2030 Refining Outlook Platts European Refining Markets Conference Michael Lane Secretary General, CONCAWE 25th September 2012

Reproduction permitted with due acknowledgement

Topics I will cover…. • 2030 Refining Outlook: • Demand / quality impacts • Operating rates • Distillate growth • Required investment – could it happen?

Important note: All future projection estimates and assumptions are based on modelling work, published information & consultant studies.

Reproduction permitted with due acknowledgement

Platts Refining Conference 2012 Michael Lane, Secretary General, CONCAWE

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CONservation of Clean Air and

Water in Europe The Oil Companies’ European association for health, safety and environment in refining and distribution (founded in 1963)

Reproduction permitted with due acknowledgement

Platts Refining Conference 2012 Michael Lane, Secretary General, CONCAWE

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CONCAWE Membership  Open to companies owning refining capacity in the EU

 Currently 42 Member Companies: AlmaPetroli api BP CEPSA ENI ERG Essar Oil UK ExxonMobil Gunvor Hansen & Rosenthal Hellenic Petroleum INA Ineos IPLOM

Koch KPI Lotos Lukoil LyondellBasell Murco MOL Motor Hellas Neste Oil Nynas OMV Petrogal Phillips66 PKN Orlen

Preem Repsol RHG Rompetrol Sara SARAS Shell SRD ST-1 Statoil Tamoil Total Valero Varo

 Represents nearly 100% of European refining capacity Reproduction permitted with due acknowledgement

 Not for profit association, funded by Member Companies

Platts Refining Conference 2012 Michael Lane, Secretary General, CONCAWE

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The Challenges for European Refining

Reproduction permitted with due acknowledgement

 Economic outlook combined with refinery over-capacity will keep pressure on margins (5–10 years?)  With many product quality & supply/demand challenges  Continuing restructuring and new players in refining sector  Legislative pressure is continuing to increase  Plus more compliance to come from existing EU Directives  EU is increasingly adopting an ‘anti-oil’ strategy  Goal is 80-95% de-carbonisation of energy sources by 2050  Political focus is on GHG reduction but ‘traditional’ environmental issues have not disappeared  Vehicle emissions, air quality, noise, water, waste, etc.  Energy for transportation is continuing to move away from conventional refinery products to renewables/alternative fuels  Vehicle fleet will continue to diversify - changing the fuel demand, diesel/gasoline balance, import/export outlook, etc.

Platts Refining Conference 2012 Michael Lane, Secretary General, CONCAWE

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Declining product demand including biofuels

Total demand including biofuels in EU27 + 2

800 720

700

(Mt/a) 583

600 LPG Gasoline

500

Petrochemicals

Middle distillates Residual marine fuel Residual inland fuel Others

400

300 200 100

(*) JEC = JRC, EUCAR , CONCAWE consortium

0 Source: Wood Mack enzie, CONCAWE

Reproduction permitted with due acknowledgement

2000

2005

2010

2015

2020

2025

2030

 Basis: JEC* Fleet & Fuels model for road diesel and gasoline (2011); Wood Mackenzie for all other products (2011)  New European fleet-average CO2 emissions targets for passenger cars:  143 g CO2 /km in 2010 (actual)  95 g CO2 /km by 2020  75 g CO2 /km by 2030 (assumed)  Products demand falls by 137 Mt (19%) between 2005 and 2030.  Total diesel+gasoline road demand shrinks by 52 Mt (18%) between 2005 and 2030.

Platts Refining Conference 2012 Michael Lane, Secretary General, CONCAWE

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Increasing distillate/gasoline imbalance

(% m/m) LPG

7.0

10% 19%

6.3

6.0

80% 5.0

70%

Gasoline

60%

4.0

Petrochemicals Middle distillates Residual marine fuel Residual inland fuel Others

50%

46%

61%

40% 30%

2.4

3.0 2.0

20%

MD/Gasoline ratio 10% (RH axis)

1.0

0%

0.0

Source: Wood Mack enzie, CONCAWE

2000

2005

2010

2015

2020

2025

Middle distillate / Gasoline demand ratio

Total demand 100% including biofuels 90% in EU27 + 2

2030

 Steady decline in total demand but a steady growth in:

 Percentage of middle distillates, reaching 61% in 2030  Ratio of middle distillates to gasoline, reaching 6.3 in 2030  Increasingly difficult for gasoline-oriented EU refineries to meet this changing demand ratio. Reproduction permitted with due acknowledgement

Platts Refining Conference 2012 Michael Lane, Secretary General, CONCAWE

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Guide to terms used:  Toe = tonnes of oil equivalent  RED = Renewable Energy Directive  E5, E10, E85 = gasoline containing 5%v, 10%v and 85%v ethanol  B7, B10 = diesel containing 7%v and 10%v biodiesel  HVO = hydrogenated vegetable oil  BTL = biomass to liquids  DME = dimethyl ether

