Crude Oil Oil Crude Oil
Crude Oil Midstream & Downstream
J. Richard Moore
Oil Industry Segments Upstream •Exploration •Production Production
Downstream
Midstream Gathering & Transportation
Gathering lines P/L P
Oil Trunk
Tank farm
Pipeline
•Refining & Product Distribution •Petrochemicals
P/L L
Products storage Oil refineryy P Products l Trunk P/L a n t Petrochem
Wells
Imports P/L & Waterborne
Crude oil storage
B
R
B
R
B
R
Bulk Retailers t storage
Delivery lines
Crude Oil Midstream
U.S. Supplies of Natural Gas & Oil— Oil—2007 NATURAL GAS Annual (TCF)
Avg Day (BCF)
OIL Annual (BBBLS)
Avg Day (MMBLS)
Gross Domestic Production
24.6
67.4
1.848
5.064
D D Dry Domestic ti Production
19.1
52.3
1.848
5.604
3.8
10.4
.8
2.2
2.972
452,768
500,00
500,000
3,696 BBLS
10 BBLS/D
Pipeline Imports Waterborne W t b Imports
# of Domestic Wells
452,768
Average Production (Gross)
54,332 MCF
Source: EIA
149 MCF/D
.689 (CAN)
1.861 8.143
Seasonality y of Demand Natural Gas vs. Oil— Oil—2007 NATURAL GAS
OIL
Withdraw from Storage Supply (Dry gas production plus net imports)
17 15
MMBBLS S/D
Trilllion cubic feet (TC CF)
19
13 11
Supply Consumption
9 IInject j t into i t Storage
7
Consumption
5 Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
Crude Oil Gatheringg
Potential Well Stream Components LEASE SURFACE EQUIPMENT
FROM WELLHEAD
FLOWLINE
HYDROGEN SULFIDE
METHANE
OIL OR CONDENSATE
PROPANE
ETHANE
NITROGEN HELIUM
DIRT & RUST
NATURAL GASOLINE
CARBON DIOXIDE
BUTANES
WATER
RECOVERABLE HYDROCARBONS RESIDUE GAS NON-HYDOCARBONS NON HYDOCARBONS AND CONTAMINANTS
Producing Well Surface Flow Schematic Sales Gas
H2S Removal
Separator
Dehydration Unit
Oil or Condensate
Liquid Sales
Treating Line Heater
Water
To Disposal
Crude Oil Gathering: Place in Physical Distribution Network Lease Gathering Line Stock Tanks
Tank truck (Barge)
Pipeline Dump Station
To Trunk line
OR Lease LACT Unit Stock Tanks
Information Needed
Volume of oil delivered BS&W content Sulfur/Gravity lf / i Temperature
Gathering Line
Information Provided By
Gauger (producer) Truck driver (buyer/transporter) LACT = L Lease A Automatic t ti Custody C t d Transfer
Oil Q Quality li PIPELINE TRANSPORTATION
SALES •
•
•
Sulfur/Gravity— affects price BS&W—(1%) merchantable product Temperature— affects volume
• • •
•
Fungible system M h t bl product Merchantable d t Temperature—affects volume Gravity & sulfur banks
C d Oil Crude Transportation p
Crude Oil Trunk Pipelines
Place in Physical Distribution Network R S P S
H
P
H
H
P
S
R R
S
Supply Source
P
Pump Station
Import Terminal
(Field or dump station)
FUNCTIONS / ACTIVITIES
Gathering Pipeline Interstate Trunk Pipeline A Intrastate Trunk Pipeline
H R
Supply hub (tank farm)
Provide high pressure / large volume, long distance transport of crude oil • Uses energy from pump stations
Refinery
• Safetyy & environmental regulation g DOT, OSHA, EPA, MMS, states
Interstate Trunk Pipeline B
• Intrastate rate regulation – state
Interstate Trunk Pipeline C
• Interstate rate regulation - FERC
Major Crude Oil Trunk Lines in U.S.
• < 50,000 miles • Common C carriers
Interstate Crude Oil
T k Pipelines Trunk Pi li TRANSPORTED VOLUMES
NUMBER OF COMPANIES
MILES OF PIPELINE
79
46,658
7.039
Majors (>100 MM BBLS/YR)
19
28,652
5.197
LARGEST 10 (VOL)
10
22,222
4.018
TOTAL
Source: 09/01/08 O&GJ, FERC Form 6
(B BBLS/YR)
Crude Oil Trunk Pipelines COMMON CARRIERS Have custody but not ownership of oil in pipeline’s possession Require q shippers pp to p provide share of line fill & tank bottoms Accept shipments from all qualifying parties Allocate capacity based on shippers’ nominations NOMINATION PROCEDURES One class of service for all timely nominations Deliveries to trunk lines not contemporaneous with production (lease, dump station, tank farm and import terminal storage) Majority of U.S. oil supply is imported; most natural gas supply is domestic Gas p pipeline p throughput g p significantly g y more seasonal than crude oil p pipeline p throughput.
