OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org Comisión Perspectives oftheMarket Crude Oil:Scenarios and Oxford Institute forEnergyStudies de Investigación “ “ Heavy Sour Heavy Sour Querétaro, www.oxfordenergy.org Robert Skinner Augu Director st 16, 2005 de los Crude Crude P recios Oil” Oil” del Petróleo OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org to newhighsinrecentweeks. Since 2003andpricesall alongth Price ofWTIfordelivery 5 – The Market’s viewofthelong- term haschanged 7 year e forwardcurvehavemoved up s outhasmovedupdramatically Sour c e : Bar c l a y s

Capital

Aug 5, 2 0 0 5 OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org Million Barrels Per Day 10 12 14 16 18 20 0 2 4 6 8

Jan-81 U. S . Refinery Capacity Tight Jan-83 Re f i n

Jan-85 i n g Ca Jan-87 p acit Jan-89 y &

Jan-91 In p --we havebeen therebefore. Today isnotthe wholeStory uts

Jan-93 Tight Refinery Capacity.

Jan-95

Jan-97

Jan-99

Jan-01 DOE/EI

A Jan-03

Jan-05 OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org

Million Barrels per Day 10 15 20 25 30 35 0 5 Jan-90 Crude Supply Capacity Jan-91

Jan-92

Jan-93 extremely tight

Jan-94 O P

Jan-95 E C Crude

Jan-96 … andtheM

Jan-97 OPEC issour O

Jan-98 Sp il P ar

Jan-99 r oduc e C a rginal Supply Jan-00 a p t and heavy. i a Jan-01 on ci ty

DOE/EI Jan-02 A

Jan-03 from

Jan-04 OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org Benchmark crude oil(WTI) setting record prices Ba r c la y s

Bank , Aug 10, 2005 OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org $/bbl -1 -1 -1 -8 -6 -4 -2 4 2 0 0

Jan-02 differentials have widened:both

Mar-02

May-02 As oilpricesincreased, Jul-02

Sep-02 Sweet – Nov-02

Jan-03

Mar-03

May-03 WTI – Jul-03 S

Sep-03 WT our… M I - M ars (spot)

Nov-03 a rs (Spot)

Jan-04

Mar-04

May-04

Jul-04 C our Sep-04 tes y H Nov-04 E T C O Jan-05 OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org

02 11. 13. 15. 17. 19. 21. /08/ 9. US$/bbl 0 0 0 0 0 0 200 00

16 0 0 0 0 0 0 /08/ 4 30 200 /08/ 4 13 200 /09/ 4 27 200 /09/ 4 11 200 /10/ 4 25 200 /10/ 4 08 200 …and Light– /11/ 4 22 200 /11/ 4 06 200 /12/ 4 20 200 WTI – /12/ 4 03 200 /01/ 4 17 200 /01/ 5 31 200 /01/ 5 14 200 /02/ 5 28 200 /0 2/ 5 14 200 M /03/ 5 28 200

/03/ 5 aya 2 11 00 H /04/ 5 25 200 /0 4/ 5 eavy: 09 200 /05/ 5 23 200 /05/ 5 2 06 00 /0 6/ 5 20 200 /0 6/ 5 0 200 4 /07/ 5 18 20 0 /07/ 5

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y 5 H E T C O OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org

$/bbl -1 -1 -1 -9 -7 -5 -3 -1 5 3 1 1 Jan-02

Canadian bitumen netbacks were Mar-02 These differentials allreacheda peakinlate 2004;

May-02 …and notjust forMaya Jul-02 Companies reduced booked reserves

Sep-02

Nov-02

Jan-03

Mar-03 Brent –

May-03 B r Jul-03 e n t D - D ubai (Spot)

Sep-03 uba i

Nov-03 ( S negative po Jan-04 t ) Mar-04

May-04 ~$5.00/bbl Jul-04

Sep-04 C

Nov-04 our tes y

Jan-05 H E T C O OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org Why wereheavy sour discounted?

