Crude Oil in Europe: Production, Trade and Refining Outlook

Transcription

1 Crude Oil in Europe: Production, Trade and Refining Outlook Steve Cooper, Senior Downstream Analyst Wood Mackenzie, London StocExpo - Antwerp March 2013

2 Contents 1 European crude production outlook 2 Crude oil production from near neighbours 3 European refinery crude needs 4 Evolving crude oil trade patterns 5 Implications for the storage industry Wood Mackenzie 2

3 '000 b/d '000 b/d North Sea crude / NGL production declined sharply in recent years; mid-term outlook is flat, with further declines post-2020 Europe Crude Production North Sea output makes up 88% of Europe s crude / NGL production, down from 93% in 2000 Norway accounts for over half of total European output Medium-term rate of decline dependent on new developments surrounding largest, mature fields Recent discoveries have arrested nearterm UK decline UK output generally from mature fields with lower exploration potential than Norway 0 Netherlands Netherlands Denmark UK Denmark Norway UK Source : Wood Mackenzie Norway Total Europe Wood Mackenzie 3

4 Crude Distillation Yields $ / barrel Different types of crude oil are of very different quality Crude Oil Distillation (assay basis) Crude Oil Price Differential 100% 90% 80% 70% 60% 0,03% 0,95% 1,92% 14% 18% 7% 29% 10% 16% 9% 27% LPG Naphtha Kerosene 0,00-2,00-4,00-6,00-8, % 40% 22% Gasoil / Diesel -10,00-12,00 30% 63% Residue -14,00 20% 10% 0% 44% 38% Maya Azeri Light Brent Heavy Medium Light ; -16,00 Source: Argus Differential, Maya FOB vs Dated Brent FOB, $/barrel Not all refineries can process heavier, more challenging crude oils This leads to market discounts / premia for different grades Wood Mackenzie 4

5 Ref. Yields, %wt Crude Distillation Yields, %wt Refinery profitability is driven by ability to convert less profitable residue into more valuable light products Crude Oil Distillation (assay basis) Refinery Output 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0,03% 0,95% 1,92% 14% 18% 7% 29% 10% 16% 9% 27% 22% 63% 44% 38% Maya Azeri Light Brent Heavy Medium Light LPG Naphtha Kerosene Gasoil / Diesel Residue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2% 6% 20% 7% 39% 11% 8% 6% NWE, 2012 LPG Naphtha Gasoline Jet/Kerosene Diesel/Gasoil Fuel Oil Other products Refinery Fuel & Loss Wood Mackenzie 5

6 Crack spread vs Brent $/bbl. Value of crude derived from value of refined products; residue is upgraded in order to minimise lower-value fuel oil production Value of heavy fuel oil (FO) products is consistently below crude oil cost Light products trade at a premium to crude oil Value of crude oil ultimately derived from value of refined products Supply-side: crude oil quality Light / Medium / Heavy Sweet / Sour Demand-side: availability of refining capacity to match crude quality to refinery processing capabilities Challenge for refineries is to minimise FO output through careful selection of crude oil grades (and therefore costs) NWE Crackspreads (Product vs Brent, FOB) Jet Diesel Gasoil 1 wt%s FO 3.5 wt%s FO Source: history Argus Media, forecast Wood Mackenzie Wood Mackenzie 6

7 bpd European crude oil production to become heavier as output declines; some rebalancing of trade flows required to maintain current crude quality Crude Oil Production, proportional Crude Oil Production, volume Extra light Light Medium Heavy Extra heavy 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Note: does not include forecast crude volumes / commercial adjustments of unknown quality Wood Mackenzie 7

8 bpd Average sulphur content of European crude is forecast to remain largely unchanged Crude Oil Production, proportional Crude Oil Production, volume Sour Medium sweet Sweet 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Note: does not include forecast crude volumes / commercial adjustments of unknown quality Wood Mackenzie 8

9 Contents 1 European crude production outlook 2 Crude oil production from near neighbours 3 European refinery crude needs 4 Evolving crude oil trade patterns 5 Implications for the storage industry Wood Mackenzie 9

10 mb/d Growing production in other regions will have impact on trade flows and storage within Europe; incremental sour crude provided by Middle East Crude Oil Production, volume Latin America Caspian FSU West Africa North Africa Wood Mackenzie 10

