North American Crude Oil Trends and Logistics MPC Perspective C. Mike Palmer, Senior Vice President of Supply, Distribution, and Planning
The Current Status of the Energy Business
www.CartoonStock.com
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Marathon Petroleum Corporation More than 125 years in business Established in 1887
Headquartered in Findlay, Ohio ~1,800 employees
MPC split from Marathon Oil Corporation July 1, 2011 Fortune 50 company (2013 ‐ #33) 4th largest U.S. refiner Employees: approximately 28,000
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Fully Integrated Downstream System Refining and Marketing
Seven refineries with 1.7 million barrels per day capacity Large wholesale supplier Large asphalt producer ~ 5,000 Marathon brand retail outlets across 17 states
Speedway Convenience Stores Marketing Area Refineries Connecting Pipelines Light Product Terminals Asphalt Terminals Water Terminals
~ 1,460 locations in 8 Midwestern states 4th largest U.S. owned/operated c‐store chain Serves ~2 million customers on a daily basis
Pipeline Transportation One of the largest petroleum pipeline companies in U.S. Owns or leases ~8,300 miles of pipelines
Tank Farms Butane Cavern As of Feb. 1, 2013
Barge Dock
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United States Crude Trends From the 1970s to the Future Crude Oil Demand
$94 Foreign Imports
U.S. Production
$3
Crude Price Exports
Source: EIA and Internal Estimates
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United States Crude Trends – 1970s Key Events: Arab oil embargo and first price shock (1973)
Crude Oil Demand
Demand
Gasoline Lines (early 1970s) Trans Alaska Pipeline System (TAPS); ~2MMBD (1977) Foreign Imports
Iran revolution and second price shock (1978)
Foreign Imports
Oil Trends: Canadian Imports Rising crude oil prices
U.S. Production
$36 $3
Crude Price
Rising demand Production
Declining domestic production Increased foreign imports Exports
Source: EIA and Internal Estimates
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Gas Lines – 1970s
Source: Wikipedia
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Trans Alaska Pipeline
Trans Alaska Pipeline Alaska
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The 1960s into the 1970s 1969 Pontiac GTO Judge
1970s Ford Pinto
Source: Wikipedia
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United States Crude Trends – Early 1980s Key Events: Recession (1980 ‐ 1982)
Crude Oil Demand
Foreign Imports
Demand
LOOP (1981) Gulf of Mexico deepwater drilling (1980s) Foreign Imports
Oil Trends: Prices peaked in 1981 at $38/bbl Canadian Imports Demand declined through 1985
U.S. Production
$36
Domestic production peaked in 1985 at 9 MMBD Crude Price
$28
Production
Foreign imports declined Exports
Source: EIA and Internal Estimates
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Deep Water Oil Platform
Source: Wikipedia – BP Thunder Horse Semi‐submersible Platform
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Louisiana Offshore Oil Port (LOOP)
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1980s
1980s Ford Econoline Conversion Van
1970s Ford Pinto
Source: Wikipedia
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United States Crude Trends – 1985 to 2000 Key events: Crude Oil Demand
Foreign Imports
Demand
Sustained U.S. economic growth OPEC price war (1986) $10 crude oil (1986, 1998) Gulf war (1990) SUV/Pickup market expands
Oil trends: U.S. Production
$28
Crude Price
Flat crude oil prices Rising demand $30 Dramatic production decreases in U.S. Exports Foreign imports grow steadily
Source: EIA and Internal Estimates
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Crude Trends 1985 - 2000
Source: Wikipedia
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1985 – 2000s
2000s Ford 350 Crew Cab Pickup
1980s Ford Econoline Conversion Van
2000s Hummer H2
Source: Wikipedia
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United States Crude Trends – 2000 to Present and Future Key Developments/Events:
Crude Oil Demand
Foreign Imports
$95 Crude Price
Horizontal drilling Canadian mining and in‐situ (SAGD) Hydraulic fracturing Biofuels and RFS (Renewable Fuels Standard – 2005)
Oil Trends: $30
U.S. Production
Exports
Sustained crude price increases Acceleration in Canadian production Dramatic domestic production increases with shale plays Reduced foreign imports
Source: EIA and Internal Estimates
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Biofuels
Source: Wikipedia
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Canadian Oil Sands
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In-Situ Steam Assisted Gravity Drainage: SAGD SAGD is the commercially preferred technology for in‐situ Athabasca oil sands.