crudes s o OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org World Crude Quality Light Sweet Crudes Medium Sour Heavy Sour Crudes Crudes Sour c e : ENI World O&G Rev i e w , 2 0 0 4 OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org API >35º <50º >50ºAPI ~ World Crude Quality >1% 0.5-1% <0.5% % S S S S Sour c e : ENI World <35º >26º O&G Rev i e w , 2 0 API 0 4 >1% 0.5-1% <0.5% Excludes ‘ultra-heavy crudes’ S S S <26º >10º API >1% 0.5-1% <0.5% S S S OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org World CrudeQuality ‘stable’since1994 Sour c e : ENI World Medium Sour Light Medium Heavy Sweet O&G Rev sour i e w

, 2

0 0 4 OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org Quality &Volumes ofMainCrude streams, Americas Brazil Stream, againstmostlyVenezuelan player intheHeavySour & Canadianstreams Maya isthemain Sour c e : ENI World Maya O&G Rev i e w , 2 0 0 4 OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org Crude Streams byQuality: of crudest ~ 47%in1994and ~60%in Heavy &Sourstream increased Americas reams w from 35%to i th assignedqualit 42% 2003 Sour c e i : ENI World es. O&G Rev i e w , 2 0 0 4 OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org • • • • Producer chain money allalongthe HCOsupply ‘Reversing nature’s work’costs Relatively few suppliers sulfur] crudes contracts interests—reconcilable through different directions reSulfur Supply bbl andDemandbbl headedin Heavy Crude Oil(HCO) with moresulfur formarketswanting less/no ÅÆ Refiner: opposing [More OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org 2001 =68MMBD PRODUCT • • costs ar • WORLD Specialty Restricted to fewsets ofcounter-parties. Strong bilateral commercial co Require specialcapit ION World OilMarket: Microeconomic e high) crude markets . GENERAL SPECIAL CONDENSATES 53 MMBD 2.5 MMBD 12.5 MMB al asset Characterization T PURPOS Y CRUDES : D s w E -depe i th single base-loadfeedstock (sw nde (Deep Heavy Napht Waxy Paraffinic crudes nce for thelong term. heni crud co c r udes nversion c es r for directburni udes f or lubes f , asph or lubes Sour c e alt) : O demand trade n World International I g E S, J-C 78 82 <2 3 <2 <1 15 12 2 <2 3 <2 B i ou t c ILLUST é hing

RAT

I VE (%) OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org % Different 100% 60% 70% 80% 90% 10% 20% 30% 40% 50% 0% 22 3.3% S Maya ° 36. 22. 20. 19. API 1. 6 6 8 9 4 Crudes Isthmus 33 1.5% S ° 14. 27. 19. 38. API 2. 6 9 4 2 3 y ield differentproducts 40 Olmeca 0.8% S ° 10 22 31 36 API 4 Light Ga D Ga Resi i s s s t o illa o d line il e / HF t n e ds s / O N a pht h a OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org 100% Different Markets want DifferentProducts 10% 20% 30% 40% 50% 60% 70% 80% 90% 0% Coker …and use different refinery configurations 16 18 57 9 Europe 16 18 39 27 FCC Hydroskimming 25 31 22 22 Japan Fue D N G Ot i a aso s h pht t e l O illa r

l s i ha

n i t l e e/

s OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org Sulfur United States Sulfur EU Diesel ( Reformulated Gasoline Conve Sulfur And theProduct Barrelmustmeet Auto Oil Auto Oil n Diesel Gasoline H tional G more stringent environmental ighway) : asoline (DC-Boston); Midwest; Texa Reformulated Gasoline requiredin 350 ppm 150 ppm 500 ppm CA 40 RFG 125 330 ppm 2000 1 specs s; andmostofCalifornia [Germ 10ppm/03] 50 ppm 50 ppm @ for both caps w % share of including poolaverages involving phased inspecs In A complexsetof standardsintroduc 2005 2010E steps2004,2005, 2006, 15 ppm urban areasofthe EastCoast 2 i th fullcompliance Gaso f-spec, event by 2010 line

and Diesel

10 ppm 10 ppm 3 u , al ed OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org Sour Atmospheric Dist. Processing Units c e Economic incentives fordeepconversion— : CIF Price (USD/B) O T I y Hydrocracker E Vacuum Dist. pical feedstock S, J-C GPW (USD/B) Fuel oil/others Reforming Alkylation B to increaseGrossProduct Worth(GPW) ou Distillates Gasoline Coking é FCC 100% 50% Complex Maya 20.50 15.57 Very

