Latin America

Section 5

LATIN AMERICA

Primary Areas Covered 

Key Findings and Conclusions



Assumptions and Inputs



The Region



Crude Oil and NGL Supply and Quality



Petroleum Product Supply and Demand



Transportation Fuel Quality



Refinery Capacity and Configuration



Refinery Throughput, Blending and Production



Refinery Challenges and Opportunities

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Section 5: Latin America Table of Contents Section 5: Latin America.....................................................................................................5 A.

Key Findings & Conclusions ...................................................................................................5

B.

Assumptions & Inputs...........................................................................................................7

C.

The Region ...........................................................................................................................8

D.

Crude Oil and NGL Supply and Quality...................................................................................9

E.

Petroleum Product Supply and Demand ..............................................................................11 1.

Aggregate Latin America..................................................................................................11

2.

Demand by Product.........................................................................................................13

3.

Geographic Supply and Demand Breakdown....................................................................16

F.

Transportation Fuel Quality ................................................................................................17 1.

Gasoline..........................................................................................................................17

2.

Diesel..............................................................................................................................20

3.

Other ..............................................................................................................................23

G.

Refinery Capacity and Configuration ...................................................................................25 1.

Current Capacity and Expansion Projects in Latin America ................................................25

2.

Competitive Positioning ..................................................................................................27

H.

I.

Refinery Throughput, Blending and Production ...................................................................28 1.

Projections: Aggregate Latin America...............................................................................28

2.

Refined Product Supply and Demand ...............................................................................30

3.

Refinery Capacity Requirements ......................................................................................32 Latin American Refinery Challenges and Opportunities........................................................37

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Section 5: Latin America Table Index Table 5.1: Countries in Latin America..................................................................................................8 Table 5.2: Latin American Crude and NGL Supply (2008-2030) ...........................................................10 Table 5.3: Quality of Crude Oil Processed in Latin America (2009 & 2030) ..........................................10 Table 5.4: Latin American Refined Product Demand (2008-2030).......................................................12 Table 5.5: Latin American Current Select Gasoline Specifications (2010) ............................................18 Table 5.6: Latin American Announced Revisions to Gasoline Specifications........................................18 Table 5.7: Latin American Regional Trends for Gasoline Quality ........................................................19 Table 5.7a: Latin American Regional Gasoline Demand by Sulfur Category.........................................19 Table 5.8: Latin American Current Transport Diesel Fuel Specifications (2010) ...................................21 Table 5.9: Latin American Announced Revisions to Diesel Fuel Specifications ....................................22 Table 5.10: Latin American Regional Trends for Transport Diesel Specifications .................................23 Table 5.10a: Latin American Distillate Demand by Sulfur Category ....................................................24 Table 5.11: Latin American Refining Capacity and Anticipated Expansions .........................................25 Table 5.12: Reported Expansion Projects in Latin America (2010-2015)..............................................26 Table 5.13: Latin American Refinery Complexity Ranking ..................................................................27 Table 5.14: Latin American Refinery and Blender Input and Production (2008-2030)..........................28 Table 5.15: Ethanol and Biodiesel Supplies for Latin American Market (2008-2030) ...........................29 Table 5.16: Refined Product Balance in Latin America (2009-2030) ....................................................31 Table 5.17: Latin American Incremental Capacity Requirements (2009-2030).....................................32 Table 5.18: Latin American Projected Capacity Requirements (2010-2030) ........................................33 Table 5.19: Incremental H2 Production and Sulfur Recovery Requirements (2009-2030) .....................36

