DEVELOPMENTS IN THE INTERNATIONAL DOWNSTREAM OIL MARKETS AND THEIR DRIVERS: IMPLICATIONS FOR THE UK REFINING SECTOR Prepared for: DEPARTMENT OF ENERGY AND CLIMATE CHANGE Prepared by: Buenos Aires – Calgary – Dubai – Houston London – Moscow – Singapore JUNE 2011 N. Cuthbert J. Leavens D. Kennaby C. Birch PURVIN & GERTZ, INC. DISCLAIMER This report has been prepared for the sole benefit of the client. Neither the report nor any part of the report shall be provided to third parties without the written consent of Purvin & Gertz. Any third party in possession of the report may not rely upon its conclusions without the written consent of Purvin & Gertz. Possession of the report does not carry with it the right of publication. Purvin & Gertz conducted this analysis and prepared this report utilizing reasonable care and skill in applying methods of analysis consistent with normal industry practice. All results are based on information available at the time of review. Changes in factors upon which the review is based could affect the results. Forecasts are inherently uncertain because of events or combinations of events that cannot reasonably be foreseen including the actions of government, individuals, third parties and competitors. NO IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE SHALL APPLY. Some of the information on which this report is based has been provided by others including the client. Purvin & Gertz has utilized such information without verification unless specifically noted otherwise. Purvin & Gertz accepts no liability for errors or inaccuracies in information provided by others. L2476/Bee DECC Table of Contents -- i TABLE OF CONTENTS GLOSSARY AND ABBREVIATIONS I. INTRODUCTION ............................................................................................................................. 1 II. EXECUTIVE SUMMARY ................................................................................................................. 3 UK REFINED PRODUCT DEMAND: TRENDS AND OUTLOOK ................................................ 3 UK REFINING CAPACITY AND PRODUCT TRADE FLOWS..................................................... 4 EUROPEAN REFINED PRODUCT DEMAND ............................................................................ 6 GLOBAL REFINED PRODUCT DEMAND.................................................................................. 7 CHANGING UK REFINERY OWNERSHIP PROFILE................................................................. 8 IMPLICATIONS FOR SECURITY OF SUPPLY .................................................................10 UK REFINERY COMPETITIVENESS .......................................................................................11 UK REFINING AND PRODUCT SUPPLY: GOVERNMENT POLICY .........................................11 POLICY AREAS THAT HAVE DIRECT INFLUENCE ON UK REFINERIES .......................12 RELATED POLICY AREAS ..............................................................................................13 III. UNITED KINGDOM REFINED PRODUCT DEMAND, SUPPLY AND TRADE BALANCE................21 ECONOMY...............................................................................................................................21 REFINED PRODUCT DEMAND ...............................................................................................21 GASOLINE.......................................................................................................................23 KEROSENE/JET FUEL ....................................................................................................24 GASOIL/DIESEL ..............................................................................................................25 HEAVY FUEL OIL ............................................................................................................26 REFINING INDUSTRY .............................................................................................................27 REFINED PRODUCT TRADE FLOWS .....................................................................................28 HISTORICAL BALANCES ................................................................................................28 FUTURE TRADE FLOWS.................................................................................................31 IV. EUROPEAN REFINED PRODUCT SUPPLY DEMAND AND TRADE BALANCE............................39 PRINCIPAL DEMAND TRENDS ...............................................................................................40 AUTOMOTIVE FUEL DEMAND ........................................................................................41 PRODUCT DEMAND ...............................................................................................................45 GASOLINE.......................................................................................................................46 JET/KEROSENE ..............................................................................................................46 GASOIL/DIESEL ..............................................................................................................47 HEAVY FUEL OIL ............................................................................................................48 REFINED PRODUCT TRADE FLOWS .....................................................................................49 EUROPEAN SUMMARY...................................................................................................49 NORTHERN EUROPEAN PRODUCT BALANCES AND TRADE FLOWS..........................50 JET/KEROSENE ..............................................................................................................51 GASOIL/DIESEL ..............................................................................................................52 HEAVY FUEL OIL ............................................................................................................54 ii -- Table of Contents DECC V. GLOBAL REFINED PRODUCT DEMAND AND TRADE BALANCES .............................................65 REFINED PRODUCT DEMAND ...............................................................................................65 REFINED PRODUCT DEMAND, BY REGION ..................................................................66 REFINED PRODUCT DEMAND, BY PRODUCT ...............................................................68 REGIONAL REFINED PRODUCT TRADE................................................................................70 GASOLINE TRADE PATTERNS.......................................................................................71 JET/KEROSENE TRADE PATTERNS ..............................................................................72 GASOIL/DIESEL TRADE PATTERNS ..............................................................................72 HEAVY FUEL OIL TRADE PATTERNS ............................................................................73 VI. GLOBAL REFINERY CAPACITY ANALYSIS.................................................................................91 WORLD REFINERY CAPACITY REQUIREMENTS ..................................................................91 WORLD REFINERY COMPLEXITY..........................................................................................92 NEW REFINERY PROJECTS ..................................................................................................94 ANALYSIS OF REGIONAL REFINERY PROJECT ADDITIONS ...............................................95 NORTH AMERICA ...........................................................................................................96 LATIN AMERICA..............................................................................................................96 MIDDLE EAST .................................................................................................................97 AFRICA............................................................................................................................98 COMMONWEALTH OF INDEPENDENT STATES (CIS) ...................................................98 CHINA..............................................................................................................................99 INDIAN SUBCONTINENT ..............................................................................................100 JAPAN ...........................................................................................................................100 OTHER ASIA INCLUDING OCEANIA .............................................................................101 NORTH EUROPE...........................................................................................................102 CENTRAL EUROPE.......................................................................................................102 SOUTH EUROPE...........................................................................................................103 UK..................................................................................................................................104 CONCLUSIONS.....................................................................................................................104 VII. IDENTIFICATION OF KEY DRIVERS THAT IMPACT REFINERY COMPETITIVENESS ..............133 REFINERY SPECIFIC FACTORS ..........................................................................................133 REFINERY CONFIGURATION .......................................................................................133