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Trends and Transitions in the Diesel Market

Trends and Transitions in the Diesel Market. Joanne Shore John Hackworth NPRA Annual Meeting 2007. www.eia.doe.gov. Diesel Trends Overview. ULSD Update What Lies Ahead for Distillate? Historical Perspective Future Directions in Atlantic Basin. ULSD Update. Production Imports

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Trends and Transitions in the Diesel Market

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  1. Trends and Transitions in the Diesel Market Joanne Shore John Hackworth NPRA Annual Meeting 2007 www.eia.doe.gov NPRA 2007 Annual Meeting

  2. Diesel Trends Overview • ULSD Update • What Lies Ahead for Distillate? • Historical Perspective • Future Directions in Atlantic Basin NPRA 2007 Annual Meeting

  3. ULSD Update • Production • Imports • Transition Issues • Prices NPRA 2007 Annual Meeting

  4. ULSD Production Ramped Up in May for June Start Date NPRA 2007 Annual Meeting

  5. PADD Level Distillate Production(Aug - Oct 2006) NPRA 2007 Annual Meeting

  6. Production Comparison to Expectations NPRA 2007 Annual Meeting

  7. PADD 3 ULSD Refinery Status Note: ULSD–ultra-low sulfur diesel; Fall period – August through October Source: Form EIA-810 NPRA 2007 Annual Meeting

  8. Diesel Imports Shift to ULSD Note: LSD – 500 ppm low sulfur diesel Source: Form EIA-814 NPRA 2007 Annual Meeting

  9. Transition Issues • Production ramped up quickly • Distribution from refinery to terminals went well • Now have limited number of terminals carrying low sulfur diesel • Terminals carrying only ULSD may be supplying more than highway demand • Winter diesel (Ultra-Low-Sulfur Kerosene) issues • Warm weather • “Winterized diesel” produced and more use of additives NPRA 2007 Annual Meeting

  10. Diesel Prices Reflected ULSD Transition – But Note ’04 & ’05 Notes: LSD – Low sulfur diesel; HO – Heating Oil. Source: Bloomberg monthly average spot prices NPRA 2007 Annual Meeting

  11. Spot Diesel Prices Outpaced Gasoline Source: Bloomberg Gulf Coast Conventional Gasoline, No. 2 Heating Oil; NW Europe 0.2% Heating Oil and Premium Gasoline NPRA 2007 Annual Meeting

  12. Most of the Action is At Wholesale Source: Bloomberg Gulf Coast Conventional Gasoline, No. 2 Heating Oil; NW Europe 0.2% Heating Oil and Premium Gasoline NPRA 2007 Annual Meeting

  13. Insight from Europe on Where Diesel Prices May Settle Down? Source: Bloomberg NW Europe 0.2% Heating Oil and 10 ppm Diesel NPRA 2007 Annual Meeting

  14. Heating Oil Strengthening Since ‘05 Source: Bloomberg Gulf Coast Conventional Gasoline, No. 2 Heating Oil; NW Europe 0.2% Heating Oil and Premium Gasoline NPRA 2007 Annual Meeting

  15. What Lies Ahead for Distillate? • First Look Behind: Historical Perspective • Product Growth • Europe • United States • Future Directions in Atlantic Basin Notes: World Excluding FSU, Gasoline includes aviation gasoline & light distillate feedstocks. Middle distillates include heating oil, diesel, jet, and kerosene. Source: BP World Statistical Review 2006 NPRA 2007 Annual Meeting

  16. Europe Is Major Driver of Recent Shift to Middle Distillate Source: BP Statistical World Review 2006 NPRA 2007 Annual Meeting

  17. Europe’s Transportation Demand • General policy to reduce energy use and carbon dioxide (CO2) emissions, but not meeting targets • Petroleum demand growth has been small (annual 0.7% since 1995) • Policies led to increased shift to diesel engines • Diesel demand is increasing while gasoline demand is declining NPRA 2007 Annual Meeting

  18. European Preference for Diesel Grew Quickly since Late 1990s Source: ACEA www.acea.be NPRA 2007 Annual Meeting

  19. European Gasoline Falling While Distillate Demand Increases Note: 2006 is based on January-October data. Source: IEA NPRA 2007 Annual Meeting

  20. OECD Europe’s Growth in Distillate Production Fallen Short of Demand Increase Note: 2006 is based on January-October data. Source: IEA NPRA 2007 Annual Meeting

  21. Europe’s Growing Product Imbalance Note: Middle distillates include jet and distillate; 2006 is January-October average. Source: IEA NPRA 2007 Annual Meeting