Crude Oil Imports p
U.S. Imports of Crude Oil
Waterborne Imports of Crude Oil ENTER VESSEL TYPES
#
U.S. PORTS (SIZE)
PADD*
10,000-60,000 dwt (Handy)
*
Yes
I,III, V
60,000-80,000 dwt (Panamax)
*
Yes
I, III, V
80 000-120 000 dwt (Aframax) 80,000-120,000
*
Several ports
I III I, III, V
120,000-200,000 dwt (Suezmax)
*
Fewer ports
I, III, V
200,000-315,000 dwt (VLCC)
471
LOOP or lighter
III
320,000-550,000 dwt (ULCC)
10
LOOP or lighter
III
TOTAL
*PADD = Petroleum Administration for Defense District
3556
(1 dwt ≈ 7.4 BBLS)
VLCC + ULCC = 16% of vessels vessels, but 36% of dwt
25% of waterborne imports li h d lightered
Most lightering done in Gulf off Mexico i (75%) ( %)
Crude Oil Storage
Crude Oil Storage Facilities GENERALIZATION Oil stored for operational reasons, reasons natural gas stored for seasonal demand
OIL STORAGE FACILITIES MORE NUMEROUS & EXHIBIT GREATER SIZE VARIATIONS Location
Inventory EOM 11/08
Tank size (BBLS) Approximate #
Lease storage
17 MM BBLS
100-500
100,000 (500,000 wells)
Tank farms & pipelines
204 MM BBLS
10,000-500,000
141 Terminals
Refinery stocks
96 MM BBLS
50,000-500,000
150 Refineries
Strategic petroleum Reserve (SPR)
702 MM BBLS
6 to 35 1 (62 caverns) MM BBLS
(Cavern size)
Crude Oil Storage STRATEGIC PETROLEUM RESERVE (SPR)
Current capacity: 727 million BBLS
Four sites along U.S. Gulf Coast (2 TX, 2 LA)
62 caverns (6 to 35 MM BBLS capacity)
Withdrawal rate: initial 4.4 MM BOPD for 90 days, declining to 1.0 MM BOPD
Oil displaced di l d with i h fresh f h water
To be expanded to 1 billion BBLS
Crude Oil Marketingg
Trading Crude Oil PHYSICAL TRADING (Physical Commodity) • •
•
• •
Generate profit (buy/sell) Reduce costs (exchange) Manage supply slate (quality/timing)
FINANCIAL TRADING (Financial Instruments)
•
Hedging (physical price) Margin protection (physical price risk)
•
Speculation
•
Opportunistic—fast action / reaction Market knowledge / intelligence critical
Oil Marketing Path ((Historical and Current))
PRODUCER
GATHERER MARKETER
TRUNK PIPELINE
REFINER
IMPORTS
IMPORTS
Refiners can obtain supply from:
Proprietary production
Oil producers
Gatherer / marketers
Imports Oil pipelines historically transporters, not purchasers / resellers
Crude Oil Trading: Activities / Objectives
Buy / sell—generate spread
Exchange—reduce transport costs
Refiner crude slate quality considerations
Management of sale or purchase obligations
Management of transport assets
Time trades
Crude Oil Price Hedging
Crude Oil Price Hedging Crude Oil Futures Contract NYMEX
Futures Contract Terms
• Quantity: 1,000 BBLS
Definitions • Spot (Prompt) Month: futures contract closest to maturityy
• Price Quotation: $ Per Barrel • Delivery Point: Cushing, OK • Number of Months Listed: 72 consecutive • Expiration Date: 3 days prior to 25th calendar dayy of the month p preceding g the delivery month
• Basis: difference between cash / futures prices (location, time, etc.) • 12-Month Strip: average value of the next 12 months’ futures price • Divergence: g cash / futures prices p do not move in same direction / amount
Crude Oil Producer Hedge Illustration Producer sells futures to establish hedge position, then purchases offsetting quantities of futures each month to liquidate futures
Cash & Futtures Price - $/BBL L
70.0
Hedge Price = $66 [Futures Position
69 0 69.0
Futures Position Loss
68.0 67.0
$3
66.0 65.0
Futures PositionGain
$3
64 0 64.0
Cash & Futures Settle Price Future Position Purchase (Liquidation) Price
63.0 62.0 61.0
AUG G
SEP P
OCT T
NOV V
DEC C
66
67
68
69
70
70
70
70
70
Avg = 67.42
Futures Position Sale (Acquisition Price)
66
66
66
66
66
66
66
66
66
66
66
66
Avg = 66.00
Futures Position Purchase (Liquidation Price)
63
63
63
66
67
68
69
70
70
70
70
70
Avg = 67.42
Loss / Gain on Futures Position
3
3
3
0
-1
-1
-3
-4
-4
-4
Net Oil Sale Price
66
66
66
66
66
66
66
66
66
66
(Cash Price ± Futures Gain/Loss)
JUL L
63
JUN N
63
MAY Y
63
APR R
FEB B
Cash Price / Futures Settle Price
MAR R
JAN N
60.0
-4 66
-4
Avg = -1.42
66
Avg = 66.00
Crude Oil Downstream
Oil Industry Segments Upstream •Exploration •Production Production
Downstream
Midstream Gathering & Transportation
Gathering lines P/L P
Oil Trunk
Tank farm
Pipeline
•Refining & Product Distribution •Petrochemicals
P/L L
Products storage Oil refineryy P Products l Trunk P/L a n t Petrochem
Wells
Imports P/L & Waterborne
Crude oil storage
B
R
B
R
B
R
Bulk Retailers t storage
Delivery lines
C d Oil Crude Refining
Crude Oil Refining Why refine oil? CONSUMER
Cannot use crude oil Needs motor gasoline, petrochemicals (plastics), cosmetics, paint, etc. OIL PRODUCER Could not sell crude oil to consumer. Must have refiner. REFINER In business to make a margin. Sell refined products for more than cost of crude oil plus refining costs.
