Outlook for Oil Products Trade and Storage in NWE · 2019-01-15 · Outlook for Oil Products Trade and Storage in NWE Onur Capan, Manager – Downstream Oil Service Wood Mackenzie,

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Strategy with substance

Outlook for Oil Products Trade and Storage in NWE

Onur Capan,Manager – Downstream Oil Service

Wood Mackenzie, London

StockExpo - AntwerpMarch 2013

Delivering commercial insight

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2

1 Outlook for trade flows in NWE and ARA

2 Port traffic and infrastructure developments

3 Overview of storage rates

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10

11

12

13

14

15

16

17

18

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

Mb/

d

Series1 2007 Forecast 2012 Forecast

Demand in Europe has fallen and will not recover back to pre-recession levels

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1.8 Mb/d

Europe GDP forecast, 2007 and 2012 Europe Demand forecast, 2007 and 2012

80

90

100

110

120

130

140

150

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Rea

l GD

P In

dex

(200

1=10

0)

2007 Forecast 2012 Forecast

Source: History IEA, Forecast Wood MackenzieSource: Wood Mackenzie

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-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

-

5.0

10.0

15.0

20.0

2010-2015 2015-2020 2020-2025

Mt

Diesel/Gasoil Fuel Oil Gasoline Jet/kerosene Naphtha

Middle distillates dominate future oil demand in Europe

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Source: Wood Mackenzie

Changes in NW European oil demand by product Significant demand shift from fuel oil to gasoil as a result of new bunker fuel legislation comes into force in July 2015 in the SECA (Sulphur Emission Control Areas)

Diesel/Gasoil demand growth in the transport sector is much larger than shown on chart. This is partly offset by declining heating oil demand (-5.1 Mt between 2010-2015; -3.2 Mt between 2015-2020)

A small uptake in gasoline demand is expected in the longer term as new technology gasoline cars with higher fuel efficiency increase their share in new car registrations.

SECA Impact: Bunker Demand

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Growing imbalances across most product groups

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-50

-40

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-20

-10

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LPG Naphtha Gasoline Jet/Kerosene Diesel/Gasoil Fuel Oil

Bal

ance

s (M

t)

2000 2005 2010 2015 2020 2025

Surplus

Deficit

* Includes non-refinery supply

NW Europe, All Supply Balances*



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ARA currently handles a large proportion of the region’s gasoline surplus

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2011 Gasoline Surpluses in NWE

Intra-Region18.1 Mt*

ARA

*2011 gasoline trade

Share of ARA in Intra-NWE Trade*

Share of ARA in Inter-Regional Trade*

The region’s gasoline surplus reached 22 Mt in 2012. In total close to 55 Mt of gasoline transited through NWE ports.Around 53% of the exports went to North America (requiring blending for the right US specifications) and 22% to Africa (mainly Nigeria)ARA has an important role in long haul trade - Amsterdam being the region’s main gasoline hub.


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…and the surplus is set to grow further, increasing opportunities for bulk-building, blending

ARA

Gasoline Surpluses in NWE The region’s total gasoline surplus is expected to grow by another 10 Mt, reach 32 Mt in 2025.While trade within NWE will remain virtually flat as declining volumes

going to regional deficit markets will offset growing exports to ARA for long haul exports

Intra-Region18.9 Mt

Gasoline Flows in ARA

Due to increasing domestic gasoline production, US will import less gasoline from Europe. Being competitive in exports to other regions will be the main challenge

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Key export markets for European gasoline moved more deficit in 2012, but that trend will reverse

Refinery closures and operational issues in the US increased the gasoline deficit in 2012 - to the benefit of European gasoline exportersCapacity expansions and idled refineries returning to operation will create the reverse situation in 2013, with the North American gasoline deficit shrinking again

• That trend continues towards 2018, as US refiners increase throughputs, despite stagnant gasoline demand

The Middle East gasoline deficit will be eroded by new refinery projects

© Wood Mackenzie 8

Gasoline Balances


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NorthAmerica

(East)

LatinAmerica

(East)Non Euro

MedWestAfrica

MiddleEast

Gas

olin

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b/d

2011 2012 2013 2018

Remaining competitive in gasoline exports is therefore key…


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02000 2005 2011 2015 2020 2025

