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12th Annual Energy Caribbean Conference
Analysing the Downstream Market: The Disappearance of Caribbean Refineries
Mado Bachan
Vice President, Refining and Marketing
Petrotrin
03rd October 2012
“Creating a Culture of Transparency:
Revenue Reporting 2014”
2014 June 5 - 6
Mado BachanVice President, Refining and Marketing
1
AGENDA
2
Overview of Petrotrin’s Refining and Marketing
Operations
Current Trends in the Global Refining Industry
Petroleum Subsidies from the Refiner’s Perspective
Overview of Petrotrin’s Refining and Marketing
Operations
3
The Pointe-a-Pierre Refinery • 168,000 barrels per day (BPD) full conversion capability
• Capable of processing a variety of crude oils
Refinery processes a mix of crude oils with an average API gravity of about28°
Utilizes locally produced and imported crude oil
• Main refined petroleum products include:
LPG
Motor Gasoline
Jet Fuel
Diesel
Fuel Oil
FY2012/2013 Crude Oil Supply
Foreign Purchases54.9%
3rd Party Processing
0.7%
Internal Production
39.9%
Other Local Producers
4.5%
West Africa37%
Russia23%
Colombia40%
6
Sales & Marketing• Products enter five (5) market channels:
Local
Regional
Extra‐Regional
International
Bunkers (fuel oil and gasoil)
• Sole provider of refined products in Trinidad and Tobago (except lube oils)
• Continued long‐standing relationships in the other markets with state oilcompanies, the majors, and oil trading companies
66
Typical Product Sales
Regional 23%
Local 17%
Extra Reg.24%
Int'l32%
Bunkers4%
LPG7%
Mogas44%
Bitumen2%
Kero10%
Diesel37%
Subsidized Volumes of Gasoline and Diesel
-
5,000
10,000
15,000
20,000
25,000
FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013
barr
els
per
day
Premium Gasoline Super Gasoline Diesel
Illegal diesel bunkering activities discovered in 2011 September
Source: Ministry of Energy and Energy Affairs
Premium Gasoline price increase from TT$3.00/litre to TT$4.00/litre in September 2008
Premium Gasoline price increase from TT$4.00/litre to TT$5.75/litre
in October 2012
Current Trends in the Global Refining Industry
9
10
• Worldwide oversupply of refining capacity; placing a cap on refining margin
Pressure on Global Refining Margins
17
18
19
20
21
22
23
24
70
75
80
85
90
95
100
105
2010 2011 2012 2013 2014 2015
MM
BPD
MM
BPD
Global Crude Throughput Global Refinery Capacity Global Spare Capacity (RHS scale)
11
Pressure on Global Refining Margins • Shale oil and gas revolution in the
US
Significant increases in US oilproduction
Prohibition on oil exports leading toregional oversupply and discountedcrude in the US
Relatively cheap natural gas forrefinery fuel and hydrogenproduction
US refiners have a significant costadvantage – ramped up utilisationrates transforming US from a netimporter to net exporter of refinedproducts at very competitive pricing
Net effect is a reduction in refiningmargins not only for Petrotrin butmost non‐US refiners.
-
5
10
15
20
25
30
2010 2011 2012 2013 2014 2015
US
$/b
bl
Chicago WTI USG LLS Singapore Dubai NWE Brent
1.7
1.9
2.1
2.3
2.5
2.7
2.9
3.1
3.3
2008 2009 2010 2011 2012 2013
MM
BPD
US Product Imports US Product Exports
Petroleum Subsidies from
the Refiner’s
Perspective
12
Petroleum Subsidy
Where:
• The Reference Price is the sum of the following:The Ex Refinery Price is set by the Ministry of Energy and EnergyAffairs, and tracks International PricesExcise DutyFilling and Handling Cost.Wholesaler Margin.
• The Regulated Price is the price (excluding VAT), which theWholesalermust sell to the Retailer.
Subsidy = Reference Price – Regulated Price
Subsidy for Premium Gasoline (95 RON), Super Gasoline (92 RON) and Diesel
0
50
100
150
200
250
300
350
400
450
500
550
600
Premium 95 RON Super 92 RON Diesel
TT
cen
ts/li
tre
Regulated Price Subsidy Pump Price
Fiscal Year 2013
Subsidy varies with international oil prices and local demand
0.00
20.00
40.00
60.00
80.00
100.00
120.00
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
FY2008 FY2009 FY2010 FY2011 FY2012 FY2013
US$
/bbl
TT
$MM
TOTAL SUBSIDY Dated Brent
• The LPG subsidy is absorbed by:1) Government 2) Petrotrin
• By Regulation, the following elements are fixed by the Government:
Petrotrin sells LPG to the Wholesaler at Ex Refinery price of TT cents 30.75 / lb
The Wholesaler Margin is fixed at TT cents 31.00 / lb
The Wholesaler sells to the Filling Plant at TT cents 6.304 / lb
• Government Subsidy = (30.75 + 31.00) – 6.304= TT cents 55.45 / lb
LPG Subsidy
Petrotrin’s Contribution to the LPG Subsidy
Petrotrin’s Contribution
Contributors to the LPG Subsidy
• Approximate domestic demand for LPG = 2,000 bpd
• Government = TT$77.9 Million/year
• Petrotrin = TT$205.8 Million/year
Subsidized price versus International market price for LPG cylinder
• Fixed Consumer Price for LPG = TT$ 1.05 / lb
• Subsidized price that Consumer pays for 20 lb LPG cylinder = TT$ 21.00
• International Market Price for LPG = TT$ 1.77 / lb
• Market price that Consumer would have had to pay for 20 lb LPG cylinder = TT$ 35.45
20
Refining taxation higher than others
0
10
20
30
40
50
60
Petrotrin ALNG P/Lisas NPMC
Tax
Rat
e, %
Tax Rate Unemployment Levy
21
• Petrotrin supplies LPG to the local market at lower than market prices,
foregoing ~ TT$200 Million annually
• Wholesalers unable to fulfill their contractual payment obligation to Refiner:
Receipt of subsidy by Wholesaler from Government lags sale of products
• On the other hand, R&M business:
pays market value for its feedstock, including purchases from its Upstream business
– higher cash outlay at higher prices
must fulfill payments for feedstock since they are governed by strict commercial
terms
• Market fundamentals project weak refining margins for non‐US refiners
Petroleum subsidies negatively impact Petrotrin’s cash flow position
Thank You
22