1. Can U.S. Supply Accommodate Shifts to Diesel-Fueled Light-Duty Vehicles? Joanne Shore John Hackworth Energy Information Administration Hart World Refining and Fuels Conference October 7, 2005 www.eia.doe.gov

2. U.S. Diesel-Fueled LDV Pressures Encouraging Diesel Higher fuel prices favor efficient vehicles State incentives to address greenhouse gas reduction Favorable customer factors Slowing Diesel Diminished diesel fuel price advantage over gasoline Potential fuel supply constraints U.S. diesel fuel quality & emission issues Starting from “no” base; supply and customer issues

3. Overview Diesel price advantage expected to diminish – but timing/degree uncertain Europe is important influence on diesel prices, and provides insight into potential U.S. diesel- fueled LDV growth Even under high growth scenarios, LDV impacts on diesel volumes minimal over next decade Assuming U.S. does not move to separate quality LDV diesel fuel, growth in diesel LDV’s should not create refining constraints in near term

4. 2005: Continuation of High Product Prices – Especially Distillate Note: Gasoline is conventional regular Source: Bloomberg

5. In Response to Price, U.S. Distillate Yields Have Been Unusually High Source: EIA Weekly Data

6. Unusual 2005 Distillate Prices Internationally Source: Bloomberg NY Conventional Gasoline, No. 2 Heating Oil; NW Europe 0.2% Heating Oil and Regular Gasoline

7. Europe Is Unique In Degree of Shift to Middle Distillate & Affects World Market Source: BP Statistical World Review 2005

8. EU’s Contribution: Price is Not Just About Volumes, But Quality As Well Source: Bloomberg NWE Barge

9. Implications for Future Distillate Prices Seen higher growth in distillates worldwide compared to gasoline in recent years Europe is a key factor in growing shift towards diesel May not have permanent distillate price parity with gasoline, but trends favor higher distillate prices Frequency and duration of future distillate price strength will influence type of refinery investment

10. Europe Provides Insights into Distillate Prices and Diesel LDV Penetration Europe not only affects Atlantic Basin prices, but is also a major player in world distillate market Europe’s light duty vehicle growth provides insights for U.S. potential growth

11. EU-15 Demand Mix Projected to See Declining Gasoline Demand Source: History IEA; Forecast Purvin & Gertz

12. European Preference for Diesel Grew Quickly since Late 1990s Source: ACEA www.acea.bewww.acea.be

13. EU Distillate Refining Yield Growing as Gasoline Yield Shrinks Gasoline Yield Distillate Yield Note: Distillate is heating oil and diesel. Source: IEA

14. Europe’s Growing Product Imbalance Source: IEA

15. Europe Summary European diesel demand growth supported by recent strong growth in diesel-fueled LDVs Recent diesel-fueled LDV growth was primed from previous base already established European refineries investing for increased distillate yields, but demand mix changes away from gasoline continue to outpace supply shifts Future: Still see increasing gasoline exports for some time – but will economic distillate imports be available? Will large ULSD price premiums be the norm?

16. U.S. Demand Growing for Both Gasoline and Distillate Gasoline Distillate Source: EIA, Annual Energy Outlook 2005

17. Two Diesel Penetration Cases Source: EIA

18. Light Duty Vehicle Sales (Thousands) 200520102015 Reference Total LDV16,416 17,215 17,658 Reference Diesel716710749 8% Case Diesel7168391,338 10% Case Diesel7169151,818 Sources: EIA

19. Demand Changes Relative to Reference Case Changes (Thousand Barrels Per Day) 8% Case10% Case 2010201520102015 Diesel Demand10.882.514.9139.0 Gasoline Demand-13.1-113.7-18.0-191.8 Total LDV Demand-2.3-31.3-3.1-52.7 Sources: EIA

20. U.S. Gasoline & Demand Changes With Light Duty Diesel 10% Case Gasoline Distillate Source: EIA, Annual Energy Outlook 2005 10% Case

21. Refinery Implications During next decade, refiners will see little shift in diesel/gasoline demand due to diesel LDV growth Since the U.S. has a very small diesel-fueled LDV base, growth for U.S. diesel LDVs in the next 5 years will likely be slower than Europe’s recent penetration surge Assuming the U.S. will not create a separate LDV diesel fuel in the near term, refiners should see little impact of a developing LDV diesel market in the next decade

22. Conclusion Diesel prices may not provide as attractive an incentive for LDV drivers as before – but high prices in general should maintain consumer interest in diesel-fueled LDV Europe will remain a key area to watch regarding Atlantic Basin diesel market pressures During the next decade, diesel-fueled LDVs should not affect overall U.S. gasoline/distillate mix significantly, and thus refinery supply should not become a constraint in the near term