ASPHALT SUPPLY IN A VOLATILE OIL WORLD

ASPHALT SUPPLY IN A VOLATILE OIL WORLD

Bill HaverlandBill HaverlandConocoPhillips CompanyConocoPhillips Company

Issues to be Discussed

Crude Oil SupplyCrude Oil Supply Crude Oil PricingCrude Oil Pricing Refining CapacityRefining Capacity Products SupplyProducts Supply Products PricingProducts Pricing Future of the IndustryFuture of the Industry

CRUDE OIL SUPPLY

A WORLD LOOKA WORLD LOOK

Crude Oil Supply (2006)World Crude Oil World Crude Oil

ProductionProductionMillions of Barrels Per DayMillions of Barrels Per Day

World Proven Crude Oil World Proven Crude Oil ReservesReserves

Billions of BarrelsBillions of Barrels

W. Europe

US/Canada

Asia/PacificAfrica

Middle East

FSU/E. Europe

Latin America

11.3

6.310.6

8.49.8

FSU/E. Europe

W. Europe15 Latin

America

US/Canada

Asia/Pacific

Africa

Middle East

743

201

11679

10236

Asia/Pacific

Africa

26.0

12.6

Middle EastTotal: 85MMB/D Total: 1,292 BB

Crude Oil Demand Demand has risen by 7 MMBD (9%) since 2002.Demand has risen by 7 MMBD (9%) since 2002. Demand at 85 MMBD or 98% of world daily delivery Demand at 85 MMBD or 98% of world daily delivery

capacity.capacity. Vulnerable to supply disruptions caused by storms, Vulnerable to supply disruptions caused by storms,

accidents, breakdowns, political unrest.accidents, breakdowns, political unrest. 65% of proven reserves within national oil companies 65% of proven reserves within national oil companies

and 16% held by Russia.and 16% held by Russia. Traditional companies have full access to 7% of Traditional companies have full access to 7% of

reserves and 12% through partners (if allowed).reserves and 12% through partners (if allowed).

CRUDE OIL PRICING

WTI Price by Year

0

10

20

30

40

50

60

70

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007YTD

WTI Price by Quarter

01020304050607080

Current Crude Pricing

REFINING CAPACITY

Topping RefineryTopping Refinery

DUCRUDE OIL

GASES NAPHTHA AND

6OIL or ASPHALT(if heavy crude)

GASOIL FEEDSTOCKS

650-

650+

“Tea Pot”Not A RefineryReally Just A

CrudeDistiller

Simple RefinerySimple Refinery

650- CRUNHT

KHT

DHT

GASES TO MOGAS

JET/KERO

6OIL or ASPHALT(if heavy crude)

TO NO.2

DUCRUDE OIL

650+

“Hydroskimming” Refinery,many exist all over the

world

CCU - “Complex” RefineryCCU - “Complex” Refinery

CRUNHT

KHT

DHT

ALKY

CCU

DUCRUDE

OIL

GASES

VAC

GASES650-1050

TO MOGAS

TO MOGAS

JET/KERO

TO 2OIL

TO MOGASTO MOGAS

TO 2OIL

650-

650+

6OIL

ASPHALT

GASOLINEGASOIL

1050+

CCU/HCU/Coker - CCU/HCU/Coker - “Very Complex” Refinery“Very Complex” RefineryISOM

CRUNHT

KHT

DHT

HCU

ALKY

CCU

DU

GASES

CRUDE OIL

GASES

VAC

GASES

650-750

750-1050

COKER

GASES

COKE

H2 PLANT

TCU/VIS

DEASPHALTER

TO MOGASTO MOGASJET/KERO

TO MOGASTO MOGASTO MOGAS

TO 2OIL

MTBE

Refinery Yield (% of Crude Intake)

0%10%20%30%40%50%60%70%80%90%

100%110%120%

TOPPINGRFY

SIMPLERFY

CCU RFY COKERRFY

OTHERMOGASJETLT NAPHHVY NAPHGAS OILNO.2NO6 or AsphaltCOKE

U. S. Refining Capacity

14

14.5

15

15.5

16

16.5

17

17.5

18

18.5

1980 1995 2000 2006

more than 30less than 30Crude Dist Cap

Last New U. S. Refinery Built in 1976Source: Oil & Gas Journal

319

175 158 131

U. S. Asphalt Refining Capacity

72

98

60

42

1980 1995 2000 2006400

450

500

550

600

650

700

750

800

# RefineriesAsphalt Capacity

Production Range: 600 B/D to 60,000 B/DSource: Oil & Gas Journal

U. S. Refining Coking Capacity

50

585681

120138

46

48

50

52

54

56

58

60

1995 2000 20060

20

40

60

80

100

120

140# Refineries w/CokersCoke Production, MT/D

U.S. Coker Construction Projects 2005 - 2011 Planning, Engineering, or Construction Planning, Engineering, or Construction

