Review of Current and Potential Asian Oil Benchmarks Chen Bo President, UNIPEC March 15, 2016
Content Dramatic changes on global oil trading World oil industries shifting to east China s oil market and potential crude benchmark
Dramatic changes on global oil trade US Shale Revolution Restructure of World Refining Industries Dramatic Changes on Global Oil Trade Trade in the Atlantic Basin declines Global oil trade shifts towards east China is becoming the world largest crude importer
Crude trade declines in the Atlantic Basin Crude Oil Imports into the US and Europe 25.0 56.0% 20.0 54.0% 52.0% U.S. 15.0 10.0 50.0% 48.0% 46.0% Europe* 5.0 0.0 44.0% 42.0% 40.0% Share of US and Europe in World Crude Trade - RHS Source: BP, PIRA, Unipec Research, * Europe excludes FSU
US crude imports led down by shale revolution 12.0 US Crude Oil Production and Imports 10.0 8.0 Imports 6.0 4.0 2.0 Production 0.0 Source: EIA, Unipec Research
WTI is challenged as global oil benchmark $/bbl 20 Spreads of WTI/BRENT and WTI/LLS 15 10 5 0 WTI/Brent Spread -5-10 WTI/LLS Spread -15-20 -25-30 -35 Source: Reuters, Unipec Research
Increasing speculations in NYMEX WTI contract WTI Positions by Type of Trader 100.0% 75.0% 50.0% 25.0% 28.4% 21.8% 31.2% 18.6% 16.5% 28.6% 25.7% 29.2% Producer/Merchant/ Processor/User Managed Money Swap Dealers Other Reportables 0.0% 2007 2015 Source: CFTC, Unipec Research
Crude production declines in the North Sea Crude Production of Major Grades in the North Sea 1.4 1.2 Ekofisk 1.0 0.8 Oseberg 0.6 0.4 Forties 0.2 Brent 0.0 Source: Reuters, Unipec Research
Crude runs and imports of OECD Europe slide 14.0 Crude Runs and Imports of OECD Europe 13.0 12.0 11.0 10.0 9.0 Crude Runs Crude Imports 8.0 7.0 Source: BP, PIRA, Unipec Research
Indonesia became a net oil importer Crude Oil Production and Net Export of Indonesia 2 1 1 0-1 -1-2 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Net Exports - Left Production - Right Source: OPEC, Argus
Limited liquidity of Dubai benchmarks Production of Dubai Crude Benchmarks 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Al Shaheen Murban Dubai Oman Upper Zakum Source: FGE, Unipec Research
Global crude pricing mechanism needs to be improved Crude production declines in the North Sea Crude runs and imports of OECD Europe slide WTI WTI is challenged as global crude benchmark Increasing speculations in NYMEX WTI contract BRENT Limited liquidity of Dubai benchmarks DUBAI/ OMAN China is becoming the world largest oil importer China is building an market - oriented oil market Shanghai INE MINAS/ TAPIS Indonesia became a net oil importer Source: Unipec Research
Content Dramatic changes on global oil trading World oil industries shifting to east China s oil market and potential crude benchmark
Asia-Pacific is the world biggest oil consumer Oil Demand and Share of Asia-Pacific 36.0 36.0% 32.0 33.0% Oil Demand 28.0 30.0% 24.0 27.0% % of Global Oil Demand-RHS 20.0 24.0% Source: IEA, Unipec Research
Asia-Pacific owns the world largest refining capacities World Refining Capacity by Region 100.0% 28% 31% 35% 75.0% 50.0% 4% 8% 29% 3% 9% 26% 3% 9% 24% Asia-Pacific Africa Middle East 25.0% 0.0% 9% 9% 8% 22% 21% 21% 2005 2010 2015 Europe Latin America North America Source: PIRA, Unipec Research
Crude deficit widens in Asia-Pacific 40.0 35.0 30.0 Refining Capacity and Oil Production in Asia-Pacific 25.0 20.0 15.0 Refining Capacity Oil Production 10.0 5.0 0.0 Source: PIRA, Unipec Research
Asia-Pacific became the target market of crude suppliers Crude Trade Volumes and Share of Asia-Pacific 45 40 35 30 25 20 15 10 5 0 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Asia-Pacific Rest of World Share of Asia-Pacific -Right Source: BP, PIRA, Unipec Research
