Western States Petroleum Association
Energy Horizons
Petroleum 401
Joe Sparano
Western States Petroleum Association
December 9-10, 2009
Western States Petroleum Association
From wellhead to pump – a complicated business
Explore
Produce
Natural Gas
Wellhead
Transport
Refine/Process
Natural Gas
Processing Plant
Natural Gas
Pipeline
Distribute
Market
Homes and
Businesses
Natural Gas
Pipeline
Truck
Oil
Pipeline
Refinery
Underground Oil
Onshore Oil &
Natural Gas
Production
Distribution
Terminal
Storage
Tanks
Cogeneration
Product Pipeline
Cogeneration
2
Imports
Offshore Oil &
Natural Gas
Production
Gasoline,
Diesel, Jet
Fuel
Western States Petroleum Association
Simplified refinery process
3
Source: U.S. Energy Information Administration
Western States Petroleum Association
Capital cost of refinery construction

Current cost for refinery construction – approximately $25,000
per barrel/day of capacity
 Proposed 163,000 bbl/day refinery in Arizona - $4 billion
 Proposed 400,000 bbl/day refinery in South Dakota - $10
billion
4
Source: Arizona Clean Fuels Yuma website; Hyperion Energy Center website
Western States Petroleum Association
The costs in a gallon of gasoline
What we pay for in a gallon of gasoline
Taxes 16%
Distribution & Marketing 9%
Refining 6%
Crude Oil 69%
5
Source: U.S. Energy Information Administration
Based on U.S. average price for regular gasoline
October 2009
Western States Petroleum Association
Taxes are a factor in gasoline prices
Gasoline taxes
70
65.8
62.8
55.9
60
51.5
47.3
Cents per gallon
50
43.4
37.4
40
30
20
10
Ar
izo
na
O
re
go
n
Ha
wa
ii
Ne
va
da
to
n
Source: API, October 2009
Na
tio
na
lA
ve
ra
ge
6
W
as
hi
ng
Ca
lifo
rn
ia
0
Western States Petroleum Association
Products manufactured from a barrel of California oil
Source: California Energy Commission,
Fuels Office, PIIRA database, based on
2004 data.
7
Western States Petroleum Association
Western US refining capacity
West Coast refining system includes nearly 2.6 million B/D of capacity
distributed across three regions connected by waterborne trade…
8
Source: Purvin & Gertz, West Coast Region Discussion Document, May 2006
Western States Petroleum Association
Western Canada refining – Burnaby Bay refinery
9

Approx. 55,000 B/D fuels refinery
near Vancouver

Processes oil from northern British
Columbia and Alberta delivered via a
1,200 - kilometer pipeline

Crude and synthetic oils, condensate
and butanes refined into 50,000 to
55,000 barrels of gasoline, diesel, jet
fuel, asphalt, heating fuel, heavy fuel
oil, butane and propane every day
Source: Chevron Corporation website
Western States Petroleum Association
Refinery capacity – California issues may migrate
10

CEC forecasts no significant expansion of state refining capacity

Economic upheaval and permitting barriers cited as factors in
delays of 2 major expansion projects
Source: California Energy Commission Transportation Energy Forecasts and Analysis for the 2009
Integrated Energy Policy Report, August 2009
Western States Petroleum Association
Refinery capacity forecast – West Coast
11

Regulatory uncertainty, permitting
delays and NIMBY issues have
contributed strongly to minimal
investment in infrastructure and
refinery capacity growth

Minimal West Coast refinery
capacity growth anticipated between
2007 and 2020

EIA AEO forecast shows PADD 5
refinery capacity increases ~25,000
B/D in 2020
Source: ICF International; Outlook for PADD 5 Supply, Demand and Infrastructure Based on 2009 EIA Annual
Energy Outlook, April 2009
Western States Petroleum Association
PADD 5 motor gasoline forecast supply & demand
(TBD)
2007
Supply
Refinery Production
Imports
Net PADD Transfers
Ethanol / Biodiesel
2012
1,314
Non-PADD 5 Supply
Demand
Consumption
Exports
Total Demand
2020
1,353
1,373
94
59
(94)
143
112
35
79
160
200
121
0.2
5
5
1,630
1,625
1,612
19%
15%
13%
1,626
1,621
1,609
4
4
4
1,630
1,625
1,612
Liquids from Biomass
Total Supply
Change
2007-2020
(108)
(18)
(17)
0
(18)
Motor gasoline volumes include motor gasoline blending components. Imports modified
slightly in 2007 to eliminate inventory build or draw
12
Source: ICF International; Outlook for PADD 5 Supply, Demand and Infrastructure Based on 2009 EIA Annual
Energy Outlook, April 2009
Western States Petroleum Association
Infrastructure and transportation fuel supply
13

