1. Meeting U.S. Transportation Fuel Demand John Hackworth Joanne Shore Energy Information Administration Energy & Transportation Panel August 2004 www.eia.doe.gov

2. Capacity Surplus Disappearing, Creating Short-Term Challenge Gross Inputs Operable Capacity Source: EIA

3. Overview Transportation demand growth – some uncertainties A need for both U.S. capacity & import growth New U.S. product specifications limit import sources Will gasoline import availability grow?

4. Demand – A Crucial Factor Affecting Capacity Decisions Future growth forecasts What could affect future growth? Source: EIA

5. Transportation Demand Growth Drives EIA’s Reference Case Source: EIA, Annual Energy Outlook 2004

6. Efficiency Could Affect Demand, But How Quickly? Fleet Weight 4063 lbs Fleet Weight 3273 lbs Fleet Weight 3870 lbs Future Efficiency Materials Drag Hybrid Advanced Batteries Advanced Diesel Source: U.S EPA, Light-Duty Automotive and Fuel Economy Trends: 1975-2003, April 2003.

7. Historical Efficiencies Affected Demand Relatively Quickly Source: Department of Transportation, FHA, Highway Statistics 2001, Table VM-1.

8. Role of Gasoline Imports – Now and in the Future Historically, imports have been an essential supply source Need increased import volume in future Will import supply be available? –Why imports have been a competitive supply source –Future impacts of U.S. specification changes –The impacts of international supply/demand

9. Imports Have Been Economic Source: EIA

10. Gasoline Net Imports – An Essential Supply Source PADD 1 Sources of SupplyImport Destinations 885 MB/D (2003) Source: EIA

11. Import Sources Nearby dedicated suppliers –Canada –Virgin Islands –Venezuela Nearby economic sources –Western Europe – symbiotic relationship –Eastern Europe –Latin America –Africa Other incremental supply –Middle East and Asia

12. EU-15 Demand Mix May Imply Excess European Mogas Supply Source: History IEA; Forecast Purvin & Gertz

13. European Choices of New Vehicles Show Why Diesel Fuel Growth May Continue Source: ACEA www.acea.bewww.acea.be

14. EU Hydrocracking Growing, But Not as Fast as Mogas/Diesel Demand Shift Source: EIA

15. No Change in NWE Price Incentive for Diesel over Gasoline Source: Bloomberg; Monthly Average NWE EN590 and 95 Octane Gasoline

16. 2004 Specification Effects on Summer Imports into New York/New Jersey Source: EIA

17. Changing U.S. Sulfur Specifications May Change Import Sources Country20042005/20062010 U.S.12030 E.U.15050 (10)10 Brazil100040080 Argentina35050N/A South Korea13050N/A Source: Hart International Fuel Quality Center Gasoline Sulfur Specifications (ppm)

18. Some Historical Suppliers Cannot Produce Low Sulfur Gasoline Source: EIA, Form EIA-814

19. Shifts in Gasoline Import Sources with Changes to Lower Sulfur Gasoline Source: EIA, Form EIA-814

20. Gasoline Import Availability Stable or Increasing W. Europe gasoline/diesel imbalance continues Increased E. Europe export capability Dedicated U.S. import sources remain Potentially high U.S. gasoline margins Decreasing U.S. gasoline spec changes limit supply sources in short run Demand outside U.S. growing faster than refining capacity

21. Factors Affecting International Product Supplies High world demand growth –Increases capacity utilization (especially Asia) –Supports high crude oil prices –Increasing imports and product prices Import implications of world refining capacity utilization –Asian demand rebound and China’s growth –Capacity growth lagging –Ability to produce light clean products in non-OECD areas

22. Annual Demand Changes Vary Considerably Source: EIA, IEA

23. How Tight is World Refining Capacity? Recent claims of being maximum sustainable capacity are exaggerated Comparing world product demand and capacity can be misleading Must look at regional utilizations However, demand growth is outpacing capacity growth – for the moment

24. Overview of World Capacity Utilization (Percent Gross Inputs/Distillation) 19982003 U.S.95.592.5 EU-1594.589.1 Latin America81.474.4 Middle East93.087.1 Source: EIA, IEA & BP

25. U.S. and Western European Trends Source: IEA

26. Singapore Utilization Pattern Source: EIA, IEA, BP

27. Downstream Capacity Profiles Source: Oil and Gas Journal Refinery Survey, December 2003

28. Capacity Additions – Asia & M.E. Asia (6) Middle East Exporters (4) Source: Oil and Gas Journal & Press Releases Thousand Barrels Per Day

29. Capacity Additions – Europe & U.S. Europe (6) U.S. Thousand Barrels Per Day Source: Oil and Gas Journal & Press Releases

30. Refining Margin Comparisons Source: BP Statistical Review 2004

31. Looking Ahead 3-5 Years: Capacity Growth Less Than Demand Growth Capacity lagged demand for past 5 years Forecasted gasoline demand implies the need for 1 to 2 MMB/D of added capacity in the next 5 years. Improved margins will encourage capacity But other environment investment requirements may detract New product specifications reduce yield in short term

32. Looking Ahead 3-5 Years: Import Availability Still A Question While the need for product imports increases, changing U.S. specifications may reduce the number of import sources in the short term Some changes were met this year, but future specifications more stringent. Worldwide refinery utilization increases will have little impact on U.S. import availability

33. Conclusion Petroleum demand will likely increase over the near term. Increases in both U.S. capacity and product imports will be needed However, the balance between the 2 supply sources is uncertain Both capacity expansion and import growth face large challenges