Oil Refining Capacities (US— (US—2008)
Source: EIA
N b off R Number Refineries fi i ((operable) bl )
150
Atmospheric Distillation Capacity
17.6 MM BBLS / Day
Vacuum Distillation Capacity
8.4 MM BBLS / Day
Thermal Cracking Capacity
2.6 MM BBLS / Day
Catalytic Cracking Capacity
6 2 MM BBLS / Day 6.2
Catalytic Reforming Capacity
3.9 MM BBLS / Day
Total U.S. Refinery Production (2007)
14.7 MM BBLS / Day
Total U.S. Refinery & Blending Production
18.0 MM BBLS / Day
Total U.S. U S Product Supplied (Demand)
20 7 MM BBLS / Day 20.7
Oil Refining Processes & Units ((Employing p y g heat,, pressure p & catalysts) y )
Distillation* Fractionation Atmospheric Vacuum
Blending & Treating
Conversion* Decomposition Catalytic cracking
Unification Alkylation Polymerization
Coking
Rearrangement Finished products
Catalytic reformingg Isomerization
Hydrocracking * Treating may occur
80
Crude Oil (Arab LT)
60
Simple Distillation
Avg. U.S. Refinery Yield
NAPTHA
Other
Middle & light Gasoil
40 20
Residual
Motor Gasoline Diesel, jet fuel, heating oil, kero
Residual Source: EIA
Cosst of Crudde Loweer Highher
Motorr Gasolinne Yield Low wer Higher
Crude Slate / Yield Relationships
Higher
Processing Severity ( (cost) )
Lower
Typical U.S. Refinery Products Yield from Crude Oil PRODUCT
%
LRG
4.1
Motor Gasoline Jet Fuel
45.5 9.2
Distillate Fuel Oil
26.1
Residual Fuel Oil
4.2
Petr Coke & Asphalt Petr.
81 8.1
Other
2.8 100
Source: EIA
Refinery Margin Gross Refining Margin (Per BBL)
=
Refined products revenue minus feedstock costs (for same periods) Crude BBLS processed during period Range*
GRM / BBL (Last 10 years)
Crack Spread
=
=
Refinery Type
Refinery Complexity
-$1 to +$2
for
Hydroskimmers
(Least complex / severe)
+$1 to $10
for
Cracking
(More complex / severe)
+$3 to $18
for
Coking
(Most complex / severe)
Value of products futures
–
(Products produced by refinery from a BBL of crude
Recent crack Spread per Oil and Gas Journal: $ ________
2007 GRM
* Booz Allen 2005, Valero 10-k
$12.33 (Valero—composite of plants / regions )
Value of Crude Oil Futures (Typical BBL of feedstock)
Refinery Operations
S Seasonal lP Product d t Mix Mi Ch Changes 20000 18000 16000 14000
Crude inputs to refineries & blenders
12000 10000
Gas Production Prod ction 8000 6000
Distillate production 4000 2000 0 Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
Refining Operating /Capital Costs
OPERATING (excluding depr.)
