Energy and commodity price benchmarking and market …info.argusmedia.com/uslib/Argus Webinar_US Jet Fuel_9.25.13.pdf · Louise Burke – Strategic ... Ergon Newell/Congo WV 20,000

London, Houston, Washington, New York, Portland, Calgary, Santiago, Bogota, Rio de Janeiro,

Singapore, Beijing, Tokyo, Sydney, Dubai, Moscow, Astana, Kiev, Porto and Johannesburg

illuminating the markets

Energy and commodity price benchmarking and market insights

US Jet Fuel: Market signals in a rising price environment Markus Wimmer – Editor, Argus Jet Fuel Louise Burke – Strategic Business Development September 25, 2013


• About Argus

• US jet fuel: Market signals in a rising price environment

◦ The impact of shifting crude oil fundamentals and refinery

economics on jet fuel

◦ Supply and demand factors in different regional US jet fuel

markets

◦ Jet fuel market signals to watch in upcoming months

• Argus methodology and usage

Presentation overview

Copyright © 2013 Argus Media Ltd. All rights reserved.


• Argus reports on every global energy market.

• A world leader in energy price indexation.

• Owned by the family of the founder and by the employees.

• Over 500 employees. 18 offices.

• Recent acquisitions ◦ FMB (Fertilizers)

◦ DeWitt (Petrochemicals)

• Recent expansions ◦ US Natural Gas

◦ Base Oils

• Indexation ◦ US Crude oil

◦ Global NGLs

◦ US Clean products

Who is Argus?



Argus Media


London

Houston

Washington

New York

Portland

Calgary

Santiago

Bogota

Rio de Janeiro (New)

Singapore

Beijing

Tokyo

Sydney

Dubai

Moscow

Astana

Kiev

Porto

Johannesburg


• Follow strict corporate ethics policies

• Enforce a compliance program with regular internal and external audits

• Compliance with IOSCO’s Principles for Price Reporting Agencies

• Publicly available Global Compliance Policy, Code of Conduct

Argus corporate governance


1. The impact of shifting crude oil fundamentals and refinery economics on jet fuel


Jet up with crude in 2H2013, but bearish factors remain


85

90

95

100

105

110

115

120

125

130

135

140

Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13

$/b

l

WTI USGC Colonial jet

Jan-Feb: Post-Sandy tightness in USAC

Feb-May: Overproduction pressures prices

May-Aug: Steady price increases due to seasonal demand and crude oil strength

Sep: Price drop as Syria tensions ease, refiners continue to overproduce


1. Important crude pipeline startups south of Cushing,

Oklahoma (Seaway reversal, Permian Express)

2. Reduction in Canadian imports due to unplanned

outages in Canada

3. Strong midcontinent refinery run rates since the end

of the turnaround season in June

4. Increased geopolitical risk due to political and

military unrest in Egypt and Syria

5. Crude oil supply disruptions in Libya, Iraq, and other

countries

Main drivers for WTI strength since May



Jet fuel cracks down from last year and vs. ULSD


0

5

10

15

20

25

30

35

40

45

Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013

$/b

l

Gasoline crack ULSD crack Jet fuel crack


US refiners produce above 5-year highs in the Spring

and Fall 2013 – why?


1,100

1,150

1,200

1,250

1,300

1,350

1,400

1,450

1,500

1,550

1,600

1,650

1,700

1,750

1,800

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Tho

usa

nd

b/d

US jet fuel production

5-year spread 5-year average 2013


US refinery expansions


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

b/d

Crude distillation Catalytic cracking Coking Hydrocracking


Expansions driven by product exports, now 16pc of

total production, up from 5pc in 2003


5,600,000

5,800,000

6,000,000

6,200,000

6,400,000

6,600,000

6,800,000

7,000,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2004 2005 2006 2007 2008 2009 2010 2011 2012

'00

0 b

l

US products exports US domestic products demand


US shale boom impacts crude slate



Shale boom lightens US crude diet


30

30.2

30.4

30.6

30.8

31

31.2

2004 2005 2006 2007 2008 2009 2010 2011 2012

US refinery crude feed API Gravity (Degrees)


Bakken yields more jet fuel than WTI and LLS


Refinery Yield, Volume % LLS (35.6°) WTI (39.6°) Bakken (41°) Eagle Ford (47°)

Gasoline/ Naphtha 24.2 32.1 36.3 37.1

Jet/ Kerosene 12.4 13.8 14.7 11.9

Diesel 26.4 14.1 14.3 21.1

VGO 27.3 27.1 26.1 24.2

Residual Fuel Oil 7.2 9.4 5.2 4.5


• Bakken now even with imports on east coast

• Competing flat with LLS / Eagle Ford at Gulf coast

• West coast prefers Bakken’s improved margin over ANS

Bakken reaches all three coasts



Will EPA & Congress fix RFS-2?



