refining 2021 who will be in the game? - petroleum · pdf file ·...

6th June 2012

Refining 2021 – Who Will Be in the Game?

A.T. Kearney 06.06.2012 2

Agenda

• Introduction to A.T. Kearney

• Global and Regional Refining Market Changes

• Operating Models for Refiners – A Diverse Palette

• Value Drivers in Refining – Maximizing Value Creation

• A.T. Kearney reference cases

• Contact details

A.T. Kearney 06.06.2012 3

A.T. Kearney is a leading strategic management consulting firm, focused on delivering high impact results

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A.T. Kearney’s Global Coverage

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Collaborative, Authentic,

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2,700 employees worldwide

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Source: A.T. Kearney

A.T. Kearney 06.06.2012 4

Our network of functional and industry practices enables us to develop and deploy our know-how throughout the world

On engagements A.T. Kearney combines the wealth of service experience with deep industry expertise

Global Industry Practices

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A.T. Kearney Industry and Functional Practices

A.T. Kearney 06.06.2012 5

A.T. Kearney has in-depth expertise along the entire Oil & Gas value chain

A.T. Kearney’s Oil & Gas Expertise Selection

Gas and Power

• M&A and market entry

• Operations transformation

• Maintenance improvement

• Supply Chain Transformation

• …

• Refining strategy

• Post Merger Integration

• Organization strategy

• Operations improvement

• …

• Investment strategy

• Reorientation of the long-term generation mix

• Supply chain strategy

• …

Exploration & Production Refining & Marketing


A.T. Kearney 06.06.2012 6

We invest heavily in developing intellectual capital and insights pertinent to the Oil and Gas industry

Selected Publications

Chemical Customer Connectivity Index – C3X

Assesses the impact of the economic crisis, examines the current state of the European chemical market, and discusses how chemical companies are reacting to the post-crisis world

Complexity in the Chemical industry

How complexity management drives strategic goals

Photovoltaics competing in the energy sector

Solar photovoltaic

technology has a proven

track record in recent years

that, but can it close the gap

to reach the EU’s target of

20% renewable energy

sources (RES) by 2020

Challenging the Integrated Oil & Gas Model

In O&G, do specialist companies create more shareholder value than integrated companies?

Zukunft der erneuerbaren Energien

Erneuerbare Energien als Wachstumstreiber für die deutsche Energiewirtschaft?

Wolfgang HaagJochen Hauff

Horst Dringenberg

Düsseldorf, Oktober 2007

Zusammenfassung der Studienergebnisse

Future of Renewables (Wolfgang Haag, Jochen Hauff,

Horst Dringenberg)

Future of Natural Gas Supply

in Europe (L. Dumarest, K Oswald)


http://www.atkearney.com/index.php/Publications/chemical-customer-connectivity-index-c3x.html?utm_source=pub_alert&utm_medium=email&utm_campaign=alert

A.T. Kearney 06.06.2012 7

Agenda






• Contact details

A.T. Kearney 06.06.2012 8

Changes in demand and supply affecting the global refining market will determine structural changes of the industry

Complication

• Over the next 10 years, operators at one in every three refineries in North America and Western Europe will need to reconsider their operating models and how they are integrated across the value chain

• Otherwise, they will struggle to keep up with changing global markets and compete with improving global standards in refining

• By 2021, refineries will need to restructure, strategically reposition their assets, or leave the market

Situation

• Oil consumption continues to rise in developing markets and fall (or remain static) in developed countries

• As a result refining capacity is increasing in developing markets. More than half of the refineries in Asia, the Middle East and Eastern Europe have been constructed or significantly upgraded during the past decade

• On the other side refining capacity in developed markets is shrinking influenced also by declining refining margins in the past few years

Market Developments Summary

By 2021, refineries will need to restructure, strategically reposition their assets or leave the market to survive the changing environment

Overriding question

What really creates value in

the refining business and

what operating model is best

suited to maximize this value

creation?

Source: A.T. Kearney analysis

A.T. Kearney 06.06.2012 9

Oil consumption continues to rise in developing markets and fall/stagnate in developed markets

Source: A.T. Kearney analysis; International Energy Agency

Global Oil Demand Growth (2010/2011/2012, ‘000 barrels per day)

472

2010 2012 2011

-263 -229

North America

167212

304

2011 2012 2010

Latin America

162

-35

89

2012 2011 2010

Africa

207218290

2012 2011 2010

Middle East

2012

-329

2011

-301

2010

-110

Europe

125225268

2012 2011 2010

Former Soviet Union

670720

2012 2011 2010

1.449 Asia

A.T. Kearney 06.06.2012 10

Refining capacity additions in Asia, the Middle East and Eastern Europe have changed the refining capacity distribution by region