Total demand for road fuels in EU27 + 2 (Mtoe/a)

320

12%

300

10%

280

8%

260

6%

240

4%

220

2%

Bio & Alternative road fuels, Mtoe/a

Refined road fuels, Mtoe/a

Bio & Alternative road fuels, %energy (RH axis)

200 Source: CONCAWE

Reproduction permitted with due acknowledgement

Bio & Alternative road fuels (%energy)

Biofuels and alternative fuels displace refined products

0%

2005

2010

2015

2020

2025

2030

 Renewables reach 10% energy RED target in 2020.  Ethanol: E5 protection grade and E10 for new vehicles >2005. E85 flex-fuel vehicles grow to 21% of total road fuel ethanol consumption in 2030.  FAME: B7 protection grade and B10 for new vehicles > 2017.  Other alternative fuels such as HVO, BTL, DME and electricity contribute 1.3% energy in 2020, growing to 2.9% in 2030.  Renewable road fuels in 2030 replace 32 Mt of fossil fuels or 13% (mass) of the road fuels market.

Platts Refining Conference 2012 Michael Lane, Secretary General, CONCAWE

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Call on refinery production in steep decline 800 Total demand for refined products in EU27 + 2 700

 Fossil demand loss 2005-2030 is 166 Mt (average 6.6 Mt lost per year), equivalent to combined capacity of the 9 biggest (or the 40 smallest refineries) out of the 90 currently active EU mainstream refineries.

717

(Mt/a)

115

600

LPG Gasoline

500

Petrochemicals

400

Middle distillates

552

48

75%

 Main contributors are:

351

83%

300

333

Residual marine fuel

200 Residual inland fuel

 reduced road fuel demand (improved vehicle efficiency)

100

Others

0 Source: Wood Mack enzie, CONCAWE

 alternative road fuels (biofuels, natural gas and electricity)

2000

2005

2010

2015

2020

2025

2030

Factors contributing to fall in EU refined products demand 2005-2030 (Mt) Source: Wood Mackenzie, CONCAWE

-13

-38

Penetration of alternative road fuels Reduced road fuel demand

-32

Total -166 Mt -39 Reproduction permitted with due acknowledgement

Platts Refining Conference 2012 Michael Lane, Secretary General, CONCAWE

Reduced inland heavy fuel oil demand

-43

Reduced heating oil demand Reduced demand for other products

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 reduced inland heavy fuel oil demand (natural gas substitution and improved boiler efficiency)  Total demand for refined road diesel+gasoline shrinks by 81 Mt between 2005 and 2030, mainly due to steep decline in gasoline demand.  Share of light products in the demand basket grows from 75% in 2005 to 83% in 2030.

Steady growth in share of refined middle distillates Distillates demand

70%

in EU27 + 2 (% m/m of total refined products demand)

60%

58.9%

59.9%

60.3%

2020

2025

2030

52.1%

50% Distillate marine bunker

56.7% 48.9%

46.1%

40%

Heating oil

30% Diesel (non-road, rail and inland water) Jet/Kero Diesel (road)

20% 10%

0% 2000

2005

2010

2015

Source: Wood Mack enzie, CONCAWE

 “Middle distillate” refined products are heavier than gasoline but lighter than heavy fuel oil:  Jet fuel, heating kerosene, road diesel, non-road diesel, heating oil, distillate marine fuel.

 Total fossil middle distillates demand does not grow in absolute tonnage.  Share of distillates in total refined product market continues to increase, reaching 60% in 2030.

Reproduction permitted with due acknowledgement

 Contrasting market tonnage trends:  Growing demand for jet fuel and distillate marine bunker.  Declining demand for heating oil and road and non-road diesel.

Platts Refining Conference 2012 Michael Lane, Secretary General, CONCAWE

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Operating rates expected to decline with demand trends

CDU capacity Mt/a 85.8%

85% 80.7%

81.5% CDU utilisation %

CDU throughput Mt/a

80%

74.5%

75%

CDU Capacity Utilisation Rate (%)

Crude Distillation Unit Capacity or Throughput (Mt/a)

90%

70% 2008

2010

2015

2020

2025

2030

 Average EU refinery utilisation rate falls from 86% in 2008 to 82% in 2015, in spite of the announced closure of 5% (36 Mt) of refining capacity between 2008 and 2015.  19 Mt of Crude Distillation Unit (CDU) expansion projects bring net CDU capacity reduction to 2% (17 Mt). Reproduction permitted with due acknowledgement

 Without further closures the CDU utilisation rate could fall below 75% by 2030.