CAPITAL
Historical Range*: g $.50-$4.50 $ $ / BBL
New Plant: $ $15-$20k $ per p BBL/D* Large: >100,000 BBL / Day Lead Time: 5 Years Permits: Environmental Crude Supply: Secure / known price Competition: Lower cost foreign
(> with complexity)
2007: $3.93 / BBL (Valero) CATEGORIES Energy (more than 50%) Labor Chemicals & catalysts Environmental Compliance
* Baker and Obrien 2005, O&GJ Nelson Farrar Index
Refined Products Distribution & Marketing
Oil Industry Segments Upstream •Exploration •Production Production
Downstream
Midstream Gathering & Transportation
Gathering lines P/L P
Oil Trunk
Tank farm
Pipeline
•Refining & Product Distribution •Petrochemicals
P/L L
Products storage Oil refineryy P Products l Trunk P/L a n t Petrochem
Wells
Imports P/L & Waterborne
Crude oil storage
B
R
B
R
B
R
Bulk Retailers t storage
Delivery lines
Refined Products Supply / Demand (2007 2007--MM BBLS/D) Refined Product
US Refineries and Blenders
Net Imports
Adjustments
Total Supplied pp
Finished Motor Gasoline
8.4
.4
.3
9.1
Distillate Fuel Oil
4.1
.3
--
4.4
Total Mogas & Distillate
12.5
.7
.3
13.5
Refinery Feedstock
U.S. Production
Net Imports
Adjustments
Refinery Inputs
Crude Oil
51 5.1
10.0
.1
15 2 15.2
Other liquids (50% Gasoline components)
.5
1.3
--
1.8
Total
5.6
11.3
.1
17.0
Source: EIA
Refined Products Distribution Network Terminal or Dealer
Barge Rail
REFINERY Pipeline
Retail Outlet
Jobber or Retail Outlet
Retail Outlet
Jobber or Retail Outlet
Retail Outlet
Terminal
Terminal
About 60% of refined products move via pipeline About 30% of refined products move via water Final leg is by truck D.O.T. --BTS
Product Storage g (MM BBLS – 12/31/07) FINISHED MOTOR GASOLINE
AV GAS JET FUEL KEROSENE
DISTILLATE
Refinery*
22 9 22.9
13 1 13.1
33 0 33.0
Pipeline*
40.0
15.3
34.7
48.5
15.0
?
?
?
111.4
43.4
133.7
Bulk Terminal* Secondaryy (Dealers) Total ((15-30 Days y supply)
(@9.3 = 12 days) (@ y)
* EIA Stocks Report
66.0
RESIDUAL
COKE & ASPHALT
TOTAL
11 8 11.8
20 7 20.7
101 5 101.5
.2
---
90.2
27.5
11.0
168.0
?
?
?
39.5
(@1.7 = 26days) (@ y ) (@ (@4.2 = 32days) y ) (@ (@.7 = 56days) y)
31.7 (@1.0 = 32days) (@ y)
359.7
Refined Products Pi li Pipelines
• < 95,000 95 000 miles il • Common carriers
Interstate Refined Products
Pipelines TRANSPORTED VOLUMES
NUMBER OF COMPANIES
MILES OF PIPELINE
81
85,666
6.9
21
52,199
5.3
10
35,227
3.7
TOTAL
MAJORS (>100 MM BBLS/YR)
LARGEST 10 (VOL)
Source: 09/01/08 O&GJ, FERC Form 6
(B BBLS/YR)
Refined Products Pipeline Batching Fungible (most common on large trunk lines) Segregated
Products
Interfaces
Reformulated regular gasoline Low sulfur diesel
Compatible
Kerosene / Jet fuel
Transmix (reprocess)
High sulfur diesel Conventional regular gasoline All premium gasoline grades
Refined e ed Products oducts Trading ad g TYPE OF TRADE
GOAL
OPPORTUNITY
Location
Save P/L or transport cost
Improve margin
Quality
Reduce costs or capture fee
Improve margin
Timingg
Avoid carrying y g costs/ price p increase
Lock in margin
Speculation p
Buy low / sell high
Generate margin g
Refined Products Marketingg Channels REFINER
B d d Branded Unbranded
Wholesale End user
Reseller
Retail COCO
CODO
DODO
Gasoline Gaso e Pump u p Price ce 2000-2007 Average retail price: $1.91 / gal.
2007 Average retail price: $2.80/ gal.
12
Distribution & Marketing
16
Refining Costs & Profits
24
48
Source: EIA
Federal & State Taxes
Crude Oil
10 17 15
58
Motor Gasoline Specifications Gasoline Grades (Octane)
Fed / State Local Emissions Stds
Seasonal / Location (RVP) Variations
Premium (90-93) Midgrade (88-90) Regular (85-88)
Oxygenated RFG (sulfur out) CBG (oxy/RFG)
Summer (9.0) Winter (11.5) Other (13.5) Restricted (7/7.8)
3
x
3
x
5
Potential Different Product Specs
=
45
Products Pipeline
Geographic Area
Gasoline Product Codes (Specs)
Diesel Product Codes (Specs)
Colonial TEPPCO Explorer Kinder Morgan
Southeast South/Midwest/East South/Midwest West (TX to CA)
13 (38 Voc/RVP) 4 (12 RVP) 18 12 (48 RVP)
16 4 4 (8) 4
Source: EIA
Refined Products— Products—Issues
Motor gasoline—octane, RVP, additives Number of grades (specifications) – supply/cost Seasonal change in RVP, etc.
