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Crude Oil in Europe: Production, Trade and Refining Outlook
Steve Cooper,
Senior Downstream Analyst
Wood Mackenzie, London
StocExpo - Antwerp
March 2013
www.woodmac.com
Delivering commercial insight
Contents
© Wood Mackenzie 2
2
1 European crude production outlook
Crude oil production from near neighbours
3 European refinery crude needs
4 Evolving crude oil trade patterns
5 Implications for the storage industry
Delivering commercial insight
www.woodmac.com
Delivering commercial insight
North Sea crude / NGL production declined sharply in recent years; mid-term
outlook is flat, with further declines post-2020
© Wood Mackenzie 3
Delivering commercial insight
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
2000 2005 2010 2015 2020 2025 2030'0
00 b
/d
Netherlands
Denmark
UK
Norway
Source: Wood Mackenzie
North Sea output makes up 88% of
Europe’s crude / NGL production, down
from 93% in 2000
Norway accounts for over half of total
European output
Medium-term rate of decline dependent on
new developments surrounding largest,
mature fields
Recent discoveries have arrested near-
term UK decline
UK output generally from mature fields
with lower exploration potential than
Norway
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
2000 2005 2010 2015 2020 2025 2030
'000 b
/d
Netherlands
Denmark
UK
Norway
Total Europe
Source : Wood Mackenzie
Europe Crude Production
www.woodmac.com
Delivering commercial insight
Different types of crude oil are of very different quality…
© Wood Mackenzie 4
Delivering commercial insight
63%
44% 38%
16%
27%
22%
7%
10%
9%
14% 18%
29%
0,03% 0,95% 1,92%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Maya Azeri Light Brent
Cru
de
Dis
tilla
tio
n Y
ield
s
LPG
Naphtha
Kerosene
Gasoil /Diesel
Residue
Source: Wood Mackenzie
-16,00
-14,00
-12,00
-10,00
-8,00
-6,00
-4,00
-2,00
0,00
2005 2006 2007 2008 2009 2010 2011 2012
$ / b
arr
el
Differential, Maya FOB vs DatedBrent FOB, $/barrelSource: Argus
;
Crude Oil Distillation (assay basis) Crude Oil Price Differential
Light Medium Heavy
Not all refineries can process heavier,
more challenging crude oils
This leads to market discounts / premia
for different grades
www.woodmac.com
Delivering commercial insight
Refinery profitability is driven by ability to convert less profitable residue into
more valuable light products
© Wood Mackenzie 5
Delivering commercial insight
6%
8%
11%
39%
7%
20%
6%
2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
NWE, 2012Ref.
Yie
lds
, %
wt
LPG
Naphtha
Gasoline
Jet/Kerosene
Diesel/Gasoil
Fuel Oil
Otherproducts
Refinery Fuel& Loss
63%
44% 38%
16%
27%
22%
7%
10%
9%
14% 18%
29%
0,03% 0,95% 1,92%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Maya Azeri Light Brent
Cru
de
Dis
tilla
tio
n Y
ield
s, %
wt
LPG
Naphtha
Kerosene
Gasoil /Diesel
Residue
Source: Wood Mackenzie
Crude Oil Distillation (assay basis) Refinery Output
Light Medium Heavy
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Delivering commercial insight
Value of crude derived from value of refined products;
residue is upgraded in order to minimise lower-value fuel oil production
© Wood Mackenzie 6
Delivering commercial insight
-40
-30
-20
-10
0
10
20
30
40
199
5
199
7
199
9
200
1
200
3
200
5
200
7
200
9
201
1
201
3
201
5
201
7
201
9
202
1
202
3
202
5
Cra
ck s
pre
ad
vs B
ren
t $
/bb
l .