Middle East crude trades shifting to east 6.0 Middle East Crude Exports by Destination 16.0 5.0 4.0 14.0 12.0 10.0 Europe North America 3.0 2.0 1.0 8.0 6.0 4.0 2.0 Rest of World Asia-Pacific - Right 0.0 0.0 Source: PIRA, Unipec Research
African crude trades shifting to east 3.5 Africa Crude Exports by Destination 3.0 2.5 Asia-Pacific 2.0 1.5 1.0 Europe North America 0.5 Rest of World 0.0 Source: PIRA, Unipec Research
FSU crude trades shifting to east 6.0 FSU Crude Exports by Destination 5.0 4.0 Asia-Pacific 3.0 Europe 2.0 North America 1.0 Rest of World 0.0 Source: PIRA, Unipec Research
Latin American crude trades shifting to east 4.0 3.5 Latin America Crude Exports by Destination 3.0 Asia-Pacific 2.5 2.0 1.5 1.0 0.5 Europe North America Rest of World 0.0 Source: PIRA, Unipec Research
Content Dramatic changes on global oil trading World oil industries shifting to east China s oil market and potential crude benchmark
China s oil demand keeps rising at lower growth rate China s Economic Growth and Oil Demand 14.0 16.0% 12.0 10.0 8.0 6.0 4.0 2.0 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% Oil Demand GDP Growth Rate- Right 0.0 0.0% Source: National Bureau of Statistics of China, Unipec Research
China s crude shortage continues to widen 14.0 Crude Runs and Production of China 12.0 10.0 8.0 Crude Runs 6.0 4.0 2.0 Crude Production 0.0 Source: National Bureau of Statistics of China. * Unipec Research forecasts
China accounts for larger share in global crude trade Crude Oil Imports and its Share in the world 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Crude Imports Share-Right Source: BP, Unipec Research
China is becoming the world largest crude importer by 2016 12.0 Crude Imports into China and the US 10.0 8.0 6.0 The US 4.0 2.0 China 0.0 Source: China Customs, EIA. * forecasts by Unipec Research
China s oil market reform speeds up 2013 2015 2016 onwards Reform launched: ChemChina obtained 10 million tons/year. crude import quota. Oil products pricing mechanism adjusted. Reform speeds up: Upstream sectors opens to private investment. More independent refineries approved to import crude oil. A few independent refineries obtain oil products export quota. China s refining market sees more competitions. Reform moves on: Further improving oil product pricing mechanism. Launching Shanghai crude futures contract. Preparing oil products futures contracts.
The potential INE crude benchmark will play a key role The Potential Crude Benchmarks in Shanghai International Energy Exchange (INE) Region Country Crude Minimum API Maximum Sulfur Content (%) Premium ($/bbl) Middle East UAE Dubai 30.0 2.2 Oman Oman 30.0 1.3 UAR Upper Zakum 33.0 2.0 Yemen Masila 31.0 0.8 Qatar Qatar Marine 31.0 2.2 Iraq Basrah Light 29.5 3.0 China China Shengli 24.0 1.0 To be determined by INE. Factors to consider: Property differences Demand & supply Alternative crude Loading & Transportation Note: quality baseline is API gravity of 32 and sulfur content of 1.5%. Crude for delivery and premium level shall be decided and adjusted by INE according to market condition.
Summaries Driven by the US shale revolution and restructure in world refining industries, global oil trade is shifting towards east. Asia-Pacific has become the world biggest oil consumer and refinery center, and also the largest target market of crude oil. The dramatic changes in global oil trade, together with increasing speculations and limited liquidities of major crude benchmarks, require improvement in global crude pricing mechanism. China is becoming the largest crude importer, and its share in global crude trade is rising. Aiming to build a more efficient and open oil market, China s oil market reform has speeded up. The potential INE crude benchmark will play a key role in global oil trade.
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