Transcript ASPHALT PRICING IN A VOLITILE OIL WORLD

ASPHALT SUPPLY IN A
VOLATILE OIL WORLD
Bill Haverland
ConocoPhillips Company
Issues to be Discussed
Crude Oil Supply
 Crude Oil Pricing
 Refining Capacity
 Products Supply
 Products Pricing
 Future of the Industry

CRUDE OIL SUPPLY
A WORLD LOOK
Crude Oil Supply (2006)
World Crude Oil Production
Millions of Barrels Per Day
FSU/E.
Europe
W. Europe
FSU/E. Europe
6.3
12.6
10.6
World Proven Crude Oil
Reserves
Billions of Barrels
Latin
America
W. Europe
Latin
15
America
79
116
US/Canada
201
11.3
26.0
36
US/Canada
743
8.4
9.8
Middle East
Africa
Asia/Pacific
Asia/Pacific
Africa
Africa
Total: 85MMB/D
102
Asia
/Pacific
MiddleMiddle
East
East
Total: 1,292 BB
Crude Oil Demand

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
Demand has risen by 7 MMBD (9%) since 2002.
Demand at 85 MMBD or 98% of world daily
delivery capacity.
Vulnerable to supply disruptions caused by
storms, accidents, breakdowns, political unrest.
65% of proven reserves within national oil
companies and 16% held by Russia.
Traditional companies have full access to 7% of
reserves and 12% through partners (if allowed).
CRUDE OIL PRICING
WTI Price by Year
70
60
50
40
30
20
10
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
YTD
1Q
1Q
1Q
1Q
1Q
1Q
1Q
20
07
20
06
20
05
20
04
20
03
20
02
20
01
WTI Price by Quarter
80
70
60
50
40
30
20
10
0
Current Crude Pricing
REFINING CAPACITY
Topping Refinery
650-
CRUDE OIL
DU
650+
GASES
“Tea Pot”
Not A Refinery
Really Just A
Crude
Distiller
NAPHTHA
AND
GASOIL
FEEDSTOCKS
6OIL or ASPHALT
(if heavy crude)
Simple Refinery
650-
CRUDE OIL
DU
650+
TO MOGAS
GASES
NHT
CRU
KHT
JET/KERO
DHT
TO NO.2
“Hydroskimming” Refinery,
many exist all over the
world
6OIL or
ASPHALT
(if heavy crude)
CCU - “Complex” Refinery
GASES
TO MOGAS
650-
CRUDE
OIL
NHT
CRU
TO MOGAS
KHT
JET/KERO
DHT
TO 2OIL
DU
GASES
6501050
CCU
ALKY
GASOLINE
GASOIL
TO MOGAS
TO MOGAS
TO 2OIL
650+ VAC
1050+
ASPHALT
6OIL
CCU/HCU/Coker - “Very Complex” Refinery
KHT
TO
MOGAS
TO
MOGAS
JET/KERO
DHT
TO 2OIL
ISOM
GASES
NHT
H2
PLANT
CRU
GASES
650-750
HCU
MTBE
CRUDE OIL
DU
GASES
750-1050
ALKY
CCU
VAC
GASES
COKER
TCU/VIS
DEASPHALTER
COKE
TO
MOGAS
TO
MOGAS
TO
MOGAS
Refinery Yield (% of Crude Intake)
120%
110%
100%
OTHER
MOGAS
JET
LT NAPH
HVY NAPH
GAS OIL
NO.2
NO6 or Asphalt
COKE
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
TOPPING
RFY
SIMPLE
RFY
CCU RFY
COKER
RFY
U. S. Refining Capacity
18.5
18
319
more than 30
less than 30
Crude Dist Cap
17.5
17
16.5
175
16
158
131
15.5
15
14.5
14
1980
1995
Last New U. S. Refinery Built in 1976
Source: Oil & Gas Journal
2000
2006
U. S. Asphalt Refining Capacity
800
750
# Refineries
Asphalt Capacity
98
700
650
60
72
600
42
550
500
450
400
1980
1995
2000
Production Range: 600 B/D to 60,000 B/D
Source: Oil & Gas Journal
2006
U. S. Refining Coking Capacity
60
58
138
# Refineries w/Cokers
Coke Production, MT/D
120
58
56
54
81
140
120
100
56
80
52
60
50
40
48
50
20
46
0
1995
2000
2006
U.S. Coker Construction Projects
2005 - 2011
 Planning,
Engineering, or Construction
Phase
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Total Refineries:
360 MB per day
Asphalt Refineries: 197 MB per day
* Source: Argus Asphalt Report
PRODUCTS
SUPPLY/DEMAND
Supply Source for U. S. Demand
MMB/D
Domestic Crude Production
Imported Crude
Imported Products
20
18
16
14
12
10
8
6
4
2
0
'95 '96 '97 '98
'99 '00 '01 '02 '03 '04 '05 '06
U. S. Product Demand, MB/D
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
1995
2000
2004
2005
Gasoline
Diesel
Jet
Resid
Asphalt
Historical Asphalt Supply/Demand
Millions Tons - Liquid
60
50
40
Supply
Demand
30
20
10
0
1980
1995
Source: Oil & Gas Journal
2000
2003
2005
2006
PRODUCTS PRICING
Prices by Quarter
20
07
1Q
20
06
1Q
20
05
1Q
20
04
1Q
20
03
1Q
20
02
1Q
20
01
WTI
Gasoline
1Q
1Q
20
00
110
100
90
80
70
60
50
40
30
20
Gasoline Price Components
Prices by Quarter
100
90
80
70
60
50
40
30
20
10
0
1Q
WTI
Gasoline
Asphalt
0
'0
1Q
1
'0
1Q
2
'0
1Q
3
'0
1Q
4
'0
1Q
5
'0
1Q
6
'0
1Q
7
'0
May-07
Jan-07
Sep-06
May-06
Jan-06
Sep-05
May-05
Jan-05
Sep-04
May-04
Jan-04
Sep-03
May-03
Jan-03
90
80
70
60
50
40
30
20
10
0
Sep-02
May-02
Jan-02
Asphalt vs Coker Feed Value
WTI
P&P MC Avg
gulf coast coker value
Current Coking Economics
Gasoline/Diesel Pricing