Jet Diesel Gasoil
1 wt%S FO 3.5 wt%S FO
Source: history Argus Media , forecast Wood Mackenzie
Value of heavy fuel oil (FO) products is
consistently below crude oil cost
Light products trade at a premium to crude
oil
Value of crude oil ultimately derived from
value of refined products
• Supply-side: crude oil quality
• Light / Medium / Heavy
• Sweet / Sour
• Demand-side: availability of refining
capacity to match crude quality to
refinery processing capabilities
Challenge for refineries is to minimise FO
output through careful selection of crude
oil grades (and therefore costs)
NWE Crackspreads (Product vs Brent, FOB)
www.woodmac.com
Delivering commercial insight
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
200
0
200
2
200
4
200
6
200
8
201
0
201
2
201
4
201
6
201
8
202
0
202
2
202
4
202
6
202
8
203
0
‘00
0 b
pd
Extra light Light Medium Heavy Extra heavy
© Wood Mackenzie 7
Delivering commercial insight
Source: Wood Mackenzie
European crude oil production to become heavier as output declines;
some rebalancing of trade flows required to maintain current crude quality
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
200
0
200
2
200
4
200
6
200
8
201
0
201
2
201
4
201
6
201
8
202
0
202
2
202
4
202
6
202
8
203
0
Note: does not include forecast crude volumes / commercial adjustments of unknown quality
Crude Oil Production, proportional Crude Oil Production, volume
www.woodmac.com
Delivering commercial insight
Average sulphur content of European crude is forecast to remain largely
unchanged
© Wood Mackenzie 8
Source: Wood Mackenzie
Delivering commercial insight
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
200
0
200
2
200
4
200
6
200
8
201
0
201
2
201
4
201
6
201
8
202
0
202
2
202
4
202
6
202
8
203
0
Sour Medium sweet Sweet
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
200
0
200
2
200
4
200
6
200
8
201
0
201
2
201
4
201
6
201
8
202
0
202
2
202
4
202
6
202
8
203
0
‘000 b
pd
Crude Oil Production, proportional Crude Oil Production, volume
Note: does not include forecast crude volumes / commercial adjustments of unknown quality
www.woodmac.com
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Contents
© Wood Mackenzie 9
2
1 European crude production outlook
Crude oil production from near neighbours
3 European refinery crude needs
4 Evolving crude oil trade patterns
5 Implications for the storage industry
www.woodmac.com
Delivering commercial insight
0
5
10
15
20
25
30
35
40
200
0
200
2
200
4
200
6
200
8
201
0
201
2
201
4
201
6
201
8
202
0
202
2
202
4
202
6
202
8
203
0
mb
/d
Latin America Caspian FSU West Africa North Africa
Growing production in other regions will have impact on trade flows and
storage within Europe; incremental sour crude provided by Middle East
© Wood Mackenzie 10
Source: Wood Mackenzie
Delivering commercial insight
Crude Oil Production, volume
www.woodmac.com
Delivering commercial insight
© Wood Mackenzie 11
Source: Wood Mackenzie
Delivering commercial insight
6% 4%
46% 39%
48% 57%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2020
%vo
l
Extra Light Light Sweet Light Sour Medium Sweet Medium Sour
Heavy Sweet Heavy Sour Extra Heavy Sweet Extra Heavy Sour
Caspian
86%
73%
12%
24%
2012 2020
FSU
16% 13%
67% 71%
14% 13%
2012 2020
West Africa
Global analysis of crude production by quality drives assessment of future
crude allocation, ensures regions can be supplied with appropriate crude
www.woodmac.com
Delivering commercial insight
Changing quality of crude will determine future trade flows into Europe; this
will be necessary to offset declining long-term domestic supply
© Wood Mackenzie 12
Source: Wood Mackenzie
Delivering commercial insight
6% 4%
46% 39%
48% 57%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2020
%vo
l
