Non-Conventional Oil Market Outlook
Presentation to:
International Energy Agency
Conference on Non-Conventional Oil
Prospects for Increased Production
November 26, 2002
Prepared by:
Gareth R. Crandall
Vice President
grcrandall@purvingertz.com
C-6096 1
Outline of Presentation
Ø Discussion Limited to
h Synthetic Crude
§ Canadian Oil Sands
§ Venezuela Orinoco Belt
§ Australia Oil Shale
h Bitumen/Extra Heavy Crude Oil
§ Canada
§ Venezuela
Ø Comparison of Qualities
Ø Expanding Markets
Ø Conclusions
2
Market Issues – Synthetic Crude
Ø Synthetic crude quality varies; most comments apply to light sweet
synthetic
Ø Supplies are expected to increase significantly
Ø Distillate yields higher than market prefers
Ø Little or no residual product requires refiners to blend with other
crudes
Ø High vacuum gas oil yields exceed cracking capacity
Ø Expansion of market may require larger cat crackers or new
hydrocrackers
Ø Downward pricing pressure may occur as supplies increase
Ø Partially upgraded synthetic may find market niches, but competing
with light sour crudes
3
What are the Qualities of Synthetic Crude Oil?
WTI Canadian Sincor Stuart Oil
(Benchmark) Synthetic(1) Synthetic(2) Shale(3)
API Gravity 40 35 32 48
% Sulfur 0.3 0.09 0.07 0.01
Yields, LV%
Naphtha, LPG 38 21 18 48
Distillate 31 40 40 37
Vacuum Gas Oil 21 39 42 15
Vacuum Bottoms 10 0 0 0
Notes 1) Based on planned quality in 2005 from existing oil sands plants
2) Zuata Orinoco project
3) Proposed for future commercial development by Southern Pacific
Petroleum
4
Market Issues – Bitumen/Extra Heavy Crude Oil
Ø Significant supplies expected from both Canada and Venezuela
Ø They have high sulfur content, and high residual content
Ø Many have high TAN content
Ø Canadian heavy crudes require diluent to transport by pipeline,
but traditional diluent supplies are limited. Synthetic crude will
be used as future diluent, producing SynBit.
Ø New coking capacity is required to handle the new supplies
Ø Heavy pricing is volatile, and creates risks for both producer
and refiner
h Netback is price driver for producer
h Light/heavy differential is price driver for upgraders and
refiners
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What are the Qualities of Bitumen and Extra Heavy Crude
Oil?
Orinoco
Maya Cerro Athabasca Athabasca Athabasca
(Benchmark) Negro Bitumen DilBit(1) SynBit(2)
API Gravity 22 8 8 21 20
% Sulfur 3.5 3.8 4.5 3.7 2.8
TAN <0.5 3.3 3.5 2.4 1.8
Yields, LV%
Naphtha, LPG 20 2 0 25 10
Distillate 22 17 14 15 26
Vacuum Gas Oil 20 26 34 24 37
Vacuum Bottoms 38 55 52 36 27
Notes 1) Blend of 68% Athabasca Bitumen and 32% condensate
2) Blend of 52% Athabasca Bitumen and 48% synthetic crude (future quality)
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New Residual Conversion Capacity Must be Built
World Residual Supply /Demand
ØFuture world crude slate expected
Millions of Barrels Per Day
20 to have:
Vacuum Bottoms •More light sour
16
Residual Fuel •More heavy
Demand
ØMore vacuum bottoms will need to
be processed
12
ØSubstantial investments in
residual processing capacity will be
8
required:
•In refineries
4 •In field upgraders
0 7
1990 1995 2000 2005 2010 2015
Where will Increasing Supply of Sweet High TAN
Crudes Go?
Sweet High TAN Crude Production
ØTAN (Total Acid Number) greater
Thousands of Barrels Per Day than 1.0 is a problem for most
3500
refineries
Europe
3000 China
Africa
ØRefineries will incur costs to run
Latin America
2500 such crudes:
• Increase metallurgy
2000
• Add chemicals
1500 • Blending with other low TAN
crudes
1000
ØHigh TAN crudes may compete
500
with sour heavy crudes, providing
0 greater need for residual
1995 2000 2005 2010 8 processing capacity.
Existing and Proposed Canadian Projects
ØSynthetic Crude Oil Planned Capacity 2010
•Integrated (Mining/Insitu) (Thousand B/D)
• Syncrude/Suncor 970
• Others 380
• Midstream Upgraders
• Husky, NewGrade, Shell 340
• Others 540
• Less Supplies to Dedicated Refineries (200)
• Net Available Synthetic 2030
ØBitumen
• Athabasca 1100
• Cold Lake 425
• Other 125
• Less Refinery and Upgrader Feedstock (420)
• Net Available Bitumen 1230
Proposed projects, if all proceed, will put considerable non-
conventional supplies into the market
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New Canadian Synthetic Crude Supplies Will Need to
Expand Markets
Synthetic Crude Disposition
Thousands of Barrels Per Day Ø Most is used in Canada in special
800
hydrocracking refineries
700 PADD II
PADD IV
600 CANADA Ø Incremental supplies will go to
U.S. market
500
400 Ø Near term growth can be
300 absorbed
200
ØLong term growth expected to
100 reach market limits
0
1990 1995 2000 2005
10
Canadian Bitumen / Heavy Crude Is Pushing Market Limits
Disposition of Bitumen/Heavy Crude
Thousands of Barrels Per Day Ø Most heavy crude goes to U.S.