Refining Capacity by Region (2000 – 2010, % of total refining capacity)

26% 26% 27% 27% 27% 27% 28% 29% 29% 30% 31%

7%

30%

8% 4%

2000

82.473

24%

8%

31%

8% 4%

2005

86.147

24%

7%

29%

8% 4%

2004

85.355

24%

2008

89.446

24%

7%

28%

8% 4%

2002

84.183

24%

7%

30%

8% 4%

2001

83.469

24%

7%

29%

9% 4%

2003

84.468

24%

8%

30%

8% 4%

8%

88.552

28%

2007

7%

24%

3% 9%

27%

7%

23%

91.068

2009

4% 9%

87.427

3%

24%

2006

3% 8%

29%

7%

27%

7%

23%

91.791

2010

Asia Pacific Africa Middle East Europe & Eurasia South & Central America North America

Source: A.T. Kearney analysis; BP Statistical Yearbook

A.T. Kearney 06.06.2012 11

Declining refining margins in developed countries have led to major refinery shutdowns

Refining Margin per Barrel in Developed Countries (2005 - 2011, US $)

-4

-3

-2

-1

0

1

2

3

4

5

6

2,3

-1,6

1,5

1,3

-1,2

-2,2

-1,5

3,6 3,3

2,1

-0,2

5,2 5,4

2,6

4,1

2,3

1,4

-1,4

5,3

4,8

3,7 2,2

0,6 -0,3

Bonny Light (Cracking) US Gulf Coast Brent (Cracking) Northwest Europe Dubai (Hydrocracking) Singapore

2005 2006 2007 2008 2009 2010 2011 2012

Source: A.T. Kearney analysis; International Energy Agency

Recent examples from US include the closure of ConocoPhillips' Trainer facility in Pennsylvania and Sunoco's Marcus Hook refinery in New Jersey

A.T. Kearney 06.06.2012 12

Agenda






• Contact details

A.T. Kearney 06.06.2012 13

Four main operating models are currently in place in the industry with no single model dominating the market

Operating Models in the Industry

Upstream integration

Merchant refiner

Downstream integration

Vertical integration


• A single source of crude oil accounts for more than 50 % of the upstream integrated refiner's supply; the crude source can be either equity crude or a long-term contractual arrangement.

• Dedicated marketing channels take more than 50 % of the downstream integrated refiner's production. These trades are secured either through equity or long-term contractual arrangements.

• Lacking both upstream and downstream integration, the merchant refiner has the flexibility to react quickly to both crude and downstream supply opportunities and to adjust operations or integrate into a larger logistics hub.

• Fulfilling the requirements for upstream and downstream integrated refiners at the same time, the vertically integrated refiner is able to capture value by making the most of advantages across the value chain.

1

2

3

4

A.T. Kearney 06.06.2012 14

Given local conditions, different operating models dominate different markets – leading in EE is downstream and vertical

7%

Eastern Europe

43%

31%

14%

12%

Western Europe

16%

59%

6%

18%

Asia Pacific

36%

51%

1%

12%

North America

40%

41%

2%

82%

4%

17%

7%

Middle East

Operating Models by Region (2011, % of refining capacity)

Merchant refiner Upstream integration Downstream integration Vertical integration

Source: A.T. Kearney analysis; Oil and Gas Journal; PFC Energy, Energy eTrack

A.T. Kearney 06.06.2012 15

Factors such as product distribution infrastructure or proximity to crude, influence the choice of operating models

Current Status: Different Operating Models for Different Regions

North America

Asia Pacific

Western Europe

Eastern Europe

Middle East

• The east coast of North America favors downstream integration where there is proximity to crude and a large retail market

• In the Midwest, upstream integration is the favored operating model for companies that have equity oil sands crude and can capture more value by refining or upgrading it than by selling on the open market

• Prices are generally controlled by the government, distribution chains are owned by national oil companies, and downstream integration is the dominant model

• Merchant refiners are exposed to subsidies and need to be able to adapt to local conditions regarding supply versus export opportunities

• In Western Europe, downstream integration is the dominant model. Scale, complexity, and location are critical for ensuring a competitive edge and supply flexibility

• Asset-light strategies—or pure trading under a strong brand—are preferred because the region has both liquidity in petroleum products and good infrastructure

• Eastern Europe and Russia still see vertical integration as the highest priority. The Russian government continues intervening to support fuel oil exports, with refining being subsidized to encourage investment in modernizing assets

• Meanwhile, Eastern European refiners focus on serving local market needs, with local governments securing existing market positions

• While upstream integration continues to dominate in the Middle East, most new investment is going downstream, with the majority of refined products being exported

