Assessing How Technology Is Changing The Global
Downstream Industry
Mike Millard, UOP LLC, A Honeywell Company
Abu Dhabi International Downstream Conference
May 10 - 12, 2015 Abu Dhabi, United Arab Emirates
© 2015 UOP LLC. All rights reserved.
A Century of Innovation
in the Oil and Gas Industry
UOP 7023-1
Agenda
 Refining and Petrochemical Industry Landscape
 R&P Integration as Competitive Advantage
 Conclusions
2
UOP 7062-2
Agenda
 Refining and Petrochemical Industry Landscape
 R&P Integration as Competitive Advantage
 Conclusions
3
UOP 7062-3
Oversupply Developed in 2014
Change in world oil (liquids) demand and non-OPEC supply from year earlier
3
2.5
Non-OPEC supply growth
MMb/d
2
World demand
growth
1.5
1
0.5
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Notes: Liquids supply includes crude oil, condensate, and natural gas liquids (NGLs). Liquids demand includes all refined products (including
blended biofuels and synthetic fuels), as well as liquefied petroleum gases (LPGs) and ethane. Source: IHS
© 2014 IHS
IHS Crude Oil Markets: North America | 12 November 2014
• The period of higher crude price has supported a crude production rise
enabled by upstream technology development, in particular improved
techniques for horizontal fracturing
• Rapid production growth (mostly North America) and resumption of Libyan
production (+500 kb/d) has created a situation of over-supply
• Resulting lower prices will support consumption growth and rationalize
marginal crude production
4
UOP Confidential
Pricing Re-set in 2H14 as a result
Spot Price, $/B
Daily Spot Pricing
140
120
100
80
60
40
20
0
WTI
Brent
Source: www.iea.gov
• 2014 saw sharp decline in
crude prices
• U.S. Producers have since
responded (reduced capital
spending)
• Dramatic drop in rigs
deployed (U.S.) in 1Q15
5
UOP Confidential
Prospects for U.S. LTO (Light Tight Oil)
• Updated research
indicates that a quarter of
LTO well’s in 2014
achieved breakeven
returns below 40 $/b (and
nearly half below 60 $/b)
• This, along with the
current market structure
(contango) will also
support some continued
drilling
• Lower quality rigs and
marginal sites already
being set aside
• Large inventory of wells
waiting for completion
(40% of capital sunk)
• U.S. production growth will slow as a result of lower crude pricing – IHS lowered estimate
of 2015 growth from 1.1 MMb/d to 0.6 MMb/d in Dec (EIA also 640 kb/d)
• Operating costs of existing wells are significantly lower and these wells will remain in
production, but experience decline rates
• Drilling activity will focus on most prolific well sites which account for bulk of growth
6
UOP Confidential
US Taking Role of Swing Producer?
US Rig Oil Count
2500
2000
1500
1000
500
* Baker Hughes NA Rig Count
0
• U.S. producers have responded to the
lower crude price by reducing
investment.
• Drilling rig count for the U.S. has fallen
precipitously
• First rigs pulled are the least efficient
and in least productive locations
• Production growth has slowed on yoy
basis
• Market Contango has pushed up stocks
to record levels
Weekly Change in US Oil Rig Count
40
Oil Volatility Index
20
May ‘14 to May ‘15
0
-20
-40
-60
Rigs taken off line weekly
due to lower return rates
-80
-100
7
UOP Confidential
Projected Energy Price Dynamics
Projected price recovery
uncertain; lower price scenario of
$50 in 2015 rising to $65 by 2020
25
Global C3
20
$USD/MMBtu
Brent
15
WTI (UOP
Base Case)
Japan LNG
10
NGL Mix
5
US HH NG
OECD Coal
0
2010
2015
2020
Oil: 1 barrel = 5.8MMBTU; Coal: 1 metric ton coal = 27.8MMBTU; Propane:1 metric ton = 43.5MMBTU
Crude prices are uncertain and volatile; moving downstream to capture arbitrages
between unfinished and finished products is key
8
UOP 7062-8
Refining Industry – Commodity Market
Crude Oil Prices 1861-2011
US Dollars per Barrel - World Events
 The refining industry is a
mature commodity business
 Refining margins typically fall
into a relatively tight band
regardless of crude price
Regional Refining Margins
US Dollars per Barrel
 Fuels sales will continue to be
the high volume engine of the
business while petrochemicals
can provide a route to higher
overall margins
Source: BP Statistical Review of World Energy, 2012
Refinery margins have always been tight irrespective of crude prices
9
UOP 7062-9
Gasoline vs. Diesel Growth Imbalance
Global Fuel Consumption MMTA
1,600
1,400
Diesel CAGR: 2%
1,200
Gasoline CAGR = 1%
1,000
Diesel
Gasoline
800
2013
2015
2017
2019
2021
2023
Source: IHS CERA 2013
Diesel demand growing stronger. Naphtha available for petrochemical production.