PhasePhase Total Refineries: 360 MB per dayTotal Refineries: 360 MB per day Asphalt Refineries: 197 MB per dayAsphalt Refineries: 197 MB per day

* * Source: Argus Asphalt ReportSource: Argus Asphalt Report

PRODUCTS SUPPLY/DEMAND

Supply Source for U. S. Demand

02468

101214161820

'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06

MM

B/D

Domestic Crude Production Imported Crude Imported Products

U. S. Product Demand, MB/D

0100020003000400050006000700080009000

10000

Gasoline Diesel Jet Resid Asphalt

1995200020042005

Historical Asphalt Supply/DemandMillions Tons - Liquid

0

10

20

30

40

50

60

1980 1995 2000 2003 2005 2006

SupplyDemand

Source: Oil & Gas Journal

PRODUCTS PRICING

Prices by Quarter

2030405060708090

100110

WTIGasoline

Gasoline Price Components

Prices by Quarter

0102030405060708090

100WTIGasolineAsphalt

Asphalt vs Coker Feed Value

0102030405060708090

Jan-

02

May

-02

Sep-

02

Jan-

03

May

-03

Sep-

03

Jan-

04

May

-04

Sep-

04

Jan-

05

May

-05

Sep-

05

Jan-

06

May

-06

Sep-

06

Jan-

07

May

-07

WTIP&P MC Avggulf coast coker value

Current Coking Economics

Gasoline/Diesel PricingGasoline/Diesel Pricing

Aug., 07 Price: $95.00/BBLAug., 07 Price: $95.00/BBL Less Distribution: 6.00/BBLLess Distribution: 6.00/BBL

Net to Refinery: $89.00/BBLNet to Refinery: $89.00/BBL

Kansas City Asphalt PricingKansas City Asphalt Pricing

Aug 07:Aug 07: $54.50/BBL* $54.50/BBL* ($40/Ton): $7.15/BBL($40/Ton): $7.15/BBL

$47.35/BBL$47.35/BBL

Lost Value: Lost Value: $41.65/BBL$41.65/BBL

** Source – Poten & PartnersSource – Poten & Partners

Current Coking Economics

30,000 BBLS/Day Asphalt Production30,000 BBLS/Day Asphalt Production X 70%X 70% Gasoil Production Gasoil Production

21,000 BBLS Gasoil for Gasoline/Diesel21,000 BBLS Gasoil for Gasoline/Diesel X $41.65X $41.65/BBL Gasoline/Diesel diff. To Asphalt/BBL Gasoline/Diesel diff. To Asphalt

$874,650 per day added margin$874,650 per day added margin

$1 Billion / $874,650 = 1,143 days (3.1 years payoff) $1 Billion / $874,650 = 1,143 days (3.1 years payoff)

FUTURE OF THE INDUSTRY

Current Realities Crude production at maximum rates based on existing Crude production at maximum rates based on existing

infrastructureinfrastructure U.S. refining running at maximum capacity (less U.S. refining running at maximum capacity (less

turnaround activity)turnaround activity) No new refineries in the near termNo new refineries in the near term Existing refinery expansions must fill gapExisting refinery expansions must fill gap Increase crude capacity and conversion capabilities to meet Increase crude capacity and conversion capabilities to meet

light product demandlight product demand Asphalt must keep pace with conversion feed values to Asphalt must keep pace with conversion feed values to

encourage productionencourage production

Factors Influencing Asphalt Price Absolute price of crude (WTI benchmark)Absolute price of crude (WTI benchmark) Light/Heavy crude price differentialLight/Heavy crude price differential Light product “crack spread”Light product “crack spread” Coking economicsCoking economics Impact of clean fuels (sweet crudes)Impact of clean fuels (sweet crudes) Heavy crude availability (Venezuela/Canadian)Heavy crude availability (Venezuela/Canadian) Transportation costsTransportation costs Supply/DemandSupply/Demand

Future For Asphalt More heavy crude being run (availability and price)More heavy crude being run (availability and price) Clean fuels capital behind refiners, up-graders next?Clean fuels capital behind refiners, up-graders next? Asphalt is more expensive in a $70.00 crude worldAsphalt is more expensive in a $70.00 crude world Asphalt has to trend faster with crude oil pricesAsphalt has to trend faster with crude oil prices Asphalt has to be more competitive with light productsAsphalt has to be more competitive with light products Transportation costs rising – Rail, Barge, TerminallingTransportation costs rising – Rail, Barge, Terminalling State asphalt price indexes reduce supplier/contractor risk State asphalt price indexes reduce supplier/contractor risk

QUESTIONS