Coking 20.06 Maya 1 5.57

Arab medi Alkyl FCC/ 19.7 17.00 0

um Arab li FCC 18.10 18.35 1997 Prices ght Hydroskimmer Simple 18.88 Brent 21.03 OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org ) 20% N Zone e u World Marketfor HeavySourCrude: t 18% r The heavy crude a M l Ve e xi P 5% n R co e O z D u U e C l a T I O N 12% = 11M 9% O supply comes essentially from the Western Hemisphere St Un C M t Ot he a a B i na t t h D e e r Br e M s da d r a

i z ddl 14% i 15% Supply l Supply e E 7% a s t 25% IN T Ne M E Zone (2001) R u e N t xi A r 25% a co Ve T l

IO n N e A z u L 8% Sour e T l R a c A e : D O O E I = E S, J-C 5% 5 t h Ot . Ca e 2 M h r n M B e ou a M Br r d i d é B a a d D z le 17% 15% i l E a 5% s t OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org ) FA EUROPE R EA 12% S OTHER T World Marketfor HeavySourCrude 10% …and Heavysour 5% CH IN MEX A 6% I CO

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OF T 52% H takes theLion’s share. (2002) The US and USGCinparticular E WOR I IV L D M A R BY PA K ET V FOR II III D D : HEA V Y C 12% 2% 25% 10% 3% R Sour U 0% 1% D E c e (2002) : 0, VI O I E S, J-C B ou é OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org * ~75% atrefineries Where Residual Oil*goes(USGC,2002) >650 exceeds demand intheseuses,priceofheavy crudecollapses. Bulk ofresidual oilconsumedby o F HCO $/bbl Others <1% Bunkers Bi-fuel <1% Mono-fuel Power Gen. w w i P t hout o i t w h dual e r gen dual Bun USGC DEMANDFOR650°F+MATERIAL)

bu

e Others burners ration rners kers ~2% 6% 0% 2% 0% 6% Supply CAPTIVE Refinery Refi Units consumers. When supply nery uni ts 2 A 002 s phal 96% 92% t s Hy Sour FCC drocrackers Cokers c uni e : O t s I E S, J-C 2% 43% 32% 15% B ou é OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org •Diversifying by blending •Many players(discounting?) •Seeking newoutlets •Landlocked •Gov’t •Expanding supply •Focused regionalstrategy •Contractual rigidity w/buyers •Domestic upgrading $$$ •Volumes flat/declining? Downstream =No Upstream =Yes support success: •SCO increasing •Maximum upgrading? •Strategy changing/unclear MEXICO Prospects & Strategies Main HCOSuppliers: Æ west •Main buyer •Declining supply Restrictions Destination • •Low S,high TAN •New volumes Æ US Asia? BRAZIL •Domestic upgrading tocome •Blending •CIF exporting; integrated SAUDI • • At Source: Upgrading Venezuela • Future: Canada • More Brazil ARABI A OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org • • • Continuous-type Deposits of these in-place resources. Canada, USA&Venezuela account for over86% resources of conventionaloildiscovered todate. ~ 7,500billion bbls principal oilresource plays: The global • • • Shale oil Bitumen inoil-sands Extra-heavy oil Oil ResourcePlays in-place resources ofthethree - > 3times of Hydrocarbons recoverable Co u r t e sy : K. Ch e w , I H S E OXFORD INSTITUTE FOR ENERGY STUDIES10,