11 %vol Global analysis of crude production by quality drives assessment of future crude allocation, ensures regions can be supplied with appropriate crude Caspian FSU West Africa 100% 90% 12% 24% 14% 13% 80% 70% 48% 57% 60% 50% 40% 86% 73% 67% 71% 30% 20% 46% 39% 10% 16% 13% 0% 6% 4% Extra Light Light Sweet Light Sour Medium Sweet Medium Sour Heavy Sweet Heavy Sour Extra Heavy Sweet Extra Heavy Sour Wood Mackenzie 11

12 %vol Changing quality of crude will determine future trade flows into Europe; this will be necessary to offset declining long-term domestic supply North Africa Latin America Middle East 100% 90% 8% 16% 22% 6% 6% 8% 7% 80% 70% 60% 48% 62% 57% 59% 37% 39% 50% 40% 77% 74% 30% 20% 46% 18% 39% 30% 41% 21% 10% 0% 5% 5% 6% 7% 4% 6% % 16% % 10% Extra Light Light Sweet Light Sour Medium Sweet Medium Sour Heavy Sweet Heavy Sour Extra Heavy Sweet Extra Heavy Sour Wood Mackenzie 12

13 Contents 1 European crude production outlook 2 Crude oil production from near neighbours 3 European refinery crude needs 4 Evolving crude oil trade patterns 5 Implications for the storage industry Wood Mackenzie 13

14 Real GDP Index (2001=100) Mb/d Demand in Europe has fallen and will not recover to pre-recession levels Europe GDP forecast, 2007 and 2012 Europe Demand forecast, 2007 and Mb/d Forecast 2012 Forecast Series Forecast 2012 Forecast Source: History IEA, Forecast Wood Mackenzie Wood Mackenzie 14

15 million b/d kb/d Refining capacity has been rationalised, but a large gap between supply and demand persists as do Europe s large product imbalances Europe Refining Capacity and Utilisation Europe Product Balances % 1,200 1,000 Surplus % 80% 78% % % % 70% ,000 Deficit Refinery Capacity Total Demand Average Utilisation Gasoline Diesel/Gasoil Wood Mackenzie 15

16 Refinery Yields, %wt Product imbalances a result of transportation fuel demand trends; refineries struggle to adapt due to predominance of gasoline-oriented FCC configuration NWE Product Yields by Refinery Configuration 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 4% 1% 3% 2% 38% 12% 22% 17% 10% 6% 13% 14% 20% 38% 21% 17% 25% 22% 6% 5% 6% Brent FCC Brent HSK Urals HCU LPG Naphtha Gasoline Jet/Kerosene Diesel/Gasoil Fuel Oil Other products Refinery Fuel & Loss European refineries are predominantly FCC configuration, with some HCU and to a lesser extent, HSK and COK. FCC units were designed to upgrade residue to maximise gasoline production Hydrocracking units produce a greater diesel yield. Some hydrocracking investments have taken place in Europe to increase output of diesel but this requires significant capital investment that is not presently taking place, given the uncertain product demand outlook and weak economic environment Note: HSK = Hydroskimming FCC = Fluid Catalytic Cracking HCU = Hydrocracking COK = Coking Wood Mackenzie 16

17 Contents 1 European crude production outlook 2 Crude oil production from near neighbours 3 European refinery crude needs 4 Evolving crude oil trade patterns 5 Implications for the storage industry Wood Mackenzie 17

18 Europe is well-positioned to import crude from a number of different regions. It therefore has considerable flexibility over selection of crude quality Europe runs a mixed crude slate, as its refineries are of high complexity. It is neither constrained by: lack of upgrading capacity, nor FSU significant prior capital investment in heavy crude processing capability that requires cheaper, heavier crude to generate returns. Caspian We assume that the current European crude slate is well-suited to regional refinery capabilities Latin America Therefore, reduction in European domestic crude supply of any given quality would be expected to result in substitution by imports of a similar quality from one of the regions shown West Africa North Africa Middle East Wood Mackenzie 18

19 Source (%) Crude slate analysis and forecast trade flows take into account a number of key variables, on a global basis 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Europe Crude Slate by Source Russia Europe Middle East North Africa Caspian West Africa Other Analysis based on forecast oil production on a field-by-field basis, forecast trade flows, forecast refinery throughput volumes Investments and announced closures / capacity reductions are used in determining future changes in crude quality requirement Some proportional decline in West African and Middle Eastern crude in Europe on account of increased demand for crude in Asia Increased share of Russian, North African and Caspian crude European domestic crude volumes remain broadly stable This is due to flat North Sea output, much of which is expected to remain in-region Wood Mackenzie 19