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Section 5: Latin America Figure Index Figure 5.1: Map of Latin America ........................................................................................................8 Figure 5.2: Latin American Crude and NGL Supply (2009).....................................................................9 Figure 5.3: Quality of Crude Oil Processed in Latin America (2009-2030) ............................................10 Figure 5.4: Latin American Product Demand Composition (2009).......................................................11 Figure 5.5: Latin American Refined Product Growth (2005-2030) .......................................................12 Figure 5.6: Latin American Product Mix and Incremental Product Requirements (2009-2030) ............13 Figure 5.7: Latin American Gasoline and Naphtha Growth (2005-2030)..............................................13 Figure 5.8: Latin American Total Distillate and On-Road Diesel Portion Growth (2005-2030) ..............14 Figure 5.9: Latin American Jet Fuel and Kerosene Growth (2005-2030) ..............................................15 Figure 5.10: Latin American Residual and Bunker Growth (2005-2030) ..............................................15 Figure 5.11: Latin American Top Ten Refinery Complexity Ranking ....................................................27 Figure 5.12: Ethanol and Biodiesel Supplies for Latin American Market (2009-2030) ..........................29 Figure 5.13: Latin American Gasoline-to-Distillate Production Ratio (1995-2030) ...............................30 Figure 5.14: Latin American Crude Distillation Capacity (1995-2030)..................................................34 Figure 5.15: Latin American Downstream Refining Capacity (1995-2030) ...........................................35 Figure 5.16: Incremental Hydrogen Production Requirements in Latin America (2009-2030) ..............36 Figure 5.17: Incremental Sulfur Recovery Requirements in Latin America (2009-2030) .......................36

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Section 5: Latin America Latin American crude and NGL production will increase by 2.9 million barrels per day between 2009 and 2030. Crude exports are projected to increase to (OR) million barrels per day by 2020 and then gradually decline to (OR) barrels per day in 2030 as Latin American domestic consumption increases. Despite a reduction in regional GDP growth by 1.7% in 2009, Latin American gasoline demand grew by 2.7% and distillate demand rose by 1.7%. One of the reasons behind higher gasoline volume is Brazilian liquid fuel demand’s continued reliance on ethanol (E100). Regional demand is projected to recover in 2010 and experience strong growth, as Latin America becomes the third-fastest growing region in the world behind the Middle East and Asia-Pacific. Significant change in refining and refined product markets will occur during the 2010-2030 period. Crude capacity will require expansion, and aggressive conversion capacity expansion will be required too. Progressively more stringent product specifications will require large gasoline and distillate desulfurization capacity expansions. Some countries, such as Brazil and Colombia, are upgrading and/or building new refineries to make the transition. Other countries, such as Venezuela and Argentina, have done little to get ready for a transition to cleaner fuels.

A. Key Findings & Conclusions  Latin American crude oil production has lower quality than any other region. The average gravity of crude oil processed in the region was 26.2 °API and 1.28 wt% sulfur in 2009. The quality is expected to decline to (OR) °API and (OR) wt% sulfur by 2030.  Overall petroleum product demand is projected to grow by 2.0% in 2010, (OR)% annually through 2020, and then slowdown to (OR) in 2020-2030. Regional gasoline demand was affected by Brazilian drivers who filled their tanks up with gasoline (E25) during the inter-harvest period due to higher ethanol prices at the pump. Gasoline (E25) has higher energy content than E100 and thus requires less volume. Gasoline demand is expected to grow by an average of 2.9% annually through 2015 and then drop to an average of (OR)% between 2015 and 2030. Distillate demand growth will continue to be strong at an average of 2.4% annually through 2015, and continue at the same pace of (OR)% through 2030, driven by on-road diesel with average annual growth rate of (OR)% from 2010 through 2030.  Gasoline exports to North America have recently declined as high-quality, more restrictive North American gasoline specifications have been implemented. The European gasoline surplus has grown and Latin American demand grew. The region is a net importer of gasoline, largely driven by Mexico’s import requirements. Gasoline supply and demand is projected to come into balance by 2020.  Biofuels will play a major role in the region, increasing from 0.42 million barrels per day in 2009 to (OR) million barrels per day in 2030. Biofuels will account for nearly (OR)% of gasoline plus diesel in 2030. Brazilian ethanol exceeds 50% of the gasoline pool in 2009.  The primary quality driver will be lowering of gasoline and diesel sulfur specifications. The two largest consumers in the region, Brazil and Mexico, plan to implement ultra-low sulfur gasoline and diesel programs by 2015. In aggregate, the region’s gasoline sulfur level will be reduced from (OR) in 2010 to (OR) in 2030. On-road and off-road diesel sulfur will be significantly reduced, from 1,550 ppm and 3,900 ppm in 2009 to (OR) ppm and (OR) ppm in 2030, respectively.  Aggressive expansion in conversion capacity will be required to keep pace with demand and process the lower-quality indigenous crude. About (OR) million barrels per day in total conversion capacity expansion (catalytic cracking, hydrocracking plus coking) will be required by 2030 (a (OR)% increase).  By 2020, incremental gasoline and diesel desulfurization capacity requirements will be 0.33 million barrels per day and 1.25 million barrels per day, respectively. In addition, distillate desulfurization capacity will be revamped for ultra-low sulfur product production. Between 2020 and 2030, these capacities will need to increase further: additional (OR) million barrels per day gasoline desulfurization and (OR) million barrels per day diesel desulfurization. World Refining and Fuels Service 2009-2030 (2011 Edition) Copyright protected (see notice) Hart Energy