UOP 6493-10
Refining Industry – Growth
Crude Distillation Adds
(2014-2019, Million b/d)
2.3
2.1
1.3
1.1
0.6
0.4
0.2
US &
Canada
Latin
America
Africa
Europe
0.3
Russia &
Caspian
Middle East
China
Other Asia
 Demand increases for refined products in
developing countries are the primary driver
of investments
 Growing local demand and higher value
capture drive ~2.3 million b/d of new distillation
capacity coming from the Middle East
By 2019, Middle East & Asia Pac will account for ~70% of refining adds
11
Sources: WOO (OPEC)
UOP 7062-11
Naphtha Needs a Petchem Home
Expected Naphtha Oversupply By 2018
million TPA
80
60
40
20
World
US & Canada
Europe
Middle East Asia Pacific
Other
(20)
(40)
(60)
(80)
Sources: Wood MacKenzie
Source: World Oil Outlook, 2013
Naphtha is a key driver for R&P integration
12
UOP 7062-12
Global Petrochemicals Demand is Increasing
Petrochemical Demand/Consumption, MMTA
250
Benzene CAGR = 3%
Ethylene CAGR = 4%
Propylene CAGR = 3% pX CAGR = 6%
200
World GDP CAGR = 3%
150
100
50
0
2013
2014
2015
2016
2017
2018
2019
Forecast
Ethylene
Source: IHS
Propylene
Benzene
p Xylene
2020
2021
2022
2023
Options for naphtha:
1.Reform to pX and Bz
2.Crack to C2=, C3= and C4= =
pX Demand is Growing at twice that of GDP
13
UOP 7062-13
Agenda
 Refining and Petrochemical Industry Landscape
 R&P Integration as Competitive Advantage
 Conclusions
15
UOP 7062-15
C4 Upgrading
C4
Olefins
LPG
(C3-C4)
Crude
Fractionation
On Purpose
Butadiene
C3
Olefins
Dehydrogenation
Olefins Complex
Desalted
Crude Oil
Styrene
Ethylbenzene
BTX
Kerosine
Polypropylene
Polethylylene
Ethylene
Naphtha
Butyl Rubber
Polystyrene
Cyclohexane
Aromatics
Complex
Cumene
Benzene
n-Paraffins
Phenol
p-Xylene
LAB
Complex
Diesel
Biodegradable
Detergent
Polyester
Nylon
Hi Severity FCC
Gasoil/Residues
C6-C9
Olefins
UOP 6493-16
Propane Dehydrogenation
C4
Olefins
LPG
(C3-C4)
Crude
Fractionation
On Purpose
Butadiene
C3
Olefins
Dehydrogenation
Olefins Complex
Desalted
Crude Oil
Styrene
Ethylbenzene
BTX
Kerosine
Polypropylene
Polethylylene
Ethylene
Naphtha
Butyl Rubber
Polystyrene
Cyclohexane
Aromatics
Complex
Cumene
Benzene
n-Paraffins
Phenol
p-Xylene
LAB
Complex
Diesel
Biodegradable
Detergent
Polyester
Nylon
Hi Severity FCC
Gasoil/Residues
C6-C9
Olefins
UOP 6493-17
Aromatics Complex
C4
Olefins
LPG
(C3-C4)
Crude
Fractionation
On Purpose
Butadiene
C3
Olefins
Dehydrogenation
Olefins Complex
Desalted
Crude Oil
Styrene
Ethylbenzene
BTX
Kerosine
Polypropylene
Polethylylene
Ethylene
Naphtha
Butyl Rubber
Polystyrene
Cyclohexane
Aromatics
Complex
Cumene
Benzene
n-Paraffins
Phenol
p-Xylene
LAB
Complex
Diesel
Biodegradable
Detergent
Polyester
Nylon
High Severity FCC
Gasoil/Residues
C6-C9
Olefins
UOP 6493-18
LAB Complex
C4
Olefins
LPG
(C3-C4)
Crude
Fractionation
On Purpose
Butadiene
C3
Olefins
Dehydrogenation
Olefins Complex
Desalted
Crude Oil
Styrene
Ethylbenzene
BTX
Kerosine
Polypropylene
Polethylylene
Ethylene
Naphtha
Butyl Rubber
Polystyrene
Cyclohexane
Aromatics
Complex
Cumene
Benzene
n-Paraffins
Phenol
p-Xylene
LAB
Complex
Diesel
Biodegradable
Detergent
Polyester
Nylon
High Severity FCC
Gasoil/Residues
C6-C9
Olefins
UOP 6493-19
High Severity FCC to Make Olefins
C4
Olefins
LPG
(C3-C4)
Crude
Fractionation
On Purpose
Butadiene
C3
Olefins
Dehydrogenation
Olefins Complex
Ethylbenzene
BTX
Kerosine
Desalted
Crude Oil
Polypropylene
Polethylylene
Ethylene
Naphtha
Butyl Rubber
Styrene
Polystyrene
Cyclohexane
Aromatics
Complex
Cumene
Benzene
n-Paraffins
Phenol
p-Xylene
LAB
Complex
Diesel
Biodegradable
Detergent
Hi ghSeverity FCC
Gasoil/Residues
C3-C4
Olefins
Polyester
Nylon
Transport Fuels
Polymers
UOP 6493-20
Agenda
 Refining and Petrochemical Industry Landscape
 R&P Integration as Competitive Advantage
 Conclusions
21
UOP 7062-21
Conclusion
 Refining margins have historically been tight, irrespective
of volatile crude markets
 Increasing trend towards R&P integration in order to
– Increase net cash margin
– Mitigate risk by being able to respond to market changes
with a more diverse product portfolio
 The Middle East downstream demand growth and surplus
feedstock are key imperatives to integrate at home
 Developing the right configuration for your business
environment with early integration of process automation and
the latest technology are key strategies to de-risk projects
22
UOP 7062-22
‫شكرا‬
‫‪UOP 7062-24‬‬
‫‪24‬‬