Demand for transportation fuels has been outpacing supply;
recent reductions in product consumption

Crude oil imports increasing with lower California and Alaska
production

California petroleum infrastructure at capacity (CEC)

Future energy needs will be addressed through imports

California already dependent on waterborne deliveries;
marine infrastructure is a critical chokepoint

Port congestion, minimal additions to terminal storage and
pipeline infrastructure have become increasing constraints
at higher demands and as ethanol has been integrated in
the supply chain (ICF)
Western States Petroleum Association
Marine deliveries of foreign crude increasing
2003
2007
2008 (Nov)
600
511.4
530.9
Volume Imported (TBD)
500
400
386.4
358.9
348.3
292.5
300
218.5 223.4
200
148.3
100
0
Greater Los Angeles
14
San Francisco Bay Area
Puget Sound
Note: volumes do not include ANS marine deliveries to West Coast. In 2007 all ANS production was shipped to the U.S. West
Coast except for volumes to meet Alaska finished product demand (estimated at about 120 TBD). ICF estimates about 600
TBD ANS supply in 2007 to California and Washington ports.
Source: ICF International, EIA AEO 2009
Western States Petroleum Association
Increased renewable & alternative fuels (ethanol)
requires major investments in new infrastructure
PADD 5 Ethanol Demand/Requirements
250000
Total ethanol
demand/RFS
requirements
Barrels per day
Barrels per Day
200000
Maximum expected
PADD 5 ethanol
production - 2010
150000
100000
50000
0
2007
15
Source: ICF International, EIA AEO 2009
2012
2020
Western States Petroleum Association
More supply/demand and infrastructure issues

The narrowing “gap” between demand for products and refinery
input, and product quality transitions, have put more stress on
the supply/demand infrastructure

Demand increases of over 500,000 B/D (23%) occurred from
1995 to 2007 with virtually no change in PADD 5 infrastructure
(terminal storage, pipelines, marine) and minimal refinery
capacity growth

Higher prices and the recession have reduced total demand in
2008 by about 140,000 B/D clean products (5%)

