{"id":984,"date":"2014-02-06T11:28:56","date_gmt":"2014-02-06T17:28:56","guid":{"rendered":"https:\/\/allenergyconsulting.com\/blog\/?p=984"},"modified":"2014-06-19T08:35:06","modified_gmt":"2014-06-19T13:35:06","slug":"refining-outlook-refined-for-2014","status":"publish","type":"post","link":"https:\/\/allenergyconsulting.com\/blog\/2014\/02\/06\/refining-outlook-refined-for-2014\/","title":{"rendered":"Refining Outlook Refined for 2014"},"content":{"rendered":"<p>As I review my <a href=\"https:\/\/allenergyconsulting.com\/blog\/2013\/03\/09\/refining-in-the-21st-century-part-1\/\">last year\u2019s thoughts on refining<\/a> with updated data, it has caused me to be more bullish on the outlook for refining \u2013 which historically is very hard to do.\u00a0\u00a0 US refining may be entering another golden age \u2013 or perhaps it never left, but just took a nap.\u00a0\u00a0 There will be refiners who benefit more than others.\u00a0\u00a0 However, the overall market should see additional boost.<\/p>\n<p>What is new or more reaffirming from last year\u2019s review:<\/p>\n<ul>\n<li>Continued liquids production from the shale plays.<\/li>\n<li>Crude imports are coming whether we like it or not by rail or by pipeline.<\/li>\n<li>Continued growth in developing countries.<\/li>\n<\/ul>\n<p>Shale Play<\/p>\n<p>Shale production continues to beat expectations.\u00a0\u00a0 I researched over a dozen papers reviewing and analyzing shale decline curves and initial production rates.\u00a0\u00a0 The amazing outcome is not the technology acceleration, but the ability to learn to use and adapt existing technology is accelerating.\u00a0\u00a0 Each shale play is unique with an initial set of known.\u00a0\u00a0 Applying the techniques done in one play to another play generally does not optimize the production.\u00a0 The ability to be creative with the tools and resources available has clearly shown an increase in production.\u00a0\u00a0 Data is available showing initial production rates to decline curves are improving at wells within existing plays.\u00a0 In addition, the newer plays are seeing even a more accelerated path of improvements than the Bakken.<\/p>\n<p>It is our belief, this will continue leading to more oil production in the US.\u00a0 And this oil production is of the sweet and light crude oil.\u00a0\u00a0 This very fact is causing the US producers to want to lift the ban on exporting crude oil from the US.\u00a0 As discussed in my <a href=\"https:\/\/allenergyconsulting.com\/blog\/2013\/03\/26\/refining-in-the-21st-century-part-1-contd\/\">previous refining outlook discussion<\/a>, the US refiners outsmarted themselves and built the wrong refining configuration.\u00a0 All is not lost; they just don\u2019t value the sweet crude as much as the outside world might.\u00a0 At some discount, the oil will be processed and changes will be made in the US refining complex.\u00a0 This discount is driving producers mad and so the hope is with the ability to export. They could find better buyers across the ocean.\u00a0\u00a0 In the meantime, without the lift in crude oil exports, we should continue to see a feedstock price discount to several refiners.\u00a0\u00a0 This will cause a drop in finished product prices in the US for the consumer.\u00a0 However, I anticipate the drop in finished product prices to not be as low as the drop in feedstock prices given the export outlet for finished products.<\/p>\n<p>Crude Imports<\/p>\n<p>Crude imports are coming no matter what you are hearing about the Keystone pipeline issue.\u00a0\u00a0 The Keystone pipeline encompasses a greater plan which is shown on <a href=\"http:\/\/keystone-xl.com\/about\/the-project\/\">this website<\/a>.\u00a0\u00a0 The project is actually three parts with 2 of three pushing forward as the main Keystone Pipeline still is being debated.\u00a0\u00a0 Right now, \u00a0we have 180,000 barrels\/day of crude oil moving by rail from Canada to the US.\u00a0 The debate perhaps is really the rail industry supporting the ban on Keystone, because the oil will come, it\u2019s really just how you want it to come here, assuming we still want to maintain free trade with our Canadian friends.\u00a0 This crude oil is more to the liking of the US refining sector.\u00a0 I suspect logic will prevail and the pipeline will move forward and pressure on the US crude oil markets relative to the foreign markets will maintain itself.\u00a0\u00a0 The forward curve as of 02\/06\/14 continues to show a very stout spread between Brent \u2013 WTI of $14\/bbl.