Motor gasoline—ethanol (E(10), E(85))
Diesel—low sulfur, biodiesel Increasing distillate demand in U.S. & worldwide Historically mutually beneficial U.S. & Europe diesel / motor gasoline demand & relationship
Seasonality of demand
Th k Thank you
J. Richard Moore
Oil Industry Segments Upstream •Exploration •Production Production
Downstream
Midstream Gathering & Transportation
Gathering lines P/L P
Oil Trunk
Tank farm
Pipeline
•Refining & Product Distribution •Petrochemicals
P/L L
Products storage Oil refineryy P Products l Trunk P/L a n t Petrochem
Wells
Imports P/L & Waterborne
Crude oil storage
B
R
B
R
B
R
Bulk Retailers t storage
Delivery lines
Crude Oil Midstream
U.S. Supplies of Natural Gas & Oil— Oil—2007 NATURAL GAS Annual (TCF)
Avg Day (BCF)
OIL Annual (BBBLS)
Avg Day (MMBLS)
Gross Domestic Production
24.6
67.4
1.848
5.064
D D Dry Domestic ti Production
19.1
52.3
1.848
5.604
3.8
10.4
.8
2.2
2.972
452,768
500,00
500,000
3,696 BBLS
10 BBLS/D
Pipeline Imports Waterborne W t b Imports
# of Domestic Wells
452,768
Average Production (Gross)
54,332 MCF
Source: EIA
149 MCF/D
.689 (CAN)
1.861 8.143
Seasonality y of Demand Natural Gas vs. Oil— Oil—2007 NATURAL GAS
OIL
Withdraw from Storage Supply (Dry gas production plus net imports)
17 15
MMBBLS S/D
Trilllion cubic feet (TC CF)
19
13 11
Supply Consumption
9 IInject j t into i t Storage
7
Consumption
5 Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
Crude Oil Gatheringg
Potential Well Stream Components LEASE SURFACE EQUIPMENT
FROM WELLHEAD
FLOWLINE
HYDROGEN SULFIDE
METHANE
OIL OR CONDENSATE
PROPANE
ETHANE
NITROGEN HELIUM
DIRT & RUST
NATURAL GASOLINE
CARBON DIOXIDE
BUTANES
WATER
RECOVERABLE HYDROCARBONS RESIDUE GAS NON-HYDOCARBONS NON HYDOCARBONS AND CONTAMINANTS
Producing Well Surface Flow Schematic Sales Gas
H2S Removal
Separator
Dehydration Unit
Oil or Condensate
Liquid Sales
Treating Line Heater
Water
To Disposal
Crude Oil Gathering: Place in Physical Distribution Network Lease Gathering Line Stock Tanks
Tank truck (Barge)
Pipeline Dump Station
To Trunk line
OR Lease LACT Unit Stock Tanks
Information Needed
Volume of oil delivered BS&W content Sulfur/Gravity lf / i Temperature
Gathering Line
Information Provided By
Gauger (producer) Truck driver (buyer/transporter) LACT = L Lease A Automatic t ti Custody C t d Transfer
Oil Q Quality li PIPELINE TRANSPORTATION
SALES •
•
•
Sulfur/Gravity— affects price BS&W—(1%) merchantable product Temperature— affects volume
• • •
•
Fungible system M h t bl product Merchantable d t Temperature—affects volume Gravity & sulfur banks
C d Oil Crude Transportation p
Crude Oil Trunk Pipelines
Place in Physical Distribution Network R S P S
H
P
H
H
P
S
R R
S
Supply Source
P
Pump Station
Import Terminal
(Field or dump station)
FUNCTIONS / ACTIVITIES
Gathering Pipeline Interstate Trunk Pipeline A Intrastate Trunk Pipeline
H R
Supply hub (tank farm)
Provide high pressure / large volume, long distance transport of crude oil • Uses energy from pump stations
Refinery
• Safetyy & environmental regulation g DOT, OSHA, EPA, MMS, states
Interstate Trunk Pipeline B
• Intrastate rate regulation – state
Interstate Trunk Pipeline C
• Interstate rate regulation - FERC
Major Crude Oil Trunk Lines in U.S.
• < 50,000 miles • Common C carriers
Interstate Crude Oil
T k Pipelines Trunk Pi li TRANSPORTED VOLUMES
NUMBER OF COMPANIES
MILES OF PIPELINE
79
46,658
7.039
Majors (>100 MM BBLS/YR)
19
28,652
5.197
LARGEST 10 (VOL)
10
22,222
4.018
TOTAL
Source: 09/01/08 O&GJ, FERC Form 6
(B BBLS/YR)
Crude Oil Trunk Pipelines COMMON CARRIERS Have custody but not ownership of oil in pipeline’s possession Require q shippers pp to p provide share of line fill & tank bottoms Accept shipments from all qualifying parties Allocate capacity based on shippers’ nominations NOMINATION PROCEDURES One class of service for all timely nominations Deliveries to trunk lines not contemporaneous with production (lease, dump station, tank farm and import terminal storage) Majority of U.S. oil supply is imported; most natural gas supply is domestic Gas p pipeline p throughput g p significantly g y more seasonal than crude oil p pipeline p throughput.