Extra Light Light Sweet Light Sour Medium Sweet Medium Sour
Heavy Sweet Heavy Sour Extra Heavy Sweet Extra Heavy Sour
7% 6%
5% 5%
18% 30%
62%
59%
8%
2012 2020
North Africa
4%
16%
41% 21%
37%
39%
16% 22%
2012 2020
Latin America
5% 10%
77% 74%
8% 7%
6% 6%
2012 2020
Middle East
www.woodmac.com
Delivering commercial insight
Contents
© Wood Mackenzie 13
2
1 European crude production outlook
Crude oil production from near neighbours
3 European refinery crude needs
4 Evolving crude oil trade patterns
5 Implications for the storage industry
www.woodmac.com
Delivering commercial insight
10
11
12
13
14
15
16
17
18
2000
200
2
200
4
200
6
200
8
201
0
201
2
201
4
201
6
2018
Mb
/d
Series1 2007 Forecast 2012 Forecast
Demand in Europe has fallen and will not recover to pre-recession levels
© Wood Mackenzie 14
1.8 Mb/d
Europe GDP forecast, 2007 and 2012 Europe Demand forecast, 2007 and 2012
80
90
100
110
120
130
140
150
200
0
200
1
2002
200
3
2004
200
5
2006
200
7
2008
200
9
201
0
201
1
201
2
201
3
201
4
201
5
Re
al G
DP
In
de
x (
20
01
=1
00
)
2007 Forecast 2012 Forecast
Source: History IEA, Forecast Wood Mackenzie Source: Wood Mackenzie
www.woodmac.com
Delivering commercial insight
Refining capacity has been rationalised, but a large gap between supply and
demand persists … as do Europe’s large product imbalances
© Wood Mackenzie 15
Europe Refining Capacity and Utilisation Europe Product Balances
Source: Wood Mackenzie
70%
72%
74%
76%
78%
80%
82%
84%
15.0
15.5
16.0
16.5
17.0
17.5
2006 2007 2008 2009 2010 2011 2012
mil
lio
n b
/d
Refinery Capacity Total Demand Average Utilisation
-1,000
-800
-600
-400
-200
0
200
400
600
800
1,000
1,200
2006 2007 2008 2009 2010 2011 2012k
b/d
Gasoline Diesel/Gasoil
Deficit
Surplus
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Product imbalances a result of transportation fuel demand trends; refineries
struggle to adapt due to predominance of gasoline-oriented FCC configuration
© Wood Mackenzie 16
NWE Product Yields by Refinery Configuration
Source: Wood Mackenzie
6% 5% 6%
17%
38%
22%
22%
20%
25%
12%
14%
17%
38%
13% 21%
2% 10% 6%
4% 1% 3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
BrentFCC
BrentHSK
UralsHCU
Refi
ne
ry Y
ield
s,
%w
t
LPG
Naphtha
Gasoline
Jet/Kerosene
Diesel/Gasoil
Fuel Oil
Otherproducts
RefineryFuel & Loss
Note:
HSK = Hydroskimming
FCC = Fluid Catalytic Cracking
European refineries are predominantly
FCC configuration, with some HCU and
to a lesser extent, HSK and COK.
FCC units were designed to upgrade
residue to maximise gasoline
production
Hydrocracking units produce a greater
diesel yield. Some hydrocracking
investments have taken place in Europe
to increase output of diesel…
… but this requires significant capital
investment that is not presently taking
place, given the uncertain product
demand outlook and weak economic
environment
HCU = Hydrocracking
COK = Coking
www.woodmac.com
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Contents
© Wood Mackenzie 17
2
1 European crude production outlook
Crude oil production from near neighbours
3 European refinery crude needs
4 Evolving crude oil trade patterns
5 Implications for the storage industry
www.woodmac.com
Delivering commercial insight
Europe is well-positioned to import crude from a number of different regions.
It therefore has considerable flexibility over selection of crude quality
© Wood Mackenzie 18
Source: Wood Mackenzie
Delivering commercial insight
Latin
America
West
Africa
Middle
East
FSU
Caspian
North Africa
Europe runs a mixed crude slate, as its
refineries are of high complexity. It is
neither constrained by:
• lack of upgrading capacity, nor
• significant prior capital investment in heavy
crude processing capability that requires
cheaper, heavier crude to generate returns.