Renewable and alternative fuels infrastructure inadequate to
meet future expectations for growth
16
Source: ICF International, EIA AEO 2009
Western States Petroleum Association
California crude oil production
Low Decline
High Decline
Historical Production
Crude Oil Production (TBD)
1,200
1,000
Low Production Decline Scenario
-2.20% per year
1991-2008 Average Rate of Decline
800
600
400
High Production Decline Scenario
-3.03% per year
2003-2008 Average Rate of Decline
200
17
Source: ICF International; Outlook for PADD 5 Supply, Demand and Infrastructure Based on 2009 EIA Annual
Energy Outlook, April 2009
*2008 data through September 2008
2030
2028
2026
2024
2022
2020
2018
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
0
Western States Petroleum Association
Alaska crude oil production
Historical Production
AEO 2009
Crude Oil Production (TBD)
2,250
2,000
1,750
1,500
1,250
1,000
750
500
250
18
Source: ICF International; Outlook for PADD 5 Supply, Demand and Infrastructure Based on 2009 EIA Annual
Energy Outlook, April 2009
2030
2028
2026
2024
2022
2020
2018
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
0
Western States Petroleum Association
West Coast crude oil import supplies
PADD 5 Production
Refinery Crude Input
3,000
Volume (TBD)
2,500
2,000
Imports
1,500
1,000
500
19
Source: ICF International; Outlook for PADD 5 Supply, Demand and Infrastructure Based on 2009 EIA Annual
Energy Outlook, April 2009
2029
2027
2025
2023
2021
2019
2017
2015
2013
2011
2009
2007
0
Western States Petroleum Association
Where the West Coast gets its foreign oil
West Coast Foreign Imports 2008
Saudi Arabia
21%
Other
24%
Korea
2%
Colombia
4%
Iraq
15%
Angola
4%
Brazil
5%
20
Source: Energy Information Administration
Canada
12%
Ecuador
13%
Western States Petroleum Association
Canada’s energy reserves
21
Source: Government of Alberta, Oil & Gas Journal
Western States Petroleum Association
Importance of Canadian petroleum supply
22
Source: Government of Alberta, Canada
Western States Petroleum Association
West Coast petroleum product distribution
23
Source: Purvin & Gertz, West Coast Region Discussion Document, May 2006
Western States Petroleum Association
Crude oil, product imports into West Coast
500,000
450,000
Thousand Barrels
400,000
350,000
300,000
Crude oil
250,000
200,000
150,000
100,000
50,000
Source: Energy Information Administration
20
05
20
07
20
01
20
03
19
93
19
95
19
89
19
91
19
85
19
87
19
81
19
83
24
19
97
19
99
Refined Products
0
Western States Petroleum Association
West Coast demand forecast
1,800
Thousand Barrels Per Day
1,600
1,400
1,200
2007
1,000
2012
800
2020
600
400
200
0
Gasoline
25
Distillate
Jet Fuel
Source: ICF International; Outlook for PADD 5 Supply, Demand and Infrastructure Based on 2009 EIA Annual
Energy Outlook, April 2009
Western States Petroleum Association
CEC transportation fuels forecast 2007 - 2030
60.0%
51.2%
50.0%
40.0%
30.0%
22.5%
20.0%
10.0%
7.0%
Gasoline
0.0%
1
2
Diesel
Jet 3Fuel
Crude
4 Oil
-10.0%
-20.0%
-30.0%
-40.0%
26
-33.6%
Source: California Energy Commission Transportation Energy Forecasts and Analysis for the 2009
Integrated Energy Policy Report, August 2009; Low-demand forecast
Western States Petroleum Association
Caltrans forecasts 2008 - 2030 – a contradiction?
70%
Percent Change
60%
60%
55%
50%
43%
40%
30%
20%
10%
3%
0%
27
Gasoline & diesel
consumption (billions
of gallons)
Vehicle miles
traveled (billions of
miles)
Number of registered Fuel economy (miles
vechiles (millions)
per gallon)
Western States Petroleum Association
The West Coast is an energy island
28
Source: California Energy Commission
Western States Petroleum Association
Petroleum product distribution
Increasing number of international refineries produce finished
products meeting California’s strict fuel specifications
29
Source: Purvin & Gertz, West Coast Region Discussion Document, May 2006
Western States Petroleum Association
West Coast crude oil, gasoline, diesel prices
600
$6.00
500
$5.00
400
$4.00
Crude Oil
Gasoline
300
$3.00
Diesel
$2.00
200
100
$1.00
7/7/2009
1/7/2009
7/7/2008
1/7/2008
7/7/2007
1/7/2007
7/7/2006
1/7/2006
7/7/2005
1/7/2005
7/7/2004
1/7/2004
7/7/2003
Source: Energy Information Administration
1/7/2003
7/7/2002
1/7/2002
7/7/2001
1/7/2001
7/7/2000
30
1/7/2000
0
Western States Petroleum Association
Selected West Coast gasoline prices
$5.00
$4.50
$4.00
$3.50
West Coast
(PADD5)
California
$3.00
$2.50
Los Angeles
$2.00
San Francisco
$1.50
Seattle
$1.00
$0.50
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Oct-07
Jul-07
Apr-07
Jan-07
Oct-06
Jul-06
Apr-06
Jan-06
Oct-05
Jul-05
Apr-05
Jan-05
Oct-04
Jul-04
Apr-04
Jan-04
$0.00
31
Source: Energy Information Administration; All Grades All Formulations Retail Gasoline Prices (Cents per Gallon)
Western States Petroleum Association
West Coast gasoline Oct-2009
prices - October 2009
$3.15
$3.10
$3.05
$3.00
$2.95
$2.90
$2.85
$2.80
$2.75
$2.70
$2.65
West Coast
(PADD5)
California
Los Angeles
San Francisco
32
Source: Energy Information Administration; Monthly Average; All Grades All Formulations Retail Gasoline Prices
Seattle
Western States Petroleum Association
Major factors that impact product prices

Global and regional crude oil costs

Regional and local supply/demand issues

Inventories

Refinery/infrastructure capacity, operations and outages

Other marketplace factors/issues

Taxes
33
Source: Energy Information Administration
Western States Petroleum Association
34