Crude Oil Imports p
U.S. Imports of Crude Oil
Waterborne Imports of Crude Oil ENTER VESSEL TYPES
#
U.S. PORTS (SIZE)
PADD*
10,000-60,000 dwt (Handy)
*
Yes
I,III, V
60,000-80,000 dwt (Panamax)
*
Yes
I, III, V
80 000-120 000 dwt (Aframax) 80,000-120,000
*
Several ports
I III I, III, V
120,000-200,000 dwt (Suezmax)
*
Fewer ports
I, III, V
200,000-315,000 dwt (VLCC)
471
LOOP or lighter
III
320,000-550,000 dwt (ULCC)
10
LOOP or lighter
III
TOTAL
*PADD = Petroleum Administration for Defense District
3556
(1 dwt ≈ 7.4 BBLS)
VLCC + ULCC = 16% of vessels vessels, but 36% of dwt
25% of waterborne imports li h d lightered
Most lightering done in Gulf off Mexico i (75%) ( %)
Crude Oil Storage
Crude Oil Storage Facilities GENERALIZATION Oil stored for operational reasons, reasons natural gas stored for seasonal demand
OIL STORAGE FACILITIES MORE NUMEROUS & EXHIBIT GREATER SIZE VARIATIONS Location
Inventory EOM 11/08
Tank size (BBLS) Approximate #
Lease storage
17 MM BBLS
100-500
100,000 (500,000 wells)
Tank farms & pipelines
204 MM BBLS
10,000-500,000
141 Terminals
Refinery stocks
96 MM BBLS
50,000-500,000
150 Refineries
Strategic petroleum Reserve (SPR)
702 MM BBLS
6 to 35 1 (62 caverns) MM BBLS
(Cavern size)
Crude Oil Storage STRATEGIC PETROLEUM RESERVE (SPR)
Current capacity: 727 million BBLS
Four sites along U.S. Gulf Coast (2 TX, 2 LA)
62 caverns (6 to 35 MM BBLS capacity)
Withdrawal rate: initial 4.4 MM BOPD for 90 days, declining to 1.0 MM BOPD
Oil displaced di l d with i h fresh f h water
To be expanded to 1 billion BBLS
Crude Oil Marketingg
Trading Crude Oil PHYSICAL TRADING (Physical Commodity) • •
•
• •
Generate profit (buy/sell) Reduce costs (exchange) Manage supply slate (quality/timing)
FINANCIAL TRADING (Financial Instruments)
•
Hedging (physical price) Margin protection (physical price risk)
•
Speculation
•
Opportunistic—fast action / reaction Market knowledge / intelligence critical
Oil Marketing Path ((Historical and Current))
PRODUCER
GATHERER MARKETER
TRUNK PIPELINE
REFINER
IMPORTS
IMPORTS
Refiners can obtain supply from:
Proprietary production
Oil producers
Gatherer / marketers
Imports Oil pipelines historically transporters, not purchasers / resellers
Crude Oil Trading: Activities / Objectives
Buy / sell—generate spread
Exchange—reduce transport costs
Refiner crude slate quality considerations
Management of sale or purchase obligations
Management of transport assets
Time trades
Crude Oil Price Hedging
Crude Oil Price Hedging Crude Oil Futures Contract NYMEX
Futures Contract Terms
• Quantity: 1,000 BBLS
Definitions • Spot (Prompt) Month: futures contract closest to maturityy
• Price Quotation: $ Per Barrel • Delivery Point: Cushing, OK • Number of Months Listed: 72 consecutive • Expiration Date: 3 days prior to 25th calendar dayy of the month p preceding g the delivery month
• Basis: difference between cash / futures prices (location, time, etc.) • 12-Month Strip: average value of the next 12 months’ futures price • Divergence: g cash / futures prices p do not move in same direction / amount
Crude Oil Producer Hedge Illustration Producer sells futures to establish hedge position, then purchases offsetting quantities of futures each month to liquidate futures
Cash & Futtures Price - $/BBL L
70.0
Hedge Price = $66 [Futures Position
69 0 69.0
Futures Position Loss
68.0 67.0
$3
66.0 65.0
Futures PositionGain
$3
64 0 64.0
Cash & Futures Settle Price Future Position Purchase (Liquidation) Price
63.0 62.0 61.0
AUG G
SEP P
OCT T
NOV V
DEC C
66
67
68
69
70
70
70
70
70
Avg = 67.42
Futures Position Sale (Acquisition Price)
66
66
66
66
66
66
66
66
66
66
66
66
Avg = 66.00
Futures Position Purchase (Liquidation Price)
63
63
63
66
67
68
69
70
70
70
70
70
Avg = 67.42
Loss / Gain on Futures Position
3
3
3
0
-1
-1
-3
-4
-4
-4
Net Oil Sale Price
66
66
66
66
66
66
66
66
66
66
(Cash Price ± Futures Gain/Loss)
JUL L
63
JUN N
63
MAY Y
63
APR R
FEB B
Cash Price / Futures Settle Price
MAR R
JAN N
60.0
-4 66
-4
Avg = -1.42
66
Avg = 66.00
Crude Oil Downstream
Oil Industry Segments Upstream •Exploration •Production Production
Downstream
Midstream Gathering & Transportation
Gathering lines P/L P
Oil Trunk
Tank farm
Pipeline
•Refining & Product Distribution •Petrochemicals
P/L L
Products storage Oil refineryy P Products l Trunk P/L a n t Petrochem
Wells
Imports P/L & Waterborne
Crude oil storage
B
R
B
R
B
R
Bulk Retailers t storage
Delivery lines
C d Oil Crude Refining
Crude Oil Refining Why refine oil? CONSUMER
Cannot use crude oil Needs motor gasoline, petrochemicals (plastics), cosmetics, paint, etc. OIL PRODUCER Could not sell crude oil to consumer. Must have refiner. REFINER In business to make a margin. Sell refined products for more than cost of crude oil plus refining costs.
