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This study expands on, and brings up-to-date, a similar PIRA study issued in 2007. Although the broad outlook trends addressed in the 2007 study generally are still true, much has changed since then: the global recession and its aftermath, the IMO's approval of bunker sulfur regulations, the rise of oil production from shale, the increase in world oil prices — to name a few. These changes, along with a broad-based interest by PIRA's clients, led to this new updated, expanded study.
"Bottom of the Barrel 2012" shows how a detailed and nuanced look at the underlying trends builds up to robust conclusions for the future. The study answers these important questions:
In 2007, PIRA issued a “Bottom of the Barrel” study that made some bold predictions — especially about sharply narrower light-heavy spreads — that ultimately proved to be very close to the mark. Now, PIRA has created an updated and expanded outlook for residual fuel oil and the rest of the “bottom of the barrel.”
How 2012’s Version Differs from 2007:
In addition to a robust database and a recorded slide presentation with audio accompaniment, “Bottom of the Barrel” features an extremely insightful and comprehensive written report. Below is its table of contents.
Introduction............................................................................................................................................................ vii
Study Contributors................................................................................................................................................ ix
1 Executive Summary................................................................................................................................................ 1
Key Points............................................................................................................................................................... 1
Total Oil Demand.................................................................................................................................................. 4
Heavy Oil Product Demand................................................................................................................................. 5
Alternative Scenarios for Demand................................................................................................................... 10
Crude Supply....................................................................................................................................................... 11
Refining................................................................................................................................................................. 14
Fuel Oil Quality and Blending.......................................................................................................................... 15
Heavy Product Pricing........................................................................................................................................ 17
Crude Price Differentials.................................................................................................................................... 18
Product Price Outlook for Demand Scenarios............................................................................................... 18
Fuel Oil Trade...................................................................................................................................................... 19
Asphalt Trade....................................................................................................................................................... 20
2 Economics and Demand Overview..................................................................................................................... 23
Key Points............................................................................................................................................................. 23
Total Oil Demand and the Economy............................................................................................................... 23
Global Oil Product Demand.............................................................................................................................. 25
Alternative Demand Scenarios......................................................................................................................... 31
3 Heavy Product Demand ....................................................................................................................................... 35
Key Points............................................................................................................................................................. 35
Global Heavy Product Demand........................................................................................................................ 35
Resid Demand by Product for Key Sectors – Reference Case.................................................................. 37
Regional Heavy Product Demand Summaries.............................................................................................. 42
4 Heavy Oil Demand for Power Generation........................................................................................................... 49
Key Points............................................................................................................................................................. 49
Global Perspective.............................................................................................................................................. 49
United States Power Generation...................................................................................................................... 52
Western European Power Generation............................................................................................................ 56
Japanese Power Generation............................................................................................................................ 58
Chinese Power Generation............................................................................................................................... 61
Middle East Power Generation......................................................................................................................... 62
Latin American Power Generation................................................................................................................... 64
Power Generation in Other Regions............................................................................................................... 67
5 Bunker Fuels Demand.......................................................................................................................................... 69
Key Points............................................................................................................................................................. 69
Bunker Demand Drivers: World GDP and Trade.......................................................................................... 70
Bunker Demand Drivers: Fleet Composition and Utilization...................................................................... 71
Regional Bunker Demand: Sales Location Set Along Trade Routes Near Refining Centers.............. 75
Bunker Quality Dictated by Changing IMO Regulations............................................................................. 76
Greenhouse Gas Emissions and the Bunker Market................................................................................... 78
Alternative Methods to Sulfur Emission Regulation Compliance............................................................... 80
6 Other Heavy Product Demand............................................................................................................................. 83
Key Points............................................................................................................................................................. 83
Asphalt................................................................................................................................................................... 84
Lubricants............................................................................................................................................................. 88
Petroleum Coke................................................................................................................................................... 90
Crude Burning...................................................................................................................................................... 92
7 Use of Fuel Oil in Other Industries/Sectors....................................................................................................... 95
Key Points............................................................................................................................................................. 95
Refinery Own Use............................................................................................................................................... 95
Resid Used in Other Industries......................................................................................................................... 97
8 Global Oil Raw Supply........................................................................................................................................ 101
Key Points........................................................................................................................................................... 101
Global Oil Supply.............................................................................................................................................. 101
Oil Production Trends by Region/Country: United States......................................................................... 106
Oil Production Trends by Region/Country: Canada.................................................................................. 107
Canadian Oil Sands / Heavy Crude Production and Need for Diluent to Enable Production............ 109
Other Heavy Crude Producers....................................................................................................................... 113
Mideast and North African OPEC Producers............................................................................................... 116
Former Soviet Union........................................................................................................................................ 118
More on Crude Quality..................................................................................................................................... 119
Non-Crude Supply............................................................................................................................................ 120
9 Refining and Residual Product Production.................................................................................................... 123