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 The analysis projects a large incremental requirement for hydrocracking capacity ((OR) million barrels per day) between 2009 and 2030 to keep pace with growing demand and quality requirements. New refineries under consideration are looking at configurations for hydrocracking processes.  Requirements to produce lower-sulfur marine bunker will entail additional investment in Latin American refining. The timing and relative shift of product from residual to distillate are uncertain. Hart Energy Consulting has forecasted a requirement of 0.34 million barrels per day of residual fuel desulfurization to meet the future 0.5 wt% sulfur residual bunker requirement, assuming a shift of 7% of the residual bunker market to marine diesel.

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B. Assumptions & Inputs  Historical Supply and Demand: based on data from the U.S. Energy Information Administration (EIA), International Energy Agency (IEA), Agência National do Petroleó (Brazil) and Statistical Yearbook PEMEX 2008 (Mexico). Data supplemented and adjusted based on Hart Energy Consulting internal proprietary data and analyses.  Supply and Demand Projection: developed by Hart Energy Consulting based on the International Energy Agency (IEA) data and the information from the U.S. Energy Information Administration (EIA) as well as internal proprietary data and previous analyses.  Crude Oil Supply and Quality: analysis based on the U.S. Energy Information Administration (EIA) and International Petroleum Encyclopedia (IPE) information. Data supplemented and adjusted based on Hart Energy Consulting internal proprietary data and analyses.  Fuel Quality, Specifications and Regulations: provided by the International Fuel Quality Center (IFQC).  Throughout this study, on-road diesel corresponds to the International Energy Agency (IEA) road diesel data, while off-road includes IEA’s agriculture, rail transport and distillate marine fuel, including inland shipping.  Biofuels, renewable fuels and alternative fuels analysis provided by the Global Biofuels Center (GBC).  Refining Capacities: analysis based on Oil & Gas Journal (OGJ) and Hydrocarbon Processing (HP). Data supplemented and adjusted based on Hart Energy Consulting internal proprietary data and analyses.  Refining and Market Outlook and Projections: developed by Hart Energy Consulting based on regional aggregate Refining Linear Programming (LP) model using the AspenTech PIMS system.  Mexico assumed to proceed with harmonization of gasoline and diesel sulfur specifications with the United States.  Competitive refining ranking is based on Nelson Complexity Index as listed in Oil & Gas Journal and adjusted based on Hart Energy Consulting internal proprietary data and analyses.  Oil & Gas Journal - Worldwide Construction Update Report (April 5, 2010).  Hart’s World Refining and Fuels Today  Hart’s Refinery Tracker  International Fuel Quality Center  Global Biofuels Center  Outlook & Impact for Renewables in North American Refining and Gasoline Markets, Hart Energy Consulting (2008)  In the tables of this section, the sums may not correspond to totals due to rounding.

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C. The Region The Latin American region includes Mexico, Central America, non-U.S. Caribbean and South America. Puerto Rico and the U.S. Virgin Islands are included in the North American section. The Latin American countries are listed in table 5.1 and shown on the map in figure 5.1. Table 5.1: Countries in Latin America

Argentina Bahamas Belize Bolivia Brazil Chile Colombia Costa Rica Cuba

Dominican Republic Ecuador El Salvador French Guiana (France) Guatemala Guyana Haiti Honduras Jamaica