We assume that the current European
crude slate is well-suited to regional
refinery capabilities
Therefore, reduction in European
domestic crude supply of any given
quality…
…would be expected to result in
substitution by imports of a similar
quality from one of the regions shown
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Crude slate analysis and forecast trade flows take into account a number of
key variables, on a global basis
© Wood Mackenzie 19
Europe Crude Slate by Source
Source: Wood Mackenzie
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2012 2013 2014 2015 2016 2017 2018
So
urc
e (
%)
Russia Europe Middle East
North Africa Caspian West Africa
Other
Analysis based on forecast oil production
on a field-by-field basis, forecast trade
flows, forecast refinery throughput volumes
Investments and announced closures /
capacity reductions are used in determining
future changes in crude quality requirement
Some proportional decline in West African
and Middle Eastern crude in Europe on
account of increased demand for crude in
Asia
Increased share of Russian, North African
and Caspian crude
European domestic crude volumes remain
broadly stable
This is due to flat North Sea output, much of
which is expected to remain in-region
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Crude quality is not expected to change to any great extent within Europe,
despite changes in crude source
© Wood Mackenzie 20
Source: Wood Mackenzie
A very limited number of refinery
investment projects is taking place
A small number of Med coking projects has
increased heavy sour crude requirements
but only very slightly
Impact on total Europe crude slate quality
is therefore low
Some replacement of Middle East crude
with Caspian crude will result in imported
medium density grades becoming sweeter
Europe Crude Slate by Quality
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2012 2013 2014 2015 2016 2017 2018
Heavy Sour Heavy Sweet Medium Sweet
Medium Sour Light Sour Light Sweet
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Europe should be able to source the type of crude it needs, albeit from
different places
© Wood Mackenzie 21
Europe Crude Slate by Source
Source: Wood Mackenzie
0,0
2,0
4,0
6,0
8,0
10,0
12,0
14,0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
So
urc
e (
Mb
/d)
North America Latin America West Africa Caspian Middle East Russia North Africa Europe
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Near-term, European crude runs fall, with little significant change in origin;
crude slate gets sweeter and slightly heavier
Source: Wood Mackenzie
© Wood Mackenzie 22
Change in Europe Crude Slate by Source, 2011-2018 Change in Europe Crude Slate by Quality, 2011-2018
-800 -600 -400 -200 0 200 400
kbpd
Heavy Sour Medium Sour Light Sour
Heavy Sweet Medium Sweet Light Sweet
-800 -600 -400 -200 0 200 400
kbpd
Europe North Africa Russia
Middle East Caspian West Africa
Latin America North America
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From 2018-2025, we anticipate that the decline in domestic and Russian crude
will be compensated for by increased Caspian and Middle East imports
Source: Wood Mackenzie
© Wood Mackenzie 23
Change in Europe Crude Slate by Source, 2018-2025 Change in Europe Crude Slate by Quality, 2018-2025
-800 -600 -400 -200 0 200 400 600 800
kbpd
Europe North Africa Russia
Middle East Caspian West Africa
Latin America North America
-800 -600 -400 -200 0 200 400 600 800
kbpd
Heavy Sour Medium Sour Light Sour
Heavy Sweet Medium Sweet Light Sweet
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Contents
© Wood Mackenzie 24
2
1 European crude production outlook
Crude oil production from near neighbours
3 European refinery crude needs
4 Evolving crude oil trade patterns
5 Implications for the storage industry
www.woodmac.com
Delivering commercial insight
Considerably lower European crude throughputs are forecast from 2013
onwards, with correspondingly lower storage requirements
© Wood Mackenzie 25
Source: Wood Mackenzie
Delivering commercial insight
Owing to European product supply / demand
imbalances, in particular the extremely large
gasoline surplus, it is expected that refinery
throughputs will be much lower in the future