• The continuing trend is toward mega-refining and petrochemical integration, while forming joint ventures for local exports and target-market assets are increasingly becoming part of corporate strategies


A.T. Kearney 06.06.2012 16

Agenda






• Contact details

A.T. Kearney 06.06.2012 17

In such a diverse landscape, it is clear there can be no one-size-fits-all approach to business

Maximizing Value: Different Strategies for Different Regions

North America

Asia Pacific

Western Europe

Eastern Europe

Middle East

• North America has seen a significant challenge to the conventional wisdom of the integrated operating model with planned divestments by BP, Sunoco, and others, and the recent divorcing of ConocoPhillips and Marathon into separate upstream and downstream companies

• Marathon Oil's spin-off of its refining operations pushed the company's stock price up 20% higher than that of integrated oil companies

• Asia Pacific is the region with the highest activity in terms of numbers of refineries opened and closed, even as small, polluting, and less efficient refineries are being closed and world-scale state-of-the-art facilities are coming on line

• In this highly attractive market, international oil majors are becoming much more involved in joint ventures to build petrochemical plants, attracted by relatively high economic growth in many countries

• Western Europe is facing a strong challenge to the traditional integration model, with Exxon, Shell, and BP all announcing divestments.

• Regional leaders such as Austria-based OMV have also announced asset-light strategies and are considering significant divestments in refining

• Eastern European and Russian refiners are investing in technologies and scale to overcome the limitations of their dated structures and to pursue asset excellence

• However, infrastructure and output issues around the still-underinvested and not yet upgraded refining technology landscape are hindering integration with the local market and are favoring fuels export instead

• The Middle East has seen more refineries open since 2005 than any other region. Many joint ventures have been formed to integrate refining, petrochemical, and chemical plants. Local companies are partnering with international players to gain technical expertise, guaranteed offtake, and reduce exposure to geopolitical risk.


A.T. Kearney 06.06.2012 18

In the face of such rapid regional and global change, refiners need to reexamine what really creates value in their industry…


Input

Crude fungibility:

• Local or regional balances

• Pipeline or imports by ship

• Multiple asset optimization

Trading & hedging:

• Feedstock

• Products

• Currency

Energy imports:

• Electricity

• Steam

Blending components:

• Gasoline

• Biofuel

• Gas to liquids

Asset-related

Scale and technology:

• World-scale or sub-scale

• Distillation and conversion

• Technology

Fiscal and regulatory:

• Tax

• Regulation

• Environment

Supply chain management:

• Location

• Logistics infrastructure

• Working capital optimization

Slate flexibility:

• Dedication of technology

• Ability to change baskets

• Operational flexibility

Output

Fuel and energy:

• Merchant only vs. retail

• Export vs. local sales

Specialties:

• Specialist markets (marine, aviation etc)

• Brand quality

Petrochemicals:

• Which value chain

• Joint venture or sole ownership

• Export versus local sales

Lubricants:

• Base oil plant

• Blending plant and storage

Refinery Value Drivers

…and ensure that their operating models are able to maximize value creation given their asset portfolio and regional specific trends

A.T. Kearney 06.06.2012 19

Using proven methodology, A.T. Kearney can identify what really drives business value of a particular refinery…

A.T. Kearney Refinery Health Checker

A

B

C

D

E

F

G

H

I

J

K

L


Energy imports

Fis

cal a

nd

reg

ula

tory

Fuel and energy

Lu

bric

an

ts

Input

Output

Asset related

A.T. Kearney's Refinery Health Checker

provides a means of assessing whether an

asset is at risk and how that asset compares

with the ideal

A.T. Kearney's Refinery Health Checker is a tool for use in benchmarking individual assets against

the required success criteria and value levers

for refiners in 2021

…and spot the critical areas that need to be addressed, while also planning future strategic investments

Best in class

Average of sample

Worst in class

A.T. Kearney 06.06.2012 25

Agenda






• Contact details

A.T. Kearney 06.06.2012 26

CONTACT DETAILS:

A.T. Kearney Management Consulting S.R.L.

45, G-ral Mathias Berthelot Street

010164, District 1, Bucharest

Romania

Our Unique Value Proposition in the region

■ We have the commitment – our broad network of local offices and staff since more than 20 years.

■ We have the experience – senior local and international consultants with executive industry background.

■ We have the results – locally successful clients are our reference.

The right outcome, just for you!

Michael Weiss, Partner

+40 21 30 40 220 Office

+40 21 30 40 238 Fax

[email protected]

Nikolay Kolev, Principal

+40 21 30 40 220 Office

+40 21 30 40 238 Fax

[email protected]

refining 2021 who will be in the game? - petroleum · pdf file ·...

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