Oil Refining Capacities (US— (US—2008)
Source: EIA
N b off R Number Refineries fi i ((operable) bl )
150
Atmospheric Distillation Capacity
17.6 MM BBLS / Day
Vacuum Distillation Capacity
8.4 MM BBLS / Day
Thermal Cracking Capacity
2.6 MM BBLS / Day
Catalytic Cracking Capacity
6 2 MM BBLS / Day 6.2
Catalytic Reforming Capacity
3.9 MM BBLS / Day
Total U.S. Refinery Production (2007)
14.7 MM BBLS / Day
Total U.S. Refinery & Blending Production
18.0 MM BBLS / Day
Total U.S. U S Product Supplied (Demand)
20 7 MM BBLS / Day 20.7
Oil Refining Processes & Units ((Employing p y g heat,, pressure p & catalysts) y )
Distillation* Fractionation Atmospheric Vacuum
Blending & Treating
Conversion* Decomposition Catalytic cracking
Unification Alkylation Polymerization
Coking
Rearrangement Finished products
Catalytic reformingg Isomerization
Hydrocracking * Treating may occur
80
Crude Oil (Arab LT)
60
Simple Distillation
Avg. U.S. Refinery Yield
NAPTHA
Other
Middle & light Gasoil
40 20
Residual
Motor Gasoline Diesel, jet fuel, heating oil, kero
Residual Source: EIA
Cosst of Crudde Loweer Highher
Motorr Gasolinne Yield Low wer Higher
Crude Slate / Yield Relationships
Higher
Processing Severity ( (cost) )
Lower
Typical U.S. Refinery Products Yield from Crude Oil PRODUCT
%
LRG
4.1
Motor Gasoline Jet Fuel
45.5 9.2
Distillate Fuel Oil
26.1
Residual Fuel Oil
4.2
Petr Coke & Asphalt Petr.
81 8.1
Other
2.8 100
Source: EIA
Refinery Margin Gross Refining Margin (Per BBL)
=
Refined products revenue minus feedstock costs (for same periods) Crude BBLS processed during period Range*
GRM / BBL (Last 10 years)
Crack Spread
=
=
Refinery Type
Refinery Complexity
-$1 to +$2
for
Hydroskimmers
(Least complex / severe)
+$1 to $10
for
Cracking
(More complex / severe)
+$3 to $18
for
Coking
(Most complex / severe)
Value of products futures
–
(Products produced by refinery from a BBL of crude
Recent crack Spread per Oil and Gas Journal: $ ________
2007 GRM
* Booz Allen 2005, Valero 10-k
$12.33 (Valero—composite of plants / regions )
Value of Crude Oil Futures (Typical BBL of feedstock)
Refinery Operations
S Seasonal lP Product d t Mix Mi Ch Changes 20000 18000 16000 14000
Crude inputs to refineries & blenders
12000 10000
Gas Production Prod ction 8000 6000
Distillate production 4000 2000 0 Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
Refining Operating /Capital Costs
OPERATING (excluding depr.)