While this is expressed as a decrease in
utilisation of existing facilities, a number of
refineries have permanently closed in Europe
We do not see this trend changing
Refineries that close are often converted to
terminal storage
There is therefore potential downward
pressure on tank storage rates within ARA
and Europe generally
Additionally, lower structural crude
throughputs will reduce strategic storage
requirements, placing further pressure on the
industry
European Refinery Utilisation
11,0
11,2
11,4
11,6
11,8
12,0
12,2
12,4
12,6
12,8
13,0
2011 2012 2013 2014 2015 2016 2017 2018
mil
lio
n b
pd
890 kbpd
620 kbpd
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0,0%
5,0%
10,0%
15,0%
20,0%
25,0%
30,0%
2011 2013 2015 2017 2019 2021 2023 2025
Beyond 2018, further decline in North Sea production has a noticeable impact
on the European crude slate
© Wood Mackenzie 26
Source: Wood Mackenzie
Delivering commercial insight
Proportion of Domestic Crude in European Slate
Increased crude import requirements into
Europe between 2018 and 2025 work out at
820 kbpd
This corresponds to a decrease of 7% in
terms of domestic crude use
The rate of North Sea decline is lower than
has been previously anticipated,
particularly in light of recent Norwegian
exploration successes
It is expected therefore that all things being
equal, there would be increased
requirements for crude storage in Europe
from 2018 onwards
820 kbpd
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0,0%
5,0%
10,0%
15,0%
20,0%
25,0%
30,0%
2011 2013 2015 2017 2019 2021 2023 2025
820 kbpd
11,0
11,2
11,4
11,6
11,8
12,0
12,2
12,4
12,6
12,8
13,0
2011 2012 2013 2014 2015 2016 2017 2018
mil
lio
n b
pd
Beyond 2018, further decline in North Sea production has a noticeable impact
on the European crude slate
© Wood Mackenzie 27
Source: Wood Mackenzie
Delivering commercial insight
Proportion of Domestic Crude in European Slate European Refinery Utilisation
890 kbpd
620 kbpd
Post-2018, the outlook for refinery
utilisation in Europe (and any further
capacity rationalisation) will either add to
or offset the additional crude import
requirements.
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Difficult business environment for European refining to lower European crude
requirements; stable North Sea output restricts near-term growth in imports
© Wood Mackenzie 28
Source: Wood Mackenzie
Delivering commercial insight
Low forecast refinery utilisation and possible future closures to negatively impact on
storage rates, particularly if refinery closures continue to result in conversion to storage
terminals.
Increased crude import requirements into Europe between 2018 and 2025 work out at 820
kbpd.
North Sea output is forecast as broadly stable up until 2018.
Europe region is flexible in its crude slate. Crude slate quality changes are forecast to be
minimal due to variety of import options, and lack of investment in further upgrading
capacity.
No quality-related constraints on crude supply are expected within Europe.
Crude quality of neighbouring regions is forecast to change, while output is set to
generally increase.
Europe will therefore source different quality crude from different locations, but the supply
situation will remain stable and overall crude requirements will remain relatively low.
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© Wood Mackenzie 29
Wood Mackenzie Disclaimer
This presentation has been prepared by Wood Mackenzie Limited for delivery at the StocExpo
Antwerp 2013 Conference. It has not been prepared for the benefit of any particular attendee
and may not be relied upon by any attendee or other third party. If, notwithstanding the
foregoing, this presentation is relied upon by any person, Wood Mackenzie Limited does not
accept, and disclaims, all liability for loss and damage suffered as a result.
The information contained in these slides may be retained by attendees. However, these
slides and the contents of this presentation may not be disclosed to any other person or
published by any means without Wood Mackenzie Limited's prior written permission.
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© Wood Mackenzie 30
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