Blendwall fears push up cost for RINs in 2013,

encourage production of jet fuel


0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

5.5

6


RVO $/bl


RIN costs and jet fuel production levels show a 25%

correlation

R2 = 25%


0

100

200

300

400

500

600

700

800

900

1000

0 1 2 3 4 5 6

USG

C je

t fu

el p

rod

uct

ion

‘00

0 b

/d

RVO $/bl

USGC jet fuel production (Thousand b/d)

Linear (USGC jet fuel production (Thousand b/d))


US budget cuts reduce military demand by 20% in 2013,

total US demand by 2.4%


80

90

100

110

120

130

140

150

160

170

May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13

'00

0 b

/d

US military jet fuel production (4-week average)

US military jet fuel production (4-week average)


Jet fuel at 4-year lows versus ULSD


-16

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

USGC jet fuel minus ULSD c/USG

4-year spread 4-year average 2013

2. Supply and demand factors in different regional US jet fuel markets


USAC breaks out post-Sandy, but remains below

transportation costs for most of 2013


0

2

4

6

8

10

12

14

16

18


NYH minus USGC c/USG Transportation Houston-Linden, NJ


Refinery closures reduce Atlantic coast capacity 38% in

4 years


Owner City State Capacity b/d % of Region StatusPhi ladelphia Energy Solutions Phi ladelphia PA 335,000 17% operating after ownership change

Phi l l ips 66 Linden NJ 238,000 12% operating

Monroe/ Delta Tra iner PA 185,000 10% operating after ownership change

PBF Delaware Ci ty DE 182,200 9% operating

PBF Paulsboro NJ 160,000 8% operating

United Refining Co. Warren PA 65,000 3% operating

American Refining Bradford PA 10,000 1% operating

Ergon Newel l/Congo WV 20,000 1% operating

Hovensa St. Croix US Virgin Is lands 350,000 18% shut 2/2012

Sunoco Marcus Hook PA 178,000 9% shut 12/2011

Sunoco Eagle Pt/Westvi l le NJ 145,000 7% shut 2/2010

Western Refining Yorktown VA 66,300 3% shut 9/2010

Hess Port Reading NJ 0* 0% shut 2/2013

Capacity 2009 1,934,500 100%

Capacity 2013 1,195,200 62%

Capacity Lost 739,300 38%


East coast production now only accounts for 10% of

supply, imports for 4% - 86% are shipped from the Gulf


0

50,000

100,000

150,000

200,000

250,000

2004 2005 2006 2007 2008 2009 2010 2011 2012

'00

0 b

l

USAC receipts from other PADDs USAC production USAC imports


Colonial pipeline at capacity



• Demand in New York has filled the pipeline

◦ Almost continuously allocated for 2 years

• Plans to expand to 2.4 mn b/d in 2013 with

expansions aimed at easing bottlenecks into NYH

◦ Colonial and Buckeye Pipeline also completed a NYH pipeline

tie-in to ease shipping transfers

• Jones Shipping Act discourages spot cargo movements

between USGC and USAC

Colonial pipeline at capacity



Chicago market realigns with Gulf after refinery after a

heavy maintenance schedule in 1H2013


260

270

280

290

300

310

320

330

340

350


C/U

SG

USGC Colonial jet Chicago jet


Chicago


• Chicago prices were the highest in the country

between February and July

• Three area refineries have (BP, Citgo, ExxonMobil)

