Global Middle Distillate Availability

Rodrigo Favela Fierro, Exec. Director for Refining,

Planning and Evaluation, Hart Energy

Global Middle Distillate Availability Crude Oil to Biofuels Conference

Rodrigo Favela – Executive Director for Refining, Planning & Evaluation

Middle Distillates a Key Driver in Refining Market

Source: WRFS – Hartenergy, 2011

Increment = 27.1 MMBD

86.6

102.9 113.5

0

20

40

60

80

100

120

140

2010 2020 2030

Mill

ion

Bar

rle

s p

er

Day

Gasoline 15%

Naptha 8%

Jet 7%

Diesel 49%

Residual Fuels 3%

LPG 9%

Others 9%

Refined Product Growth

• Global refined product demand will grow by 27.1 MMBD between 2010 and

2030, 1.5% growth rate per year.

• Middle distillate has been the fastest growing refined product category and

will account for half of the increment for the 2010-2030 period. 2.3% growth

rate per year

Composition of the Increment

On-Road Transport

57% Non-Road & Agricultural

12%

Industrial & Heating Oil

27%

Marine Diesel 4%

Middle Distillate Market by Sector, 2010

•Global middle distillate demand in 2010 was 25.2 million barrels

per day, including renewable distillate blending components and

GTL / CTL

•On-road diesel accounts for 57% of the distillate market. On-road

diesel has grown at a rate of 2.9% annually between 2005 and 2010

and is projected to increase 2.4% per year between 2010 and 2030

< 10 ppm 21%

11 - 50 ppm 17% 51 - 500

ppm 14%

501 - 2,000 ppm 18%

> 2,000 ppm 30%

Middle Distillate Market by Sulfur Category, 2010

• Distillate with a sulfur content of 10 ppm or less accounts for 21% of

the market - European transportation diesel and on-road diesel in

Japan and South Korea.

• Diesel containing less than 50 ppm of sulfur is 38% of the market

with a majority of the 11 ppm to 50 ppm volume in North America.

0

10

20

30

40

2010 2013 2015 2017 2020 2025 2030

< 10 ppm 11 - 500 ppm > 500 ppm

Middle Distillate Demand Outlook by Sulfur

Source: WRFS – Hartenergy, 2011

• Middle distillate products will continuously shift to lower sulfur.

• In developed regions, most on-road and non-road diesel will be ultra-low

sulfur diesel (<50 ppm) by 2015. Other regions on later dates

• The global low sulfur market will move from 38% ultra-low sulfur (<50

ppm) diesel in 2010 to more than 64% ultra-low sulfur diesel in 2030

• Marine fuels sulfur content restrictions will increase the demand of diesel

after 2020

Million barrels per day

0.8%

3.2%

0.8% 3.5%

3.1%

3.8%

2.4%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

North America

Latin America

Europe Russia/CIS Asia Pacific Middle East Africa

• The Asia-Pacific region is the largest middle distillate market with 31%

market share, followed by Europe 26% and then North America 17%.

• Asia-Pacific middle distillate demand will increase 6.6 million barrels

per day by 2030, an annual growth of 3.1 % - Additional growth if light

duty vehicle dieselization program is implemented

• The distillate shortfall in Europe will continue to grow.

Global Distillate Demand Growth by Region, 2010-2030

Thousand barrels per day / % annual growth

Country Thousand Barrels per Day Market Share of Global

U.S. 3,810 15.1%

China 3,205 12.7%

India 1,315 5.2%

Germany 1,135 4.5%

France 988 3.9%

Brazil 849 3.4%

Japan 810 3.2%

Spain 678 2.7%

Saudi Arabia 626 2.5%

Italy 616 2.4%

Top 10 Middle Distillate Consuming Countries, 2010

Outlook on Sulfur Reduction in Marine Fuels

• MARPOL, Annex VI was ratified by IMO, requesting 0.5% sulfur content for

global marine fuels after 2020 and implementing 0.1% ECAs before 2015.

• 60% of marine fleet can be economically retrofitted or constructed with

Exhaust gas after-treatment technology (Scrubbers).

• Ship operators will most likely choose to install scrubbers and continue to

use high-sulfur fuel oil because it is proven technology and economics favor

scrubbers over fuel sulfur reduction.

0.0

1.0

2.0

3.0

4.0

5.0

2008 2012 2016 2020 2024 2028

Sulf

ur

eq

uiv

ale

nt

cap

(%

)

Global equivalent sulfur emission control Europe, North America,

Japan Emission Control Areas (ECA)

• Demand for marine diesel will increase as a result of lower sulfur requirements of the International Maritime Organization (IMO).

• Marine distillate will increase by about 260 thousand barrels per day in 2015 because of low-sulfur requirements in Emission Control Areas (ECAs) and another 460 thousand barrels per day between 2020-2025 when global sulfur emission standards are expected to be in place

0%

20%

40%

60%

80%

100%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2010 2015 2020 2025 2030

Marine Diesel HFO Bunker %Diesel

Impact of Regulations on Distillate Demand Marine Fuel Demand

Thousand barrels per day / % distillate of total demand

• Renewable fuel and gas-to-liquid (GTL) and coal-to-liquid

(CTL) diesel components will increase nearly four-fold.

• Together, renewable liquid fuels and GTL/CTL will increase

from 1.8% of middle distillate supply in 2010 to 5.6% of

supply in 2030.

Renewable diesel and GTL/CTL Contribution

Global

2010 2011 2012 2015 2020 2030

Renewable Diesel 340 409 475 605 905 1259

GTL/CTL Components 126 155 191 326 740 950

Distillate Demand 25,213 25,454 26,058 28,375 32,152 39,559

% Renewable 1.30% 1.60% 1.80% 2.10% 2.80% 3.20%

% Renewable/GTL/CTL 1.80% 2.20% 2.60% 3.30% 5.10% 5.60%

Significant expansion to exceed historical growth and planned additions (developing nations) – Distillation, Hydroprocessing, Coking and Hydrocracking

Sulfur surplus and H2 deficit

Middle East is projected to become the world marginal refined product supply center

Planned Required Required

2015 2015 2020

Crude Distillation 11.07 6.27 11.58

Light Oil Processing

Reforming 0.81 0.77 1.28

Isomerization 0.26 0.22 0.28

Alkylation/Polymerization

0.03 .03 0.07

Conversion

Coking 1.03 0.98 1.6

Catalytic Cracking 1.22 1.03 2.06

Hydrocracking 1.25 1.22 2.30

Hydroprocessing

Gasoline 0.72 0.35 1.29

Naphta 0.90 0.91 1.39

Middle Distillates 2.51 5.59 8.45

Heavy Oil/Residual Fuel 0.43 0.53 0.72

MILLION BARRELS PER DAY

Refining Capacity, 2010-2020

REFINING CAPACITY

Source: WRFS– Hartenergy, 2011

Conclusions

• Global refined product will increase by 27.1 MMBD, and 50% will be diesel

• ULS fuels, sulfur restrictions in residuals, higher combustion efficiency and reductions in carbon footprint will tighten even more the diesel balance and penalize both residuals and heavy crude oils.

• In order to meet demand needs an unprecedented amount of refinery and biofuels projects will have to be built in developing countries.

• Refinery economics will improve in the second half of this decade as global economics recover and the refining industry emerges from a consolidation –reconfiguration process