Platts Refining Conference 2012 Michael Lane, Secretary General, CONCAWE

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Major changes expected in refinery unit processing Note: These are the unit throughput changes required to meet product demand and quality changes without increasing the import/export imbalance of gasoline, diesel, jet and heavy fuel oil

Guide to terms used:  FCC = Fluid Catalytic Cracking unit  DHC = Distillate Hydrocracking unit  COK = Coking unit  RES HDS = Residue Hydrodesulphurisation unit  H2 = Hydrogen production unit

 Steady decline in throughput of gasoline-producing units (FCC)  Reflects shrinking gasoline demand.

Reproduction permitted with due acknowledgement

 Contrasting steep increases in required throughput of:  Units producing diesel and jet fuel (DHC)  Units that crack or desulphurise residual fuel oil (COK and RES HDS)  Units that produce hydrogen for the cracking and sulphur removal reactions (H2).

Platts Refining Conference 2012 Michael Lane, Secretary General, CONCAWE

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Announced investments only address part of total needs EU27+2 Refinery Projects 2009-2015 Capacity change by process unit versus year-end 2008 Capacity additions Capacity reductions Net change

50%

Capacity change (%)

40%

30%

20%

10%

0%

-10% CDU

VDU

REF

DHC

RHC

FCC

COK

VIS

HDS

H2U

 Significant announced investments to increase capacity in refinery units aimed at:  boosting distillate production (28% more Distillate Hydrocracker capacity)  reducing residue production (37% more Residue Hydrocracker and Coker capacity)  supplying hydrogen for cracking and sulphur removal reactions (49% more hydrogen production capacity)  Total investment in announced expansion projects is estimated at 30 G$2011  Significant capacity reductions in units that boost gasoline production (FCC) and distil crude (CDU).

 CDU and FCC capacity reductions could more than double if the refineries temporarily closed in 2011-2012 are not restarted

Reproduction permitted with due acknowledgement

Platts Refining Conference 2012 Michael Lane, Secretary General, CONCAWE

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Substantial investment requirements 2008-2020 + 21G$ Announced projects 2009-2015

IMO general bunker 0.5% Ferry bunker 0.1% , switch to distillate Demand 2015-2020 SECA bunker 0.1%, switch to distillate Non-road Diesel 10 ppm S Inland Marine Gasoil 10 ppm Demand 2010-2015 SECA bunker 1.0% FQD PAH 8% Demand 2008-2010 0

10

20

30

40

50

60

G$ (2011)

 Estimated total investment of 51 G$ from 2008 to 2020 would be required to fully meet product demand and quality changes (including low sulphur bunker fuel), i.e. 21 G$ more than the estimated 30 G$ for announced investment projects.  51 G$ equates to about 1 $2011/bbl of crude processed over the 2008-2020 period Compared to typical historic EU refining margins of 1-5 $2011/bbl. Reproduction permitted with due acknowledgement

 Declining demand post-2020 will lead to under-utilisation of new-build capacity. This could have a negative influence on investment decisions prior to 2020.

Platts Refining Conference 2012 Michael Lane, Secretary General, CONCAWE

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CO2 emissions from EU refining 2008-2030 Demand 2025-2030

Demand 2020-2025 IMO general bunker 0.5%, Ferry bunker 0.1%

Demand 2015-2020 SECA bunker 0.1%, switch to distillate

Non-road Diesel 10 ppm S Inland Marine Gasoil 10 ppm

Demand-related

Demand 2010-2015

Quality-related

SECA bunker 1.0%

FQD PAH 8%

These figures assume constant refinery energy efficiency frozen at the 2008 level

Demand 2010 Base case - 2008 140

145

150

155

160

165

CO2 emissions (Mt/a)

 Refining CO2 emissions fell by about 7 Mt from 2008 to 2010 due to the drop in demand and refinery throughput.  The major events contributing to increasing CO2 emissions are the marine bunker sulphur reductions in 2015 and 2020.  Combined impact is 15 Mt of additional CO2 emissions from EU refining.  Declining demand between 2020 and 2030 will lead to a decrease in refining CO2 emissions of about 9 Mt, assuming no further product quality changes. Reproduction permitted with due acknowledgement

Platts Refining Conference 2012 Michael Lane, Secretary General, CONCAWE

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Summary: Expected Developments  Biofuels and alternative fuels displace refined products  Call on refinery production in steep decline  Steady growth in share of refined middle distillates  Operating rates decline in line with demand trends  Major changes in refinery unit processing requirements

 Announced investments only address part of total needs  Substantial investment requirements: 2008-2020  CO2 emissions from EU refining 2008-2030: ~ flat

Reproduction permitted with due acknowledgement

Platts Refining Conference 2012 Michael Lane, Secretary General, CONCAWE

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For More Information

Our technical reports are available at no cost to all interested parties

CONCAWE Website: www.concawe.org

Reproduction permitted with due acknowledgement

Platts Refining Conference 2012 Michael Lane, Secretary General, CONCAWE

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