\u00a0\u00a0 Overtime, \u00a0I suspect that to come back down to perhaps the $5\/bbl range.\u00a0 However, I think gone is the convention that on annual basis they will trade in parity.<\/p>\n<p>Non-OECD Oil Demand Growth<\/p>\n<p>Over the last 8 years the OECD region demand dropped nearly 5 million b\/d.\u00a0 The US represented nearly half of this drop with half of that drop coming from the push on alternatives fuels mainly ethanol.\u00a0 Ethanol production now stands at 0.9 million b\/d.\u00a0\u00a0 Biodiesel adds another 0.1 million b\/d.\u00a0 Even though much is talked about renewable in the power space that \u00a0there is now significant volumes to be discusses in the petroleum space.\u00a0 As I indicated in the power space <a href=\"https:\/\/allenergyconsulting.com\/blog\/2014\/02\/04\/peak-energy-are-we-there-in-the-us\/\">reaching a peak consumption<\/a> one can conclude the same in the oil space for US consumers.<\/p>\n<p>With the entire demand decline in OECD region, one would think prices should have declined versus rising 70% in the US gasoline markets.\u00a0\u00a0 However, Non-OECD demand grew 9.7 million b\/d over that same time period OECD was declining. \u00a0There is so much more room to grow for non-OECD region. \u00a0\u00a0<a href=\"http:\/\/www.bp.com\/en\/global\/corporate\/about-bp\/energy-economics\/statistical-review-of-world-energy-2013\/review-by-energy-type\/oil\/oil-consumption.html\">BP shows a graphical view of oil consumption<\/a> per capita across the world.\u00a0 Even though the US observed a great drop in demand there is still a large gap between the US and the majority of the world.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-985\" title=\"Oil Consumption Per Capita World Wide\" src=\"https:\/\/allenergyconsulting.com\/blog\/wp-content\/uploads\/2014\/02\/oilconsumptionpercapita.jpg\" alt=\"\" width=\"624\" height=\"411\" srcset=\"https:\/\/allenergyconsulting.com\/blog\/wp-content\/uploads\/2014\/02\/oilconsumptionpercapita.jpg 624w, https:\/\/allenergyconsulting.com\/blog\/wp-content\/uploads\/2014\/02\/oilconsumptionpercapita-300x197.jpg 300w\" sizes=\"auto, (max-width: 624px) 100vw, 624px\" \/><\/p>\n<p>With those three outlooks solidified, I am optimistic on US refining.\u00a0\u00a0 Within the sector, there will be winners and losers.\u00a0\u00a0 I can help the refining sector by offering crude oil evaluation to strategic planning to optimize the above concerns.\u00a0 \u00a0A fundamental view of crude oil prices and refined products are available.<\/p>\n<p>By the way I do have an opportunity for those interested in a 80,000 bpd condensate refinery in the Caribbean. \u00a0A detailed cost study along with an economic analysis was done showing an investment need of around $600 million producing 20+% IRR. \u00a0 To build a brand new refinery of this scale would be around $1.2-$1.8 Billion. \u00a0Please contact me if there is interest in this investment.<\/p>\n<p>Your Continually Refining Energy Consultant,<\/p>\n<p><a href=\"mailto:dkb@allenergyconsulting.com?subject=Market%20Insights\">David K. Bellman<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>As I review my last year\u2019s thoughts on refining with updated data, it has caused me to be more bullish on the outlook for refining \u2013 which historically is very hard to do.\u00a0\u00a0 US refining may be entering another golden age \u2013 or perhaps it never left, but just took a nap.\u00a0\u00a0 There will be [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":28,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,26,17],"tags":[123,178,253,254,90,187,95],"class_list":["post-984","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-insights","category-oil-petroleum-products","category-renewables","tag-crude-oil","tag-ethanol","tag-imports","tag-oil-demand","tag-refining","tag-renewable","tag-shale"],"_links":{"self":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/984","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/comments?post=984"}],"version-history":[{"count":6,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/984\/revisions"}],"predecessor-version":[{"id":1150,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/984\/revisions\/1150"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media\/28"}],"wp:attachment":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media?parent=984"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/categories?post=984"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/tags?post=984"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}