Aug., 07 Price: $95.00/BBL
Less Distribution: 6.00/BBL
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Net to Refinery: $89.00/BBL
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Kansas City Asphalt Pricing
Aug 07:
($40/Ton):
$54.50/BBL*
$7.15/BBL
$47.35/BBL

Lost Value:
$41.65/BBL
* Source – Poten & Partners
Current Coking Economics
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30,000 BBLS/Day Asphalt Production
X 70% Gasoil Production

21,000 BBLS Gasoil for Gasoline/Diesel
X $41.65/BBL Gasoline/Diesel diff. To Asphalt

$874,650 per day added margin
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$1 Billion / $874,650 = 1,143 days (3.1 years payoff)
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FUTURE OF THE INDUSTRY
Current Realities
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Crude production at maximum rates based on existing
infrastructure
U.S. refining running at maximum capacity (less
turnaround activity)
No new refineries in the near term
Existing refinery expansions must fill gap
Increase crude capacity and conversion capabilities to meet
light product demand
Asphalt must keep pace with conversion feed values to
encourage production
Factors Influencing Asphalt Price
Absolute price of crude (WTI benchmark)
 Light/Heavy crude price differential
 Light product “crack spread”
 Coking economics
 Impact of clean fuels (sweet crudes)
 Heavy crude availability
(Venezuela/Canadian)
 Transportation costs
 Supply/Demand
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Future For Asphalt
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More heavy crude being run (availability and price)
Clean fuels capital behind refiners, up-graders next?
Asphalt is more expensive in a $70.00 crude world
Asphalt has to trend faster with crude oil prices
Asphalt has to be more competitive with light products
Transportation costs rising – Rail, Barge, Terminalling
State asphalt price indexes reduce supplier/contractor risk
QUESTIONS