have most of their production under contract

• Very little storage available

• Spot arbitrage on the Explorer pipeline is risky and not

being worked


Gulf coast supply goes into export market rather than

to the East coast or Chicago


0

50

100

150

200

250

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

'000 b

/d

US Imports US Exports


West coast margins supported by diesel, jet


0

5

10

15

20

25

30

35

40


$/b

l

LA Carbob crack LA Carb diesel crack LA jet fuel crack


US West coast: Shutdowns, soft Asian market opens

arbitrage from South Korea


0

20

40

60

80

100

120

140

160

Jan, 1

2

Feb

, 12

Mar, 1

2

Mar, 1

2

Ap

r, 12

May, 1

2

Jun

, 12

Jul, 1

2

Au

g, 12

Sep

, 12

Oct, 1

2

No

v, 12

De

c, 12

Jan, 1

3

Feb

, 13

Mar, 1

3

Mar, 1

3

Ap

r, 13

May, 1

3

Jun

, 13

Jul, 1

3

Au

g, 13

Sep

, 13

West coast jet fuel imports '000 b/d


US West coast


• Tesoro now the largest PADD 5 refiner with 716,500 b/d

nameplate capacity (ahead of Chevron 485,000 b/d, Phillips

66 355,000 b/d).

• Tesoro has sold its Hawaii downstream business, including

the shuttered 95,000 b/d Kapolei refinery, to a subsidiary

of Par Petroleum Corp. in June 2013; Par is currently

restarting the refinery.


• Bakken now 17% of Washington State crude slate

US West coast crude sourcing to continue to shift

• California has room for margin improvement: 1% Bakken, but

342,000 b/d of rail expansion planned until 2015


Washington refineries Capacity b/d Coking b/d Rail Crude b/d

BP Cherry Point 225,000 58,000 20,000

P66 Ferndale 101,000 0 5,000

Shell Anacortes 145,000 25,300 0

Tesoro Anacortes 120,000 0 50,000

US Oil Tacoma 40,700 0 30,000

631,700 83,300 105,000

Proposed crude-by-rail facilities Capacity (b/d) Timeframe

PAAP - Bakersfield, California 70,000 2014

Valero - Wilmington, California 60,000 2015

Valero - Benicia, California 70,000 2015

Tesoro - Vancouver, Washington 120,000 2014

Alon USA - Portland, Oregon 10,000 Sep-13

P66 - Rodeo, California 12,000 end 2013

342,000

3. Jet fuel market signals to watch in upcoming weeks and months


3/2/1 crack spread – run cuts?


0

5

10

15

20

25

30

35

40


$/b

l

WTI 3/2/1 LLS 3/2/1 WTI 3/2/1 minus RINs LLS 3/2/1 minus RINs


US products exports stall in 2H 2013


-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

30,000

Jun

-11

Jul-

11

Au

g-1

1

Sep

-11

Oct

-11

No

v-1

1

De

c-1

1

Jan

-12

Feb

-12

Mar

-12

Ap

r-1

2

May

-12

Jun

-12

Jul-

12

Au

g-1

2

Sep

-12

Oct

-12

No

v-1

2

De

c-1

2

Jan

-13

Feb

-13

Mar

-13

Ap

r-1

3

May

-13

Jun

-13

U.S. Exports of Petroleum Products (y/y change in Thousand Barrels)


Jet fuel production surplus keeps jet cracks down?


-300

0

300

600

900

1,200

1,500

1,800

04

-Jan

11

-Jan

18

-Jan

25

-Jan

01

-Fe

b

08

-Fe

b

15

-Fe

b

22

-Fe

b

01

-Mar

08

-Mar

15

-Mar

22

-Mar

29

-Mar

05

-Ap

r

12

-Ap

r

19

-Ap

r

26

-Ap

r

03

-May

10

-May

17

-May

24

-May

31

-May

07

-Ju

n

14

-Ju

n

21

-Ju

n

28

-Ju

n

05

-Ju

l

12

-Ju

l

19

-Ju

l

26

-Ju

l

02

-Au

g

09

-Au

g

16

-Au

g

23

-Au

g

30

-Au

g

06

-Se

p

13

-Se

p

US jet fuel production & demand '000 b/d

Production surplus Production Demand


RINs – high enough to incentivize jet fuel production on

the expense of gasoline and diesel?


