The Altered Outlook of Jet Fuel Supply/Demand Situation in the

East of Suez Market

ByFereidun Fesharaki, President FACTS Inc.,Hassaan Vahidy, Lead Analyst, FACTS Inc.,

Singapore

Presented toMiddle East Jet Fuels Conference

BahrainMay 2004

Global Oil Demand and the Asia-Pacific Region

Oil product consumption in the Asia Pacific region has slowed down in the recent years; and even under an optimistic scenario growth rates of the past will not be achieved in years to come.

Currently China accounts for almost 70% of the growth in Asia, and some 25-30% of the global oil consumption growth.

Following poor performance in 2001 and 2002 the region posted a growth of 664 kb/d in 2003. This however does not mark a broad-base growth revival in the region.

Asia-Pacific Product Demand1970-2015

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

2015

kb/d

LPG

Naphtha

Gasoline

Kero/jet

Gasoil

HFO/other

Growth85-95 5.5.%95-00 3.2%00-05 2.0%05-10 2.8% 10-15 2.5%

Year World Asia-Pacific Share of AP

1990 330 707 214%1991 410 592 144%1992 560 916 163%1993 330 706 214%1994 840 884 105%1995 1,400 937 67%1996 1,630 863 53%1997 1,500 821 55%1998 420 -216 -51%1999 1,620 946 58%2000 640 516 81%2001 290 62 21%2002 180 236 131%2003 1,600 664 41%2004* 1,680 546 33%Total 10,150 7,970 79%

*ProjectedSources: IEA (for World Demand) and FACTS Inc. (for Asia Pacific)

(kb/d)

Oil Demand, 1990-2004Global and Asia-Pacific Incremental

1998 1999 2000 2001 2002 2003 2004*China 117 321 320 111 168 451 386India 112 154 28 3 3 0 31Japan -206 84 -40 -209 -59 84 -127S. Korea -246 130 55 2 53 21 22Thailand -43 44 -5 -11 41 48 53Indonesia -57 55 73 45 26 23 46Others 107 158 84 121 3 37 135Total -216 946 516 62 236 664 546*Projected

Asia Oil Demand Growth, Selected Nations (kb/d)

Mideast: Oil Demand History & Forecast

-

1,000

2,000

3,000

4,000

5,000

6,000

1970 1975 1980 1985 1990 1995 2000 2005 2010

kb/d

LPGNaphthaGasolineKero/jetGasoil*Fuel Oil**OthersDU Crude

*Includes bunkering. **Includes bunkering, excludes DU Crude.

Asian Product Balances

(200)

(100)

-

100

200

300

400

500

600

1995

1996

1997

1998

1999

2000

2001

2002

2003

kb/d

GasolineKero/jetGasoil

Asian Refining Capacity

-

5,000

10,000

15,000

20,000

25,000

1995 1996 1997 1998 1999 2000 2001 2002 2003

kb/d

4.5% annual growthRefining Capacity and

Product Balances

Asia-Pacific Net Imports

-

500

1,000

1,500

2,000

2,500

3,000

1995 1999 2000 2001 2002 2003 2005

kb/d

Other Fuel Oil Diesel KerojetMogas Naphtha LPG

Middle East: Net Product Export by Group*

(500)

-

500

1,000

1,500

2,000

2,500

3,000

3,500

1997

1998

1999

2000

2001

2002

2005

2008

2010

*Excluding LPG and Others

kb/d

Fuel Oil Diesel Kero/JetGasoline Naphtha

Mideast Net Exports/Asia-Pacific Net Imports*

(500)

-

500

1,000

1,500

2,000

2,500

3,000

3,500

95

ME

AP

99

ME

AP

00

ME

AP

01

ME

AP

02

ME

AP

03

ME

AP

05

ME

AP

07

ME

AP

10 M

E10

AP

kb/d

HFO/Other GasoilKero/Jet MogasNaphtha

*excluding LPG

Gross Refining Margins Based on Arab Light Crude Cracking Yield

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

$/bb

l

US Gulf CoastNorth West EuropeSingapore

The impact of these product balances is clearly visible on the region’s refining profitability…

Dubai Crude and Singapore Jet Fuel / Kerosene Prices

0

5

10

15

20

25

30

35

40

45

50

Jan-9

5Ju

l-95

Jan-9

6Ju

l-96

Jan-9

7Ju

l-97

Jan-9

8Ju

l-98

Jan-9

9Ju

l-99

Jan-0

0Ju

l-00

Jan-0

1Ju

l-01

Jan-0

2Ju

l-02

Jan-0

3Ju

l-03

Jan-0

4

US$

/b

DubaiSingapore Jet Fuel / Kerosene

Ratio of Jet Prices to Crude Prices for US, Europe and Asia (Singapore)

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Jet:Crude USJet:Crude EuropeJet:Crude Asia

… and more so in the case of Jet Fuel

Regional Refining Profitability and Jet Fuel Prices

The overall surplus of refined products in the Asia-Pacific market has resulted in a decline in the region’s refining profitability vis-à-vis other refining centers.