Lesser Antilles Mexico Nicaragua Panama Paraguay Peru Suriname Uruguay Venezuela

Source: Compiled by Hart Energy Consulting Figure 5.1: Map of Latin America

Source: Created by Hart Energy Consulting

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D. Crude Oil and NGL Supply and Quality Latin American crude oil and natural gas liquids production was at 9.79 million barrels per day in 2009. Crude oil and Natural Gas Liquids (NGL) production is projected to reach (OR) million barrels per day by 2020. Production will slowly decline to (OR) million barrels per day through 2025 and (OR) million barrels a day in 2030. Brazil, Mexico and Venezuela make up 59% of the crude oil and NGL production in the region. Brazil and Venezuela will account for essentially all of the forecasted increase in production. Brazilian liquids production has grown steadily during the past decade and Hart Energy Consulting expects it will continue on that track through 2030. Production reached 2.0 million barrels per day in 2009, a 7% increase above 2008. Although challenges are associated with deep-water production, projects scheduled to come on stream by 2014 will add almost (OR) million barrels per day of production. Brazil’s production is expected to expand to (OR) barrels per day by 2030. Mexico’s primary producing field, Cantarell, has entered into a long-term decline. Efforts to compensate for this decline are not progressing at a pace that will reverse Mexico’s overall crude oil production decline through the forecast period. Hart Energy Consulting expects total crude oil and condensate production to reach 2.6 million barrels per day by 2010, dropping to 2.2 million barrels per day by 2020 and then to below (OR) per day by 2030. This will occur despite successful (although slow) development of deep-water fields. Venezuela contains the largest oil reserve in the Western hemisphere, much of which includes very heavy oil. Venezuela has reported investment plans to increase production to 5.0 million barrels per day. However, the required level of investment is not likely to be reached. Production is projected to increase to (OR) million barrels per day by 2020 and then begin to decline. An increasing portion of the production will be heavy crude. Currently, more than 50% of production is heavy oil (below 22 °API and including oil upgraded to synthetic crude). By 2030, (OR)% of production will be heavy oil. Crude oil production in Latin America exceeds demand and the surplus is exported. The region also imports crude because of quality constraints and logistics. In 2009, Latin American crude accounted for 83% of the region’s net supply, and crude imports and NGL accounted for 5% and 12%, respectively (Figure 5.2). Figure 5.2: Latin American Crude and NGL Supply (2009)

Source: Hart Energy Consulting analysis based on IEA data (2010)

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Latin American crude exports will increase through 2020. Beyond 2020, growth in demand will exceed production gains and exports will decline (Table 5.2). Year 2008, unchanged from last year’s study, is presented in table 5.2 to show a significant change caused by the global recession in 2008-2009. Table 5.2: Latin American Crude and NGL Supply (2008-2030) Latin America Crude Production Crude Imports Crude Exports (1) Subtotal Crude Supply NGL Production Total Crude/NGL Supply

2008 9.28 0.36 3.38 6.26 0.87 7.13

2009 8.92 0.36 3.04 6.24 0.87 7.11

2010 9.40 0.36 3.43 6.33 0.97 7.30

2015 (OR) (OR) (OR) (OR) (OR) (OR)

2020 (OR) (OR) (OR) (OR) (OR) (OR)

2025 (OR) (OR) (OR) (OR) (OR) (OR)

2030 (OR) (OR) (OR) (OR) (OR) (OR)

Note: (1) Includes crude oil burned directly

Source: Hart Energy Consulting analysis and projections based on IEA data (2010) Table 5.3 shows the quality of crude processed in Latin American refineries, and figure 5.3 shows the trend in quality from 2009 through 2030. Indigenous crude production accounts for 94% of crude oil processed in the region. The quality of crude processed in Latin America differs from production quality presented in the Global Overview because a large portion of heavier high-sulfur crude is exported. However, the quality of crude processed still reflects the heavy, high-sulfur characteristics of indigenous production. Table 5.3: Quality of Crude Oil Processed in Latin America (2009 & 2030) 2009 Latin America

2030

Percent Supply

°API

Sulfur [wt%]

Percent Supply

°API

Sulfur [wt%]

94 6 100

25.6 35.0 26.2

1.29 1.10 1.28

(OR) (OR) (OR)

(OR) (OR) (OR)

(OR) (OR) (OR)

LA Production Imports Total

Note: Refer to Global Overview for additional regional crude quality data.