20 Crude quality is not expected to change to any great extent within Europe, despite changes in crude source Europe Crude Slate by Quality 100% 90% 80% 70% 60% 50% 40% 30% 20% A very limited number of refinery investment projects is taking place A small number of Med coking projects has increased heavy sour crude requirements but only very slightly Impact on total Europe crude slate quality is therefore low Some replacement of Middle East crude with Caspian crude will result in imported medium density grades becoming sweeter 10% 0% Heavy Sour Heavy Sweet Medium Sweet Medium Sour Light Sour Light Sweet Wood Mackenzie 20

21 Source (Mb/d) Europe should be able to source the type of crude it needs, albeit from different places Europe Crude Slate by Source 14,0 12,0 10,0 8,0 6,0 4,0 2,0 0, North America Latin America West Africa Caspian Middle East Russia North Africa Europe Wood Mackenzie 21

22 Near-term, European crude runs fall, with little significant change in origin; crude slate gets sweeter and slightly heavier Change in Europe Crude Slate by Quality, Change in Europe Crude Slate by Source, kbpd Heavy Sour Medium Sour Light Sour Heavy Sweet Medium Sweet Light Sweet kbpd Europe North Africa Russia Middle East Caspian West Africa Latin America North America Wood Mackenzie 22

23 From , we anticipate that the decline in domestic and Russian crude will be compensated for by increased Caspian and Middle East imports Change in Europe Crude Slate by Quality, Change in Europe Crude Slate by Source, kbpd Heavy Sour Medium Sour Light Sour Heavy Sweet Medium Sweet Light Sweet kbpd Europe North Africa Russia Middle East Caspian West Africa Latin America North America Wood Mackenzie 23

24 Contents 1 European crude production outlook 2 Crude oil production from near neighbours 3 European refinery crude needs 4 Evolving crude oil trade patterns 5 Implications for the storage industry Wood Mackenzie 24

25 million bpd Considerably lower European crude throughputs are forecast from 2013 onwards, with correspondingly lower storage requirements Owing to European product supply / demand imbalances, in particular the extremely large gasoline surplus, it is expected that refinery throughputs will be much lower in the future While this is expressed as a decrease in utilisation of existing facilities, a number of refineries have permanently closed in Europe We do not see this trend changing Refineries that close are often converted to terminal storage There is therefore potential downward pressure on tank storage rates within ARA and Europe generally Additionally, lower structural crude throughputs will reduce strategic storage requirements, placing further pressure on the industry 13,0 12,8 12,6 12,4 12,2 12,0 11,8 11,6 11,4 11,2 11,0 European Refinery Utilisation 890 kbpd 620 kbpd Wood Mackenzie 25

26 Beyond 2018, further decline in North Sea production has a noticeable impact on the European crude slate Proportion of Domestic Crude in European Slate 30,0% 25,0% 20,0% 15,0% 10,0% 5,0% 0,0% 820 kbpd Increased crude import requirements into Europe between 2018 and 2025 work out at 820 kbpd This corresponds to a decrease of 7% in terms of domestic crude use The rate of North Sea decline is lower than has been previously anticipated, particularly in light of recent Norwegian exploration successes It is expected therefore that all things being equal, there would be increased requirements for crude storage in Europe from 2018 onwards Wood Mackenzie 26

27 million bpd Beyond 2018, further decline in North Sea production has a noticeable impact on the European crude slate Proportion of Domestic Crude in European Slate European Refinery Utilisation 30,0% 25,0% 20,0% 15,0% 10,0% 820 kbpd 13,0 12,8 12,6 12,4 12,2 12,0 11,8 11,6 11,4 11,2 11,0 890 kbpd 620 kbpd ,0% 0,0% Post-2018, the outlook for refinery utilisation in Europe (and any further capacity rationalisation) will either add to or offset the additional crude import requirements. Wood Mackenzie 27

28 Difficult business environment for European refining to lower European crude requirements; stable North Sea output restricts near-term growth in imports Low forecast refinery utilisation and possible future closures to negatively impact on storage rates, particularly if refinery closures continue to result in conversion to storage terminals. Increased crude import requirements into Europe between 2018 and 2025 work out at 820 kbpd. North Sea output is forecast as broadly stable up until Europe region is flexible in its crude slate. Crude slate quality changes are forecast to be minimal due to variety of import options, and lack of investment in further upgrading capacity. No quality-related constraints on crude supply are expected within Europe. Crude quality of neighbouring regions is forecast to change, while output is set to generally increase. Europe will therefore source different quality crude from different locations, but the supply situation will remain stable and overall crude requirements will remain relatively low. Wood Mackenzie 28

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