1	Changing World Product Markets and Potential Refining Capacity Increases NPRA Annual Meeting March 2006 Joanne Shore John Hackworth Energy Information Administration
2	Changing World Product Markets and Potential Refining Capacity Increases World Supply/Demand Cycles & Shifts in Demand Historical Regional Demand & Supply (Why capacity varies regionally) U.S., Europe, Asia Demand growth, product mix, trade Price Signals for Capacity Changes Capacity Change Outlook: Who, What, Where Over- or Under-Capacity Potential
3	World Capacity & Consumption Changes Result in Utilization Increases
4	World Distillates Growing More than Gasoline & Fuel Oil Declining
5	Historical Regional Demand and Supply Overview of regional demand differences U.S and Europe – Atlantic Basin partners Asia Pacific – Mixture, with total driven by large emerging countries
6	U.S., EU-25, and Asia-Pacific Regions Represent 76% World Petroleum Use
7	Regional Consumption Growth Varied
8	U.S. Light Product Demand Transportation main driver Not likely to see any major shift from gasoline to diesel in next 10 years Hybrids and diesel likely to increase in next decade, but little impact on demand during next decade Uncertain efficiency changes in all new vehicle sales, but slow impact regardless
9	Imports Supplied About Half Gasoline Demand Growth in Recent Years
10	Europe’s Light Product Demand General policy to reduce energy use and CO2 emissions; Petroleum demand growth has been small (annual 0.7% since 1995); Policies led to increased shift to diesel engines; Diesel demand is increasing while gasoline demand is declining; EU is major driver behind world shift to distillate versus gasoline
11	Europe Is Unique In Degree of Shift to Middle Distillate
12	E.U. Hydrocracking Growing, But Not as Fast as Diesel Demand Shift
13	Europe’s Growing Product Imbalance
14	Summary of European and U.S. Balances
15	Asia-Pacific Growth resumed after financial collapse Much variation – China & India large growth drivers, OECD Asia small growth Product mix future? Non-highway use of petroleum in emerging Asian countries large Distillate use will continue to grow rapidly, but… Light duty vehicle use will also grow, and China’s light-duty fleet is gasoline
16	Asia-Pacific’s Distillate-Gasoline Shares
17	Price Signals for Capacity Change “Margins” and “differentials” drive refinery investment decisions – not price Since the turn of the century, margins and differentials point to need for more investment But views of the future vary Interesting distillate price signal in 2005
18	Light-Heavy Product Price Differential & Crude Oil Price Move Together
19	Light-Heavy Crude Price Differential & Crude Oil Price Move Together
20	Light-Heavy Price Differentials Move Together
21	Unusual Atlantic Basin 2005 Distillate Prices
22	If WTI Drops from $60 to $40, Will Differential Drop by 33% ($15-$10)?
23	If WTI Drops from $60 to $40, Margin Relationship Less Certain
24	Looking Ahead to Refinery Capacity Growth Where: U.S., Europe, Asia, Middle East What type Who are the companies investing, and what is driving their decisions?
25	Current Regional Downstream Capacity Reflects Different Needs
26	Regional Distillation Capacity Changes 2005-2010
27	U.S. Capacity Changes 2005-2010 (KB/D)
28	Europe’s Capacity Changes 2005-2010 (KB/D)
29	Asian Capacity Changes 2005-2010 (KB/D)
30	Middle East Capacity Changes 2005-2010 (KB/D)
31	Who Will Expand: Outlooks/Plans Vary
32	Over or Under Capacity Potential Putting demand and capacity together regionally Postulating potential for over- or under-capacity
33	Capacity and Consumption Changes 2005-2010
34	Potential for Over/Under Expansion? The potential for under-capacity is probably greatest in the next year or two, before all new expansion plans come online. If the world does not experience any major demand shocks, over-expansion potential is small. The most likely areas where overexpansion has and may again occur are Asia and the Middle East.
35	Product Market & Price Outlook Summary Demand growth keeps capacity tight to 2010; Light-heavy price differentials and higher margins will result in increased bottoms upgrading capacity; Mixed views on margin outlook will prevent significant overbuilding – with Middle East and Asia being most likely areas for overbuild; Gasoline-diesel price differential will stay close and possibly invert more often as in 2005.
36	Summary of Capacity Outlook Capacity expansion announcements growing with continued price strength; U.S. capacity could even keep up with demand growth; Europe’s gasoline surplus will continue, but new hydrocracking capacity may slow growth in Europe’s diesel imports; Middle East gearing up to meet growing Asian and European needs; Asia’s growth driven largely by China and India; Continue to watch distillate mix – Particularly in Europe, our Atlantic Basin partner.