Mt

Jet/Kero Diesel

Middle Distillates trade: ARA will benefit, but also regional ports to a smaller extent

Dieselisation of the car fleet is slowing down in Europe but demand for road diesel in NWE will increase by a further 10 Mt by 2020.Big step change in 2015 when the new SECA bunker legislation takes effect: Around 12 Mt of bunker demand expected to switch from fuel oil to gasoil

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NWE Middle Distillates Balances

SECA impact ~12 Mt Share of ARA in Inter-Regional Trade*

Share of ARA in Intra-NWE Trade*

*2011 diesel/gasoil trade

ARA


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Russian exports is the main driver of heavy product flows

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49Mt* FO2 Mt* VGO

2.2

1.5

1.2

1.5

13.57.1

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2.6

4.15.3

2.7

Current Class III storage capacity is managing a large and complex flow of heavy fuel oil. ARA acting as a hub to redistribute fuel oil and also supply bunkersRussian exports flowing out of the Baltic is a large proportion of the heavy product traffic in the region. Of the 18 Mt of exports to the US, around 15 Mt is heavy feedstock.Russian fuel oil exports are expected to decline as refinery upgrading investments destroy supply faster than demand declines

Fuel Oil Surplus

Fuel Oil Deficit

Bunker demand (Fuel Oil)

Russia’s Fuel Oil Surplus

Heavy product export duty is due to rise to 100% of the crude export tariff in 2015, which would amplify this trend, resulting in:

• A drop in Crude Throughput by an estimated 500,000 b/d (~25.5 Mt) as less complex refineries are pressured.

• High secondary processing capacity utilisation as refiners opt to export favourably taxed light end products.

*Argus FSU


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ARA dominates the storage landscape, volumes, and captures almost all new capacity investment

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Key factors driving investments in new capacity:

• Steady increase in rental rates in the past few years• Utilisation of storage generally reported at full capacity• General trend in the growing surplus of gasoline and growing

deficit of distillates within NWE driving increased trade flows• Reclamation of new land within port regions opening up more

waterfront potential for deep-water port terminal expansion.


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Historic growth in ARA supported storage rates and fuelled investments

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0

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45000

2006 2007 2008 2009 2010 2011Source:Eurostat

kt

Total Refined Products In Total Refined Products Out


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…and preliminary data indicate continued growth in 1H 2012


Source:ESPO

Total Refined Products In Total Refined Products Out


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Over 5 million m3 of new capacity for oil products in 5 years

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Around 2.8 million m3 was built in 2011 and 2012, bringing the total product storage capacity to over 17 million m3.With a further 2.7 million m3 planned or currently under construction, total ARA capacity is expected to reach 20 million m3.

Vesta, NedStore

Source: TankTerminals.com, Wood Mackenzie


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Storage rates show first signs of decline following a long period of steady growth

NWE’s supply imbalance in each of the major petroleum products has continued to increase over the past 10 years, which is the driving force behind the growth in trade flows and the sustained increase in storage rates.

Rates for Class I and Class II tankage reached a plateau in recent years – a direct impact of new capacity coming on stream

It is likely that terminals able to offer more services such as blending and desulphurisation will be able to command a premium over this base rate.

Terminals within the port of Rotterdam are able to achieve a €1 - €1.5 /m3/month premium over the other ARA ports on Class III tankage. This is due to its deep water allowing some operators to handle VLCC sized vessels, providing bulk opportunities to a magnitude not available in the other ports


Typical ARA Rental Rates


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Future uptake in rates is a possibility

Despite growing trade, additional storage capacity will put downward pressure on rental rates which are expected to remain consistent through to 2015

By 2020, NWE supply demand imbalances further increases. In the absence of new capacity additions, the ratio of trade to available storage will increase, favouring an upward trend in storage rental rates.

However it must be noted that any increase in rates will reduce the barriers to entry for new construction and as such this increase could drive a new wave of storage construction in the future, which would supress any expected increase in rental prices.


Forecast ARA Rental Rates

Key uncertainties for longer term are:• European GDP• Future of gasoline exports• Russian taxation and product exports

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Outlook for Oil Products Trade and Storage in NWE · 2019-01-15 · Outlook for Oil Products Trade and Storage in NWE Onur Capan, Manager – Downstream Oil Service Wood Mackenzie,