  22. Symbiosis: Growth in Gasoline US Imports & OECD Europe Exports Note: U.S. imports includes blending components. 2006 is based on January-October data. Source: IEA NPRA 2007 Annual Meeting

  23. Europe & U.S. 2005 Supply & Demand Mix Europe Refinery Output U.S. Refinery Output European Demand U.S. Demand NPRA 2007 Annual Meeting

  24. U.S. Demand and Supply Changes • U.S. Gasoline and distillate demand relationship changing – but not as rapidly as in Europe • Changing supply issues may be more important to U.S. refining than demand shifts NPRA 2007 Annual Meeting

  25. Historical U.S. Gasoline Demand Dominates, But Middle Distillate Growth Stronger Note: Middle distillates include kerosene, jet, and distillate fuel oil. Source: EIA Petroleum Supply Annual NPRA 2007 Annual Meeting

  26. U.S. Shift to More Efficient Cars: Impact is Slow Hybrid Share of LDV New Sales 2006: 1.5% Est. 2007: 2.1% Source: JD Powers hybrid estimate, EPA Light-Duty Automotive Technology and Fuel Economy Trends: 1975-2006 NPRA 2007 Annual Meeting

  27. MPG: Growing LDV Truck Share of Sales Hindered Fleet Efficiency 2006 50.4% Light Trucks Source: EPA Light-Duty Automotive Technology and Fuel Economy Trends: 1975-2006 NPRA 2007 Annual Meeting

  28. U.S. Middle Distillate Demand Changes • Heavy duty vehicles drove historical distillate demand • Any signs of emerging growth in light duty diesel market? • Shifts in relative pricing of diesel versus gasoline Note: Transportation includes on- and off-highway, rail road, farm use, marine. Source: EIA Fuel Oil and Kerosene Sales NPRA 2007 Annual Meeting

  29. Supply: Refinery-Based Gasoline Grew At Slower Rate than Middle Distillates Oxygenates Net Imports Refinery Outputs from Crude & Other Refinery Outputs from Crude Note: Crude & Other includes refinery-produced oxygenates; Net Imports for gasoline includes blending component imports; Oxygenates excludes refinery produced oxygenates. Middle distillates are jet and distillate. Source: Forms EIA-810 and -819. NPRA 2007 Annual Meeting

  30. Future U.S. Middle Distillate Demand Increase Greater than Gasoline 1.1% Annual Growth 2005-15 2.0% Annual Growth Note: Middle distillate includes kerosene, jet and distillate. Source: 2007 AEO NPRA 2007 Annual Meeting

  31. Increasing Biofuels Reduces Need for Future Refining Capacity Gasoline Balance (MB/D) AEO 2007 Ethanol & MTBE in Gasoline (MB/D) Note: Oxygenates are volumes blended in the U.S; Net Imports includes blending components. Inventory change included in historical output. Source: History Petroleum Supply Annual, Forecast: AEO 2007; Combo is combination of forecast information from IEA, Deutsche Bank, Hart Energy. NPRA 2007 Annual Meeting

  32. Demand Europe Diesel/gasoline demand ratio grows Greenhouse gas driver Efficiency increases More biofuels Slowing diesel penetration Switch from bunker fuel to distillate Demand US Continued distillate growth higher than gasoline Light duty diesel growth has small impact on demand growth Switch from bunker fuel to distillate Nonroad ULSD Hybrids Future Directions for Atlantic Basin Diesel Demand through 2015 NPRA 2007 Annual Meeting

  33. Supply Europe Refinery diesel projects do not keep up with demand Gasoline exports grow Alternatives increase (biodiesel) Increased import capability from Middle East (incl GTL) & Asia after 2010 Supply U.S. Distillate yields continue to increase Ethanol in gasoline increases Diesel imports continue (Canada & Virgin Islands) Gasoline import availability increases Feedstock quality impacts volume and quality of diesel production Future Directions for Atlantic Basin Diesel Supply through 2015 NPRA 2007 Annual Meeting

  34. Future Directions for Atlantic Basin Diesel Balance through 2015 • Diesel supply/demand balance tighter than gasoline. • Supply growth from Middle East and Asia, but occurs late in time period • Net deficit may widen for a time • Gasoline supply growth from European excess and ethanol growth dampen incentives to expand U.S. capacity • Margins: Continued strength in diesel relative to gasoline NPRA 2007 Annual Meeting

  35. “If anything is certain, it is that change is certain. The world we are planning for today will not exist in this form tomorrow.” Philip Crosby Questions? NPRA 2007 Annual Meeting

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