Downhole Viscosity (Cpo) 1, 100,000 000,000 www.oxfordenergy.org 000,000 10,000 1,000 100 10 0 C Bitumen Orinoco Class: Heavy OilCategories 5 Peace River Athabasc B Class: ExtraHeavy a API Gravity 10 Boscan C o ld L Tia a k J e Kern River uana Canadian OilSands 15 Bachaquero Chi Duri n ese steamprojects 20 OI A ES, Aft Medium Heavy Class: e r K u pc ic, 2003 25 OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org CERA’s Projected GrossLiquids CapacityAdditions, 2004 to2010 All ‘heavy’is not ‘heavy’ when it gets tothe Market OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org

Million Barrels per Year 100 200 300 400 500 600 700 800 0 1990 O Petrozu Cer Si H Cerr Si H Expa G Venezuela O 1991 a a r r ncor ncor D i een * Rawheavycrude m m m r o N o 1 aca aca D u nsi 992 N f l sio i e a e e o l e 1993 ta gr gro d n n bottl e P o 1(B o b r f o Debott 1994 Exi o t ene j tlen ec I T s 1 ts OR r c ti 995 e i k ng A l c n e ) k n 1996 Oil ResourcePlays oco Extra- ec s k s 199 o ci 7 a 1 t 998 i ons 1999 heav 200 0 2 y O 001 200,000 bbl/dyr 2002 il HistoricandForecastProduction 200 3 2004 2005 200 6 2007 2008 2 009 Sourc 2010 2011 e : IHSE after PDVSA 2 012 2013 _ _ * _ _ 1. 2. 0 0 mm mm

b/ b/ d

d OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org Estimated (risked)output basedonprojectschedules 1,000 1,500 2,000 2,500 3,000 3,500 4,000 500 Alberta OilSands ProjectedSupply 0 200 0 2 001 20 02 200 3 2 004 20 05 Net 200 6 Total supplytomarket 2 007 From OilSands 20 08 1000 b/d 200 9 2 010 20 11 201 2 2 013 20 Bitumen 14 Integrated Raw Projects Mining 201 5 2016 2 017 CNRL I O D O Syncr e She Suncor 201 K L C e P Sourc r ear TI C Ho 8 r l / o eek Mi l N l ude l Lake 2019 d exen r

i e z Lake : OIES o n e n 2 020 OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org Potential heavy/medium sour supply from Canada 1,086 2005 1,845 2010 2,268 2015 Source: CAPP, 2005 OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org • • • • • • • natural gascosts. projects equipment andskilledmanp Project execution,especially for Operational Risks: assetreliabilit Infrastructure andlaborsupply insmallareawithsimultaneous Financing: Business cycle; Regulatory issuesw Environmental is Market volatility: supplyupsets High CAPE X projectslimitscope Oil SandsRisks sues andperformance i th expansions interest and exchan ower) , access,differentials, margins, large-scale projects(materials, forinvestmentselsewhere y innorthern environment g e rates OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org • • • • • end market available—either atsource orin the until newcoking capacity is unwanted HFOwillbediscounted Crudes decline And asHFO demandcontinues to meet morestrictsulfur standards Especially asproduct barrelmust to meetheaviercrude slate Refinery investment must‘catchup’ sour Crude supplyisincreasingly heavy& t hat produce alotof Summary OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org Supply Demand Economy Today’s Fundamentals and driving‘UAV’s China stillairborne;USA stillconsuming World GDP:3.7-3.9/4.7 2005/2004 • • • • • • • • • •U • W Non-OPEC outlook lowerinshortterm I S L Russian D L A G nvestment up, butslow response umpy supply; costs risin ighter (lessHFO)&sweeter upply heavier &more sour symmetrical elasticityversussupply . emographics andincomes trumpprice lobal growth1.77- est Africa, GOM,Unconventional S . ,

China atavism and restofAsia&M.E. to WalM Æ wobbly supplier? 2 .2 art g mb/d in05. OXFORD INSTITUTE FOR ENERGY STUDIES www.oxfordenergy.org Budget PriceAssumptions forSelected Oil-Producing Economies *For Export crude Source: ME ES, 23 May , 0 5