1200
PADD II
Midwest (PADD II)
1000 PADD IV Ø These markets are already
CANADA
saturated with Canadian
800
heavy crude
600 Ø Market expansion is needed
now
400
Ø Will take several years to add
200
coking capacity
Ø May need alternative markets,
0 including pipelines to reach
1990 1995 2000 2005
11 them
U.S. Midwest Refinery Crude Runs by Type
Refinery Crude Runs, Million B/D
Ø Canadian heavy has large
1.4 Other Sources
share of heavy market
1.2 Canadian
- More bitumen needs more
1.0
conversion
0.8
0.6 Ø Small market share of
0.4 Canadian light at present
0.2 - SCO may take most of light
0.0
sweet market share
- Light sour market available
Light Sweet Light Sour Heavy for upgraded crude
43% 32% 25%
Total crude runs in this region = 2.8 million B/D
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Venezuelan Synthetic Crude Is Becoming a Major Supply
Orinoco Belt Extra Heavy Oil Projects
PARTNERS FEED UPGRADED CRUDE STATUS
Names Crude MB/D °API %S
ConocoPhillips/ Zuata 104 22 2.6 Operating
PDVSA
ExxonMobil/Veba/ Cerro 105 16 3.3 Operating
PDVSA Negro
Total/Statoil/PDVSA Zuata 165 32 0.1 Operating
ConocoPhillips/ Hamaca 180 26 1.6 Construction
ChevronTexaco/
PDVSA 554
ØMost destined to U.S. Gulf Coast market, with small movements to Europe
ØHeavier streams are tied to specific refineries
ØOutput represents less than 10% of U.S. Gulf Coast market
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Australia Oil Shale
A New Upcoming Non-Conventional Oil
Production of Oil Shale Products
Thousands of Barrels Per Day
Ø Southern Pacific Petroleum (SPP)
160 developing resources exceeding
20 billion barrels.
Ø Stuart plant is a semi-commercial
120
demonstration plant producing high
quality, low S naphtha and a fuel oil
80 blending stock
Ø Naphtha is converted to jet fuel and
gasoline in Australia refineries
40 Ø High quality synthetic crude
planned for future commercial plant
Ø Australia / Asia represents large
0
2000 2002 2007 2012 market for oil shale products.
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Can Canadian Oil Sands Products Retain Their Share of U.S.
Midwest Market?
Alberta
Crude
PADD II
Refineries
TX & LA
Refineries
Mexico
Crude
Venezuela
LEGEND Crude
Crude
Refined Product
Ø Alberta synthetic crude and bitumen producers are
competing with Mexican and Venezuela heavy and
upgraded crudes, as well as petroleum products from
these crudes 15
Expanding U.S. Market for Heavy and Synthetic Crude May
Require Price Discounting
As % feed to a refinery increases, value against other crudes may fall
due to:
$/B Ø Refinery constraints
(process, product
Price
blending,
environmental
emissions, etc.)
Ø Lower value product
Refinery slate
investment
will support Ø Substitution against
a minimum
other crudes with
price level
lower cost, or for
% of Refinery Crude Slate
which refinery is
optimized
16
Integration May Help Expand Markets
Risk Management Strategy
Light/Heavy Price Differentials ($/B) Ø Integration - long term supply
arrangements between
producer and refiner
Protection to Producer
Ø Refineries add upgrading
investments
Price Differential
Ø Price mechanisms can
Band
reduce exposure to both
parties
Protection to Refiner Ø Venezuela and Mexico have
Time
actively participated in recent
upgrading projects in U.S.
Gulf Coast refineries
17
Conclusions
Ø Heavy oil has nearly saturated the U.S. & Canadian market. More
residual conversion capacity is needed to accommodate new supplies
Ø Canadian synthetic crude should have some room for market growth,
but expected supply increases could reach market limits in U.S.
Midwest
Ø Venezuela synthetic crude should have significant room to grow before
it reaches constraints in the large U.S. Gulf Coast market
Ø Future Australian oil shale production should easily find a home in the
large Australian/Asian market
Ø If market limits are reached, new investments in existing refineries will
likely be required, or penetration into new markets are needed
Ø Integration of upstream and upgrading/refining operations should
provide incentives for a producer to increase production, and a refiner
to expand conversion capacity
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Purvin & Gertz completed a multiclient study “Potential of
U.S Northern Tier and Canadian Markets to Absorb Heavy and
Synthetic Crude” in July 2002.
Purvin & Gertz is an independent, employee owned, international energy consulting
firm providing sound and objective strategic, commercial, and technical advice to the
energy sector.
INTERNATIONAL ENERGY CONSULTANTS
www.purvingertz.com
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