Steam Flows to Interface and Condenses Steam Injection Oil and Condensate Are Drained Continuously 20
Hydraulic Fracturing
Well is turned horizontal
Shale layer
Hydrofrac zone Source: API
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Current BMW Mini Cooper
Chevrolet Avalanche
Chevrolet Impala
Toyota Prius
Cadillac Escalade
Source: Wikipedia
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Major Growth Areas Significant Growth to Supply the Central Corridor of North America Canadian +1,800 MBD Bakken +840 MBD
Total Growth 2012 – 2020 +3,920 MBD
Utica +120 MBD Permian Basin +460 MBD Eagle Ford +700 MBD
MPC Refinery
Source: CAPP and Internal Estimates
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Canada Canadian Production Continues to Grow Huge resource potential – 175 billion barrels recoverable (3rd
largest in the world)
Canadian growth 2012 – 3,150 MBD 2020 Forecast – 4,950 MBD Increase – 1,800 MBD
Mining is poster boy for “off‐oil” crowd ~90+% of incremental growth will use in‐situ processes Quality Heavy sour (Oil Sands) Synthetic oil
Actuals Forecast
Source: CAPP, EIA, Bentek and Internal Estimates
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Pipelines Bring Canadian Production to the Midwest Canadian Pipelines have been Constructed to Meet Production Growth Edmonton Hardisty
Keystone 2010 Express Platte 1997
Enbridge Mainline 1950
Sarnia Flanagan Steele City
Chicago
Patoka Wood River
Cushing
Spearhead 2006 Capline 1968
Seaway 1976 Houston
St James
Freeport
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New Pipelines Bring Canadian Production to the Coasts Major Pipelines Will Access Western USGC Refineries and Eastern Canadian Refineries Edmonton Hardisty
Keystone XL Late 2015
Line 9 Reversal Mid 2014
Sarnia Flanagan Steele City
Chicago
Patoka
SAX Early 2015 Wood River
Gulf Coast Access Mid 2014
Keystone Gulf Coast Late 2013
Gulf Coast Access Mid 2014 Seaway 2012/2013 Houston
Capline
Cushing
St James Pt Arthur
Freeport
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Bakken – North Dakota Dramatic Increases in Production are Expected to Continue Production 2005 – 100 MBD 2012 – 660 MBD 2020 Forecast – 1,500 MBD Increase – 840 MBD
Estimated recoverable oil: 18 billion barrels Drilling life: 35 years
Actuals Forecast
Quality – light sweet crude
Sources: North Dakota Oil and Gas Division, PIRA, Internal Estimates
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Bakken – North Dakota Production has Outpaced Pipeline Capacity, Rail Filling the Gap
Bakken 68
Bakken
Mandan Rail ~625 MBD
Logistics Current movements are ~160 MBD by pipeline and ~625 MBD by rail Bakken rail volumes are expected to peak at ~800 MBD Sources: North Dakota Oil and Gas Division, Internal Estimates
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Unit Train of Crude
Source: PIRA North America Crude by Rail Study – April 2013
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Rail Loading Terminal – Epping, ND
Source: PIRA North America Crude by Rail Study – April 2013
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Eagle Ford – South Texas Rapid Growth in Eagle Ford is Expected
Production 2005 – 0 MBD 2012 – 450 MBD 2020 Forecast – 1,150 MBD Increase – 700 MBD Estimated recoverable oil: 14 billion barrels Drilling life: 35 years
Sources: Internal Estimates, Bentek
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Eagle Ford – South Texas Eagle Ford Crude and Condensate Varies Greatly
Quality – light sweet
Source: Koch Newsletter
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Eagle Ford – South Texas Eagle Ford is Delivered to Corpus Christi and Houston
Logistics Significant pipeline capacity Pipelines connected to Houston and Corpus Christi Marine movements required to clear market
Eagle Ford
Houston
Barge to St. James
Eagle Ford Plains/Enterprise/Magellan: 450 Corpus Christi
Barge to US East Coast & Canada Sources: Internal Estimates, Koch Newsletter
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Emerging Trend: Barge Activity Increasing
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Articulated Tug Barge Unit
Source: Crowley Petroleum Services, Inc.
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Permian Basin – West Texas and New Mexico Horizontal Drilling is Reviving this Historic Oil Play Production
2005 – 860 MBD 2012 Forecast – 1,275 MBD 2020 Forecast – 1,735 MBD Increase – 460‐850 MBD History – peaked in 1973 at 2 MMBD; low point in 2007 at 850 MBD
Estimated recoverable oil: 22 billion barrels Drilling life: 35 years Quality – light sweet and light sour crude Sources: Internal Estimates, Bentek
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Permian Basin – West Texas & New Mexico Pipeline Projects are Beginning to Come Online to Houston Logistics Proposed pipeline projects will provide sufficient capacity
Permian
Borger/McKee Cushing
WTG 300
El Paso
Longview
170 Big Spring/ Artesia
Permian
Houston
Sources: Internal Estimates, Bentek
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Utica – Northeast Ohio Rapid Growth is Expected – Gas Processing Infrastructure is Bottleneck Production 2012 Forecast – 3 MBD 2020 Forecast – 120 MBD Horizontal permits issued since December 2009: 567 Horizontal wells drilled: 268 Producing wells: 76
Estimated recoverable oil: 3 billion barrels Drilling life: 40 years
Actuals Forecast
Sources: ODNR and MPC estimates – as of March 9, 2013
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Utica – Northeast Ohio Quality is Light Sweet but Variable
Sources: MPC
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Utica – Northeast Ohio Takeaway Projects are being Developed Logistics Truck unload facilities at Canton and Catlettsburg Truck‐to‐barge facilities for river movement Gathering projects Rail/Pipe to Canada
Toledo Lima
Canton
Utica
Utica
Robinson Catlettsburg Patoka
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Utica Production Area
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Crude Oil Truck Unloading – Canton, Ohio Refinery
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Gulf of Mexico Short-Term Growth Expected with Significant Potential for Long-Term Growth Production 2012 Forecast – 1350 MBD 2020 Forecast – 2300 MBD Increase – 950 MBD
Deep water permitting is near pre‐Macondo levels, although the approval process is at a much slower pace Estimated recoverable oil: 48 billion barrels Drilling life: 60 years Actuals Forecast Sources: MPC estimates, Bureau of Ocean Energy Management (BOEM), Turner Mason and Company
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Concluding Remarks Most dynamic period in 37 years with Marathon. Canadian and U.S. crude oil production growth continues to alter the competitive landscape. Rising Canadian and U.S. crude oil production is reducing foreign imports. New pipelines are essential to bring incremental crude oil production to refining centers. Rail is bridging the transportation gap. Growth is good for America!
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