Global Refining – Key Strategic Challenges and Opportunities –

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Presentation transcript:

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

Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved Issues Global Refining Capacity The Issue of Heavier Crude Oils Tightening Product Specifications Environmental Implications Operational Excellence Lowering Consumption?! Emerging Alternative Motor Fuels November 8, 2018 Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

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 November 8, 2018 Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

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 November 8, 2018 Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

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% November 8, 2018 Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

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 November 8, 2018 Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

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 November 8, 2018 Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved 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 November 8, 2018 Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

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 November 8, 2018 Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved 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 resid-upgrader will benefit greatly Substantial investments required for cleaner fuels and environmental stewardship November 8, 2018 Copyright© 2005 CASCA Consulting, L.L.C. All rights reserved

THANK YOU! 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!