1	Distillate in Depth – The Supply, Demand, and Price Picture John Hackworth Joanne Shore Energy Information Administration Winter Fuels Conference October 12, 2005
2	Distillate and Gasoline Relationships --Temporary or Fundamental Change? Unusual distillate and gasoline prices in 2005 – Not just a U.S. issue Explore Europe/US light product supply/demand balance to illustrate market dynamics Europe’s product imbalance U.S. product imbalance How they fit together Current distillate market and supply response
3	2005: Continuation of High Product Prices – Especially Distillate
4	Unusual 2005 Distillate Prices Internationally
5	Atlantic Basin 1995-2004 Business As Usual
6	Europe Is Unique In Degree of Shift to Middle Distillate
7	EU’s Contribution: Price is Not Just About Volumes, But Quality As Well
8	Distillate and Gasoline Relationships --Temporary or Fundamental Change? Unusual distillate and gasoline prices in 2005 – Not just a U.S. issue Explore Europe/US light product supply/demand balance to illustrate market dynamics Europe’s product imbalance U.S. product imbalance How they fit together Current distillate market and supply response
9	Europe and the U.S. – Example of International Product Trade We know the U.S. depends on product imports – especially those from Europe Product trade between Europe and U.S has increased from 1995 to 2005 Working together because it benefits both due to different supply/demand balances Distillate product supply concerns may grow more for EU, but impacts U.S. Product quality issues important -- but not part of this presentation
10	EU-15 Demand Mix Projected to See Declining Gasoline Demand
11	European Preference for Diesel Grew Quickly since Late 1990s
12	EU Distillate Refining Yield Growing as Gasoline Yield Shrinks
13	EU Hydrocracking Growing, But Not as Fast as Diesel Demand Shift
14	Europe’s Growing Product Imbalance
15	Europe Using Imports and Exports to Balance Product Supply: 1995-2004 Diesel/gas oil imports increased 400 MB/D with 3/4 from Former Soviet Union Kero/Jet imports rose 200 MB/D with 56% from Middle East Even with large distillate imports, had to export about 400MB/D gasoline to balance Three quarters of gasoline exports went to U.S. and 10% to Africa
16	Europe: 1995-2004 -- Summary Diesel demand growing and gasoline demand declining European refiners production mix -- too much gasoline, too little diesel Hydrocrackers being built to increase diesel yield, but not keeping up with demand shift Historically, Europe achieved balance by finding economic import sources for distillates and export destination for gasoline Future: Still see increasing gasoline exports for some time – but will economic distillate imports be available – especially ULSD imports?
17	U.S. Demand Growing for Both Gasoline and Distillate
18	U.S. Refinery Throughput Has Increased to Help Meet Demand
19	U.S. Middle Distillate Yield Has Increased While Gasoline Stayed Flat
20	Gasoline Imports Have Supplied Half Demand Growth in Recent Years
21	Gasoline Import Sources Nearby dedicated suppliers Canada Virgin Islands Venezuela Nearby economic sources Western Europe – symbiotic relationship Eastern Europe Latin America Africa Other incremental supply Middle East and Asia
22	Western Europe Growing Source of Gasoline Imports
23	Distillate Imports Become Critical During Cold Snaps: Relief from Different Locations
24	United States: 1995-2004 -- Summary Gasoline: Gasoline demand growth met almost equally by increased throughput and increased imports Europe is major source of increased gasoline imports Distillate: Increase in distillate supply mostly from refinery production -- higher throughput and higher yield However distillate imports are critical during unexpected cold snaps
25	Summary of European and U.S. Balances
26	Distillate and Gasoline Relationships --Temporary or Fundamental Change? Unusual distillate and gasoline prices in 2005 – Not just a U.S. issue Explore Europe/US light product supply/demand balance to illustrate market dynamics Europe’s product imbalance U.S. product imbalance How they fit together Current distillate market and supply response
27	In Response to Price, U.S. Distillate Yields Have Been Unusually High
28	PADD 3 Estimated Lost Crude Refinery Input Volumes from Katrina and Rita
29	U.S. Weekly Distillate Production
30	Gasoline Inventory: Fall 2004 and 2005 Are Quite Different
31	Distillate Stocks Impacts: Ivan- 2004, High Distillate Margins- 2005, Katrina & Rita
32	Pre Katrina: 2005 Distillate Not Flowing In or Out of U.S. in Unusual Amounts
33	While All Fuel Prices are High, Natural Gas Gains Favor Fuel Switching
34	U.S. Distillate Market Leading Up to Winter In 2004, excess gasoline supply developed, while the distillate market tightened The two products returned to similar balances by mid Summer 2005 High distillate prices in 2005 provided incentive to increase distillate yields to winter levels, and resulting increased production caused inventories to build High availability of gasoline imports kept gasoline inventories high, despite strong demand and high distillate yield But the Hurricanes Katrina and Rita have caused major gasoline and distillate supply problems
35	Winter: Low Stocks Likely; High Prices; Considerable Uncertainty Low distillate stocks Reduced refinery distillate production from hurricanes Diesel & jet supply affected more than heating oil But heating oil supply and prices affected by other distillates Uncertainties in distillate supply and demand Timing of refinery restarts uncertain Challenge to increase diesel fuel imports in competitive Atlantic Basin Potential for fuel switching distillate demand increase