate Naphtha Light Ends
PADD I imported crude sources are varied(Barrels per Day, 2007)
Europe 51North Africa
127
CIS 43 Middle East 167
127
Canada 256
Latin
West Africa
Latin America 192
Average Quality: 31 2 API 1 05 wt% Sulfur
West Africa 652
27
Average Quality: 31.2 API, 1.05 wt% Sulfur
PADD I Market Development and Access
Potential target refineries in Philadelphia region (capacity in MB/D):
Sunoco Marcus Hook 175Sunoco Philadelphia 335Sunoco Eagle Point 150ConocoPhillips Trainer 185Valero Paulsboro 160
Several proposals:I l d i liInland pipeline Line 9/Portland/marine
No cost information available
28
Impact of Market Clearing Location
4
5SCO – MSW, Edmonton (2008 $/BBL)
2
3Sarnia
Chi
Parity Location
0
1Chicago
Wood RiverCushing
-2
-1
USGCSCO Price ForecastSCO Price Forecast
-32007 2008 2009 2010 2011 2012 2013 2014 2015
PADD I it lik l t bli h d b B Li ht t Phil d l hi
29
PADD I parity likely established by Bonny Light at PhiladelphiaEdmonton netback will depend on pipeline tolls
Light/heavy differentials will drop as resid destruction capacity comes on-stream
45 30USGC Light Products minus Fuel OilForecast in Constant 2008 Dollars per Barrel
Crude Differential
30
35
40
20
25Lt Products - HSFOWTI - MayaMSW - CLB
20
25
30
15
20MSW - CLB
10
15
20
10
0
5
0
5
30
1995 2000 2005 2010
Note: Light Products = ½ (Gasoline + Distillate)
Light / Heavy Differential & Coking Project Return
50 00 100%Forecast in Constant 2007 Dollars per Barrel
Moderation is forecast as conversion capacity is added . . .
%
40.00
50.00
80%
100%Light/Heavy Product Differential
Coking Return, %
30.00 60%
10 00
20.00
20%
40%
0.00
10.00
0%
20%
31 3131
1995 2000 2005 2010
Summary
Rapid expansion of Western Canadian Oil Sands will require new markets
Markets required for SCO, especially with diluent alternatives becoming reality
D t i it i dDownstream conversion capacity requiredPADD II cooker capacity announcements appears sufficient to consume bitumenVGO conversion capacity required for incremental SCO
Disposition of SCO in more distant markets will likely reduce netbacksreduce netbacks
SCO discounts may create the economic incentive for investment
32
About this Presentation
Production and marketability of Oil Sands bitumen blends and synthetic crude oil, crude price differentials, economics of upgrading and diluent issues are analyzed in Purvin & Gertz’ multi-client service,Crude Oil & Oil Sands Market Outlook.
This presentation has been prepared for the sole benefit of attendees of the COQG / CCQTA June 2008 Joint Meeting. Neither the presentation nor any part of the presentation shall be provided to2008 Joint Meeting. Neither the presentation nor any part of the presentation shall be provided to third parties without the written consent of Purvin & Gertz. Any third party in possession of the presentation may not rely upon its conclusions without the written consent of Purvin & Gertz. Possession of the presentation does not carry with it the right of publication.
Purvin & Gertz prepared this presentation utilizing reasonable care and skill in applying methods of l i i t t ith l i d t ti All lt b d i f ti il bl t thanalysis consistent with normal industry practice. All results are based on information available at the
time of review. Changes in factors upon which the review is based could affect the results. Forecasts are inherently uncertain because of events or combinations of events that cannot reasonably be foreseen including the actions of government, individuals, third parties and competitors. NO IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE SHALL APPLYSHALL APPLY.
Some of the information on which this presentation is based has been provided by others. Purvin & Gertz has utilized such information without verification unless specifically noted otherwise. Purvin & Gertz accepts no liability for errors or inaccuracies in information provided by others.
33
34