Transcript CASCA Consulting, L.L.C.

Global Refining
– Key Strategic Challenges and Opportunities –
… if, where, and how money is to be made
Franz B. Ehrhardt, CEO, CASCA Consulting, L.L.C.
Middle East Petroleum Conference
Dubai, April 3-5, 2005
Issues
 Global Refining Capacity
 The Issue of Heavier Crude Oils
 Tightening Product Specifications
 Environmental Implications
 Operational Excellence
 Lowering Consumption?!
 Emerging Alternative Motor Fuels
July 17, 2015
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved
2
Global Refining Capacity
 Global capacity 82 MM bpd
 Global demand 81.5 – 82.5 MM bpd
 Previous excess capacity fully absorbed
 Considerable production shortfall
 350 – 400 Billion $ needed next 25 years
July 17, 2015
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3
The Issue of Heavier
Sour Crude
 Heavier Crude long, Sweet Crude short
 Differentials of up to 16 $ (Maya)
 50 – 60 % Resid
 Shortage of Heavy Sour Processing
and bottoms upgrading capacity
 Over-Supply of low value Fuel Oil
 Bottoms Upgrading - Delayed Coking
 Earnings Bonanza
 Valero example – 2 year payback
 Much more bottoms upgrading
July 17, 2015
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved
4
Tightening Product
Specifications
• Global trend to cleaner fuels
• Gasoline Sulfur from 300 ppm to 30 in USA and from 160 to
10 in Europe
• Diesel Sulfur from 500 ppm to 15 in USA and from 350 to 10
in Europe
• Widely differing product specifications (18 in US alone)
• Boutique products cause shortages .. and high prices
• Clean fuels reduce yield by up to 5-6%
July 17, 2015
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5
Environmental Implications
 Emerging global standards for environmental
protection, preservation, and remediation
 Substantial investments required, difficult to
recoup
 20 billion $ to meet Tier II in the US
 Impact on refining capacity expansion, mainly US
and Europe
July 17, 2015
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6
Operational Excellence
 Continuous upwards trends of operating costs
 Significant gaps to global best practices
benchmarks .. up to 30-35%
 Improvement example 64-98 MM $/yr
 1.3 – 2.0 $/barrel
 Substantial improvement potential
July 17, 2015
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved
7
Lowering Consumption ?!
• Higher price never had a lasting impact
• Europeans are used to 60-80 $/barrel crude oil cost
(taxation)
• 5.50 – 7.00 $/gallon, demand increases
• Very little room for reduction in the US
• Growth machine Asia
• Energy consumption: Europe-50 BOE, US-65
• BOE, China-5.3 BOE, India-2.5 BOE
• Oil, 1.7 barrel/person China, India .7
• Tremendous upward demand impact
July 17, 2015
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved
8
Emerging Alternative
Motor Fuels
 Ethanol – only with high subsidies
 Bio Diesel – same issue
 Hybrid cars – economics and acceptance
 Hydrogen – very long term
 Fossil fuels will be with us ..
 Natural Gas to Liquids – realistic potential
July 17, 2015
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved
9
Conclusion
• Demand is unlikely to slow down much
• Refining capacity shortage will keep margins
high, at least for 3-5 years
• Heavy sour crude processors and residupgrader will benefit greatly
• Substantial investments required for cleaner
fuels and environmental stewardship
July 17, 2015
Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved
10
Global Refining
– Key Strategic Challenges and Opportunities –
… if, where, and how money is to be made
Franz B. Ehrhardt, CEO, CASCA Consulting, L.L.C.
Middle East Petroleum Conference,
Dubai, April 3-5, 2005
THANK YOU!