0.00

15.00

30.00

45.00

60.00

75.00

90.00

105.00

120.00

135.00

150.00

02-Jan-2013 02-Feb-2013 02-Mar-2013 02-Apr-2013 02-May-2013 02-Jun-2013 02-Jul-2013 02-Aug-2013

Biodiesel RIN

Advanced RIN

Ethanol RIN

Cellulosic RIN


Narrow Brent-WTI spread shifting crude scale in favor

of imported crudes?


0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

22.00

24.00


$/b

l

Brent-WTI spread

Brent-WTI spread


Jet yields fall after Brent/ WTI spread narrows


26.5

27

27.5

28

28.5

29

29.5

30

30.5

31

8.20

8.40

8.60

8.80

9.00

9.20

9.40

9.60

9.80

10.00

10.20

Nov-2012 Dec-2012 Jan-2013 Feb-2013 Mar-2013 Apr-2013 May-2013

%

US refinery product yield

Kero/ Jet Distillates


• A rise in crude oil pushed jet fuel prices up since May,

before pressures softened in September

• Overproduction depressed jet fuel crack spread

◦ US refinery expansions

◦ US shale boom impacts crude slate

◦ Blendwall encourages production of jet fuel

◦ US budget cuts reduce military demand by 20

• Signals to watch

◦ 3/2/1 crack spread – run cuts?

◦ US products export growth stalling?

◦ Jet fuel production surplus keeps jet cracks down?

◦ RINs – high enough to incentivize jet fuel production?

◦ Narrow Brent-WTI spread shifting crude scale in favor of

imported crudes?

Summary


4. Argus methodology and usage


• Argus seeks to be inclusive, reporting the entire physical market

the way it actually trades.

• Argus methodology increases the participation of users in price

formation. It is the source of transparency, accuracy and

integrity .

• Argus methodology is less likely to become distorted as it

incorporates a broader base of liquidity.

• In the US, prices reflect low and high of deals done over an

entire trading day. Differentials indexed to CME (Nymex)

settlement price.

Argus Methodology



• Argus methodology reflects transactions all day long

• Alternative methodology reflects deals done at 3:15, with prices

indexed to an assessment of futures 45 minutes after the settlement

• Argus adopted the International securities regulators organization(Iosco)

Principles for Oil Price Reporting Agencies (the PRA principles) ◦ Ensure transparency of information in a timely and usable manner

◦ Ensure transparency of process through compliance

◦ Train and supervise staff

• Compliance Procedures - Collect, collate and clarify market information ◦ Define the methodology of published prices and ensure it is transparent

◦ Define the basis, location, size, time period, specification of the contract being

assessed or reported

◦ Verify and validate all market information received

◦ Explain and justify decisions

Argus Methodology



• Global jet prices are indexed on Argus

• Argus indexation is used by end-users globally; major

global airlines and airlines throughout North America,

Europe and Asia

• Argus indexation is used by refiners in transfer pricing

for clean products, including jet fuel

• Argus is the leading index for US domestic and

imported crude

Argus in global energy and jet markets



Argus price and business intelligence reports


Any questions?

Markus Wimmer Editor, Argus Jet Fuel Email: [email protected] Phone: +1 713 429 6303 Louise Burke Strategic Business Development Email: [email protected] Phone: + 1 646 376 6142 www.argusmedia.com

Copyright notice

Copyright © 2013 Argus Media Ltd. All rights reserved. All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence

from Argus. Without limiting the foregoing, by reading this presentation you agree that you will not copy or reproduce any part of its contents (including, but not limited to, single prices or any other individual items of data) in any

form or for any purpose whatsoever without the prior written consent of Argus.

Trademark notice

ARGUS, ARGUS MEDIA, the ARGUS logo, FMB, ARGUS publication titles and ARGUS index names are trademarks of Argus Media Ltd. Visit www.argusmedia.com/trademarks for more information.

Disclaimer

All data and other information presented (the “Data”) are provided on an “as is” basis. Argus makes no warranties, express or implied, as to the accuracy, adequacy, timeliness, or completeness of the Data or fitness for any

particular purpose. Argus shall not be liable for any loss or damage arising from any party’s reliance on the Data and disclaims any and all liability related to or arising out of use of the Data to the full extent permissible by law.

Documents

Energy and commodity price benchmarking and market …info.argusmedia.com/uslib/Argus Webinar_US Jet Fuel_9.25.13.pdf · Louise Burke – Strategic ... Ergon Newell/Congo WV 20,000