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North America crude differentials: Impact on US refining and investments
Afolabi Ogunnaike
US has a long history as a producer and exporter of crude oilExports were banned in 1975 but successive governments have made exceptions
0
50
100
150
200
250
300
350
400
1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Thou
sand
b/d
Source: Wood Mackenzie., EIA
US crude oil exports
Ban enactedBan enacted Rise of tight oilRise of tight oil
Advances in technology led to rapid growth in US oil supplyOil supply growth outpaced logistics
0
2
4
6
8
10
12
14
1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030
mill
ion
b/d
Source: Wood Mackenzie, EIA
ForecastRise of tight oilRise of tight oil
US crude oil supply
Major oil pipelines in the US and Canada (2010)
Anacortes
Burnaby
EdmontonHardisty
Guernsey
Cushing
Midland
Houston St JamesHouma
Wood River
Montreal
Clearbrook
Superior
Sarnia
Flanagan Chicago
Mustang
Patoka
Longview
Existing PipelinesPlanned Pipelines
Source: Wood Mackenzie
Major oil pipelines in the US and Canada (2016)
Anacortes
Burnaby
NorthernGateway Edmonton
HardistyTransMountainExpansion
Steele City
Guernsey
Cushing
Midland
Houston
Port Arthur
St JamesHouma
MemphisWood River
Montreal
Clearbrook
Superior
Sarnia
Flanagan Chicago
Mustang
Patoka
Longview
Existing PipelinesPlanned Pipelines
Source: Wood Mackenzie
Improving pipeline infrastructure and declining US oil supply have reduced the discount on US crudeUnlikely to see large discounts on US oil again as exports now provide a relief valve
-$5
$0
$5
$10
$15
$20
$25
$30
Q12010
Q32010
Q12011
Q32011
Q12012
Q32012
Q12013
Q32013
Q12014
Q32014
Q12015
Q32015
Q12016
Q32016
Q12017
Q32017
US$
per
bar
rel
Source: Wood Mackenzie
ForecastForecastUS oil export ban liftedUS oil export ban lifted
Brent ‐WTI
How does lifting the export ban affect the US refinery crude advantage? US light crude discount reduced by new pipelines but heavy Canadian oil is still discounted
$32 billion (2013)
Source: Wood Mackenzie
$6 billion (2017)
US light crudeHeavy Canadian crude
Value of discounted North American crude to US refineries
How do US refinery margins compare to global peers?
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
2013 2014 2015 2016 2017
US$
per
bar
rel
North West Europe (Brent) Singapore (Dubai)US Gulf Coast (WTI) US Gulf Coast (WTI) without Brent-WTI
Source: Wood MackenzieNote: Refinery margins are based on FCC configuration and local product prices in different hubs.
US refineries outperform due to cheap natural gas, high complexity, economies of scale
FCC refining margins in major hubs
How do you US refinery investments compare with global peers?
0
5
10
15
20
25
30
0
50
100
150
200
250
300
350
Gulf CoastCondensateSplitter (US)
New NorthDakota refinery
(US)
Kunming(China)
Motiva PortArthur (US)
RedwaterSturgeon(Canada)
Abreu e Lima(Brazil)
Pay
back
per
iod
(yea
rs)
CD
U c
apac
ity (k
bd)
Capacity (kbd) Pay back periodSource: Wood Mackenzie
7 year pay back period
Payback period on US refinery investments compare favorably with global peers
What’s the outlook for US refining investments?
-0.5
0.0
0.5
1.0
1.5
2.0
2005 - 2009 2010 - 2014 2015 - 2019
mill
ion
b/d
Other Cracking Coking Desulfurization Crude distillation units
Source: Wood Mackenzie
Focused on increasing capacity to process light crude oil and condensate
US refinery investments by type
Did the US add too much capacity to process light crude?US crude oil supply is declining and it can now be exported; expect project cancellations
Eagle Ford condensate supply and proposed processing capacity
0
100
200
300
400
500
600
700
2013 2014 2015 2016 2017
‘000
b/d
Supply forecast (Apr 2015) Supply forecast (Feb 2016)
Proposed at risk projects Processing capacity
Source: Wood Mackenzie
Conclusion
Improving logistics have reduced US light crude discounts
US oil exports would act as a relief valve to prevent large discounts again
US refineries are still competitive globally
Afolabi Ogunnaike
Afolabi is focused on extending Wood Mackenzie’s analysis on North America crude oil markets. This includes developing short and long term oil price forecasts for North American grades. Recent projects include assessments of Canadian crude oil transportation constraints, US condensate export opportunity and impact of changing crude slate on refineries profitability.
Afolabi previously led the analysis of refining and refined product markets in North America. This included the competitive benchmarking of over 100 refineries in the Americas.
Prior to joining Wood Mackenzie, Afo worked for Chicago Bridge & Iron in the process technology group. He was a process design engineer for a variety of unit operations for refineries around the world.
Afolabi holds M.Eng and BSc degrees in chemical engineering and energy economics from Cornell and the University of Texas at Austin respectively.
Senior Analyst – Refining and Oil MarketsWood Mackenzie
E [email protected] +1 713 470 1615