Although jet fuel prices seem to move in tandem with crude prices, however comparative analysis shows that jet prices as a ratio of crude prices have declined over the last 10 years.

This decline is most pronounced in case of the Asia-Pacific market; which is inline with a surplus of the fuel (I.e., net exports from Asia-Pacific countries).

Asia Pacific Jet Fuel and Kerosene Demand: History and Forecast

0

500

1000

1500

2000

2500

3000

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Jet Fuel

Kerosene

kb/d

Middle East Jet Fuel and Kerosene Demand:History and Forecast

0

50

100

150

200

250

300

350

400

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

2015

Jet Fuel

Kerosene

kb/d

Consumption growth rates* of Jet Fuel and Kerosene:Asia-Pacific and the Middle East

Jet Fuel KeroseneAsia-Pacific Mid East Asia-Pacific Mid East

1970-80 5.3% 16.9% 4.7% 9.0%1980-90 5.8% 4.2% 2.3% 2.2%1990-00 5.7% 0.5% 2.5% 2.3%2000-05 2.2% 3.1% 1.1% -0.5%2005-10 3.0% 3.2% 1.4% -1.0%2010-15 3.1% 3.5% 0.9% -3.0%

*Annual averages

Major Kerosene/Jet Fuel Users in Asia Pacific(Top 5 users account for 74% of the total kero/jet consumption in the region = 1.61 mm b/d in 2003)

0 100 200 300 400 500 600 700 800

China

South Korea

Indonesia

India

Japan

Kero

Jet

kb/d

Major Kerosene/Jet Fuel Users in Mid East(Top Users account for 92% of the total kero/jet consumption

in the region = 294 kb/d in 2003)

0 50 100 150 200

Kuwait

UAE

Iraq

Saudi Arabia

Iran

Kero Jet

kb/d

Major Net Importers of Kero/Jet in Asia Pacific(kb/d)

43

9

15

42

71

India

Vietnam

Indonesia

Japan

HongKong

10

19

73

85

94

Australia

Japan

India

Indonesia

HongKong

Major Net Importers of Kero/Jet in Asia Pacific(kb/d)

43

9

15

42

71

India

Vietnam

Indonesia

Japan

HongKong

10

19

73

85

94

Australia

Japan

India

Indonesia

HongKong

2003 2010

Major Net Exporters of Kero/Jet in Asia Pacific(kb/d)

2

10

26

84

127

Pakistan

Thailand

Malaysia

SouthKorea

Singapore

17

18

36

105

154

Malaysia

Pakistan

Taiwan

Singapore

SouthKorea

Major Net Exporters of Kero/Jet in Asia Pacific(kb/d)

2

10

26

84

127

Pakistan

Thailand

Malaysia

SouthKorea

Singapore

17

18

36

105

154

Malaysia

Pakistan

Taiwan

Singapore

SouthKorea

2003 2010Major Net Exporters of Kero/Jet in Asia Pacific

(kb/d)

2

10

26

84

127

Pakistan

Thailand

Malaysia

SouthKorea

Singapore

17

18

36

105

154

Malaysia

Pakistan

Taiwan

Singapore

SouthKorea

Major Net Exporters of Kero/Jet in Asia Pacific(kb/d)

2

10

26

84

127

Pakistan

Thailand

Malaysia

SouthKorea

Singapore

17

18

36

105

154

Malaysia

Pakistan

Taiwan

Singapore

SouthKorea

2003 2010

Concluding Remarks

The kerosene / jet fuel market has undergone a fundamental change in the East of Suez Market. The change is brought about both by supply side considerations as well as a demand side issue.

Supply side issues are dominated by the massive capacity additions in Asia, this coupled with and a relatively lower growth trajectory in terms of consumption, has resulted in an overall surplus of refined products in the region.

The impact is particularly pronounced in the case of kerosene and jet fuel: the change in net import requirements from approximately 250 kb/d in 1995 to a surplus of approximately 50 kb/d in 2003.

This has negative implications on the overall refining profitability and particularly the attractiveness to produce jet fuel.

Concluding Remarks (cont’d.) Middle East refiners have traditionally relied on Asian markets. Though

the developments in the Asian downstream market has created a sense of urgency to look for other markets.

On a relative basis, jet fuel is the only globalized product in the world oil market. Unlike gasoline and diesel, it can move across the boundaries as its specifications are less varied than other fuels.

As a base-case, we project Asian and Middle Eastern jet fuel consumption to grow in the range of 3-3.5% per year. However kerosene consumption in Middle East is projected to shrink and grow slightly in the Asian countries.

This growth outlook coupled with the projected increases in East of Suez refining capacity points to out a continued surplus of kerosene and jet fuel in the region.

Rising export availability from the Middle East region suggests that the refiners there will have to continue their efforts in finding markets in Africa, Europe, and beyond.

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