CAPITAL
Historical Range*: g $.50-$4.50 $ $ / BBL
New Plant: $ $15-$20k $ per p BBL/D* Large: >100,000 BBL / Day Lead Time: 5 Years Permits: Environmental Crude Supply: Secure / known price Competition: Lower cost foreign
(> with complexity)
2007: $3.93 / BBL (Valero) CATEGORIES Energy (more than 50%) Labor Chemicals & catalysts Environmental Compliance
* Baker and Obrien 2005, O&GJ Nelson Farrar Index
Refined Products Distribution & Marketing
Oil Industry Segments Upstream •Exploration •Production Production
Downstream
Midstream Gathering & Transportation
Gathering lines P/L P
Oil Trunk
Tank farm
Pipeline
•Refining & Product Distribution •Petrochemicals
P/L L
Products storage Oil refineryy P Products l Trunk P/L a n t Petrochem
Wells
Imports P/L & Waterborne
Crude oil storage
B
R
B
R
B
R
Bulk Retailers t storage
Delivery lines
Refined Products Supply / Demand (2007 2007--MM BBLS/D) Refined Product
US Refineries and Blenders
Net Imports
Adjustments
Total Supplied pp
Finished Motor Gasoline
8.4
.4
.3
9.1
Distillate Fuel Oil
4.1
.3
--
4.4
Total Mogas & Distillate
12.5
.7
.3
13.5
Refinery Feedstock
U.S. Production
Net Imports
Adjustments
Refinery Inputs
Crude Oil
51 5.1
10.0
.1
15 2 15.2
Other liquids (50% Gasoline components)
.5
1.3
--
1.8
Total
5.6
11.3
.1
17.0
Source: EIA
Refined Products Distribution Network Terminal or Dealer
Barge Rail
REFINERY Pipeline
Retail Outlet
Jobber or Retail Outlet
Retail Outlet
Jobber or Retail Outlet
Retail Outlet
Terminal
Terminal
About 60% of refined products move via pipeline About 30% of refined products move via water Final leg is by truck D.O.T. --BTS
Product Storage g (MM BBLS – 12/31/07) FINISHED MOTOR GASOLINE
AV GAS JET FUEL KEROSENE
DISTILLATE
Refinery*
22 9 22.9
13 1 13.1
33 0 33.0
Pipeline*
40.0
15.3
34.7
48.5
15.0
?
?
?
111.4
43.4
133.7
Bulk Terminal* Secondaryy (Dealers) Total ((15-30 Days y supply)
(@9.3 = 12 days) (@ y)
* EIA Stocks Report
66.0
RESIDUAL
COKE & ASPHALT
TOTAL
11 8 11.8
20 7 20.7
101 5 101.5
.2
---
90.2
27.5
11.0
168.0
?
?
?
39.5
(@1.7 = 26days) (@ y ) (@ (@4.2 = 32days) y ) (@ (@.7 = 56days) y)
31.7 (@1.0 = 32days) (@ y)
359.7
Refined Products Pi li Pipelines
• < 95,000 95 000 miles il • Common carriers
Interstate Refined Products
Pipelines TRANSPORTED VOLUMES
NUMBER OF COMPANIES
MILES OF PIPELINE
81
85,666
6.9
21
52,199
5.3
10
35,227
3.7
TOTAL
MAJORS (>100 MM BBLS/YR)
LARGEST 10 (VOL)
Source: 09/01/08 O&GJ, FERC Form 6
(B BBLS/YR)
Refined Products Pipeline Batching Fungible (most common on large trunk lines) Segregated
Products
Interfaces
Reformulated regular gasoline Low sulfur diesel
Compatible
Kerosene / Jet fuel
Transmix (reprocess)
High sulfur diesel Conventional regular gasoline All premium gasoline grades
Refined e ed Products oducts Trading ad g TYPE OF TRADE
GOAL
OPPORTUNITY
Location
Save P/L or transport cost
Improve margin
Quality
Reduce costs or capture fee
Improve margin
Timingg
Avoid carrying y g costs/ price p increase
Lock in margin
Speculation p
Buy low / sell high
Generate margin g
Refined Products Marketingg Channels REFINER
B d d Branded Unbranded
Wholesale End user
Reseller
Retail COCO
CODO
DODO
Gasoline Gaso e Pump u p Price ce 2000-2007 Average retail price: $1.91 / gal.
2007 Average retail price: $2.80/ gal.
12
Distribution & Marketing
16
Refining Costs & Profits
24
48
Source: EIA
Federal & State Taxes
Crude Oil
10 17 15
58
Motor Gasoline Specifications Gasoline Grades (Octane)
Fed / State Local Emissions Stds
Seasonal / Location (RVP) Variations
Premium (90-93) Midgrade (88-90) Regular (85-88)
Oxygenated RFG (sulfur out) CBG (oxy/RFG)
Summer (9.0) Winter (11.5) Other (13.5) Restricted (7/7.8)
3
x
3
x
5
Potential Different Product Specs
=
45
Products Pipeline
Geographic Area
Gasoline Product Codes (Specs)
Diesel Product Codes (Specs)
Colonial TEPPCO Explorer Kinder Morgan
Southeast South/Midwest/East South/Midwest West (TX to CA)
13 (38 Voc/RVP) 4 (12 RVP) 18 12 (48 RVP)
16 4 4 (8) 4
Source: EIA
Refined Products— Products—Issues
Motor gasoline—octane, RVP, additives Number of grades (specifications) – supply/cost Seasonal change in RVP, etc.
Motor gasoline—ethanol (E(10), E(85))
Diesel—low sulfur, biodiesel Increasing distillate demand in U.S. & worldwide Historically mutually beneficial U.S. & Europe diesel / motor gasoline demand & relationship
Seasonality of demand
Th k Thank you