Key Points........................................................................................................................................................... 123
Refinery Capacity Growth............................................................................................................................... 124
Conversion Capacity........................................................................................................................................ 127
Refinery Capacity Utilization........................................................................................................................... 131
Refining Outlook – Refinery Closures.......................................................................................................... 136
Refinery Capacity Utilization Scenarios....................................................................................................... 139
Refining Operational Path to 2025................................................................................................................ 140
Regional Refinery Runs and Product Trade Overview............................................................................. 142
Regional Crude Run Outlook......................................................................................................................... 145
10 Fuel Oil Quality and Blending............................................................................................................................ 151
Key Points........................................................................................................................................................... 151
Introduction and Definitions............................................................................................................................ 152
Bunker Quality................................................................................................................................................... 153
Fuel Oil Quality for Power Generation and Industry.................................................................................. 156
Supply Sulfur Level........................................................................................................................................... 158
Low Sulfur Balances......................................................................................................................................... 160
Residual Fuel Oil Supply Blending Components....................................................................................... 162
Regional Fuel Oil Blending............................................................................................................................ 164
Blending to Meet Sulfur Targets..................................................................................................................... 166
11 Product Prices and Refining Margins............................................................................................................... 169
Key Points........................................................................................................................................................... 169
Price Overview: Market Level......................................................................................................................... 169
Product Price Spreads: Light Product vs. Heavy......................................................................................... 175
Product Price Cracks and Spreads................................................................................................................ 181
Fuel Oil Price Spreads: Regional Differences............................................................................................ 184
Product Price Spreads: Low Sulfur vs. High Sulfur..................................................................................... 185
Feedstock Prices............................................................................................................................................... 189
Refining Margin Trends................................................................................................................................... 191
Crude Price Differentials.................................................................................................................................. 192
North American Crude Prices Distorted by Logistical Bottlenecks.......................................................... 194
Forecasts for Alternative Scenarios............................................................................................................... 197
12 Fuel Oil Trade....................................................................................................................................................... 201
Key Points........................................................................................................................................................... 201
Global Trends.................................................................................................................................................... 201
Fuel Oil Regional/Country Balances............................................................................................................ 205
13 Feedstocks and Asphalt Trade......................................................................................................................... 215
Key Points........................................................................................................................................................... 215
Feedstock Balances and Trade..................................................................................................................... 215
Asphalt Balance and Trade............................................................................................................................ 219
Appendix.............................................................................................................................................................. 223
Appendix 1: Refinery Project Ratings Used by PIRA................................................................................. 223
Appendix 2: Refinery Definitions.................................................................................................................... 224
Appendix 3: Gasoline Blendstock Definitions............................................................................................. 226
Appendix 4: Middle Distillate Blendstock Definitions................................................................................. 228
Appendix 5: Residual Fuels Blendstock Definitions.................................................................................. 229
Appendix 6: Fuel Oil Desulfurization Technology...................................................................................... 231
Appendix 7: Supply Definitions...................................................................................................................... 232
Companies purchasing the study are entitled to have three users to each of the following deliverables (licensing options are available to add extra users):
Spells out the findings of the study and the bases underlying those results, and provides a discussion of the key uncertainties that impact the major findings. Approximately 200 pages long, the report includes an executive summary, as well as detailed discussion and illustrative charts on: Demand, Supply, Quality, Price, Trade, and Alternative Scenarios.
A comprehensive database providing historical data back through 1995 and forecasts through 2025 in Excel spreadsheets for:
A slide show with accompanying audio — 3 hours long — that discusses the study's key findings and their implications.
The long historical decline in fuel oil demand is expected to level off or even grow in some scenarios. Substitution to other fuels for power generation in the OECD, FSU, and other industrialized countries is nearing practical minimums. In the developing world, further growth in stationary uses is still likely, but not broadly based. Most expansions are concentrated in oil-exporting countries and in rapidly developing countries struggling to meet electricity demand growth.
Bunker demand, on the other hand, continues to grow robustly as the vessel fleet grows to meet expanding trade, and it will represent an increasing share of total fuel oil demand. However, tighter bunker sulfur specifications may drive demand further to low sulfur residual or even distillate based fuels, although the manner and schedule for implementation is still uncertain.
"Bottom of the Barrel 2012" examines demand trends for power generation, industrial use, bunkers, and asphalt/lubes/other specialties. Regional/country forecasts are included. Factors influencing these trends — including policy, substitution due to competitive prices, efficiency improvements, quality requirements, and the potential use of scrubbers for shipping — are also addressed. Demand scenarios that test the impact for a range of possible economic and regulatory factors provide bounds around PIRA’s Reference Case forecast.
With demand for light products growing much more rapidly than that for fuel oil, ongoing additions to fuel oil conversion capacity are required to balance supply and demand. Over the last few years, capacity additions have rapidly increased, and now exceed current requirements. This surge will continue for the next few years and will tighten straight run fuel oil balances and tend to keep light-heavy product price spreads narrow.
With these changes in demand trends and refining capacity will come dramatic changes in pricing relationships. The study addresses these impacts. Changes in residual fuel oil prices relative to other products and crude are quantified. Quality and regional differences are described.
These changes in product price spreads will fundamentally affect refinery margins, inter-regional arbitrage opportunities, and crude price differentials.
The stakes are high when it comes to making decisions regarding future residual fuel oil/other heavy product supply, demand, and pricing. "Bottom of the Barrel: An Updated Outlook for Residual Fuel Oil, 2012 Edition" can help market participants keep ahead of the competition through a better understanding of the future interplay between regional residuum balances, regional pricing for different qualities, inter-regional trade, and the impact of these factors on refining margins. The following market participants will all benefit from this study:
"Bottom of the Barrel: An Updated Outlook for Residual Fuel Oil, 2012 Edition" can be purchased by both PIRA retainer clients as well as non-clients. Existing PIRA retainer clients receive a reduced price. Also, buyers of PIRA's 2007 study "Bottom of the Barrel: The Future for Residual Fuel Oil" receive an additional discount.
Additional users (beyond three),extra report copies and database passwords can also be purchased.