Source: Hart Energy Consulting analysis and projections (2010) Figure 5.3: Quality of Crude Oil Processed in Latin America (2009-2030) (▬) °API, (▬) Sulfur [wt%] 27.0 1.50 26.5 1.40 26.0 25.5 (OR)

1.30 (OR)

25.0 1.20 24.5 24.0

1.10 2009

2010

2015

2020

2025

2030

Source: Hart Energy Consulting analysis and projections (2010) World Refining and Fuels Service 2009-2030 (2011 Edition) Copyright protected (see notice) Hart Energy

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E. Petroleum Product Supply and Demand 1. Aggregate Latin America Latin America represents nearly 10% of global petroleum product demand. Refined products consist of 63% of light products (gasoline, naphtha, jet fuel, diesel and other middle distillate) as indicated in figure 5.4. Gasoline and distillate make up 55% of refined product demand. Much of the region is oriented toward gasoline in the transportation sector. In the three largest consuming countries (Brazil, Mexico and Venezuela), gasoline makes up more than 32% of their aggregate total refined product demand. The gasoline demand in Brazil includes both neat ethanol and ethanol blended with gasoline. In 2009, the total ethanol (neat plus blended) in Brazil represented more than 50% of gasoline consumption. In other countries, such as Argentina and Colombia, alternative fuels, such as liquefied petroleum gas (LPG) and compressed natural gas (CNG), supply a significant portion of transportation requirements; gasoline accounts for only 18% of total product demand and distillate for more than 37% in these two countries. Residual fuel represents 14% of refined product demand and has been recently declining because of natural gas replacement. Figure 5.4: Latin American Product Demand Composition (2009)

Source: Compiled by Hart Energy Consulting from IEA data (2010)

The region as a whole has refining capacity in excess of total product demand. However, due to low utilization and limited downstream processing capability, the region is a net importer of product, primarily distillate fuel. Mexico and several Central American countries have had a growing shortfall of gasoline and distillate. Prior to the recent global economic recession, growth in overall refined product demand in Latin America has been relatively high (Figure 5.5). Growth has averaged nearly 4.0% annually driven by gasoline and distillate that have together increased by 5.5% annually from 2005 to 2008 as the flex-fuel vehicle fleet rollout in Brazil gained traction.

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In 2009, growth in demand for refined petroleum products declined due to the slowdown in Latin American economies, but still remained positive at 1.6%. The regional economies are expected to rebound and refined product demand is projected to grow by 2.0% in 2010. Figure 5.5: Latin American Refined Product Growth (2005-2030) (■) Volume [million bpd], (▬) Annual Growth [%] 14.0

6.0

12.0

5.0

10.0

4.0

8.0 (OR) 3.0

(OR)

6.0 2.0

4.0 2.0

1.0

0.0

0.0 2005 2006 2007 2008 2009 2010 2015 2020 2025 2030

Source: Hart Energy Consulting analysis and forecast based on IEA data (2010) Latin American petroleum product consumption is projected to grow at an annual average rate of 2.0% in 2010 and (OR)% through 2030 to a total of (OR) barrels per day. Light product demand (gasoline, distillate, jet fuel and kerosene) will grow at a rate of nearly (OR)% per year. Table 5.4: Latin American Refined Product Demand (2008-2030) (million barrels per day) Product Gasoline Naphtha Jet Fuel Kerosene Middle Distillate

2008 2.20 0.27 0.29 0.03 2.26

2009 2.26 0.29 0.29 0.03 2.30

2010 2.31 0.29 0.30 0.03 2.35

1.43

1.47

1.51

0.41

0.42

0.44

Other Gas Oil

0.42

0.41

0.40

Residual Fuel

1.16

1.16

1.17

0.36

0.36

0.37

0.98 0.92 8.10

0.99 0.92 8.24

0.99 0.95 8.40

Road Diesel Off-Road Diesel

(1)

Bunker

LPG (2) Other Products Total

2015 (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR)

2020 (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR)

2025 (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR)

2030 (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR) (OR)

Notes: (1) Contains diesel used in agriculture, on rail and distillate marine fuel. (2) Lubricants, asphalt, refinery fuel gas, coke and miscellaneous product.

Source: Hart Energy Consulting analysis and forecast based on IEA data (2010) World Refining and Fuels Service 2009-2030 (2011 Edition) Copyright protected (see notice) Hart Energy

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