uk tank storage conference, coventry imo 2020 and the long ... · uk tank storage conference 26...

Confidential. © 2019 IHS MarkitTM. All Rights Reserved.

Presentation

IMO 2020 and the Long Term Outlook for Bulk Liquid Storage in

Europe26 September 2019

Giacomo Boati, Executive Director – Oil Markets, Midstream, Downstream and Chemicals (OMDC),

+33 (0) 1 4770 9257, [email protected]

IHS Energy and Natural Resources

UK Tank Storage Conference, Coventry

mailto:[email protected]


Contents

UK Tank Storage Conference

2

• Introduction to IHS Markit

• SHORT TERM - Main Upcoming Air Quality Change Initiative

• Introduction to IMO 2020 Specifications

• LONG TERM - Decarbonization Initiatives for Transportation Fuels

• Alternative Vehicle Power Trains

• Consequential Outlook for Global and European Demand and Trade


Introduction to IHS Markit



4

Resources

Financial

Consolidated

Markets & Solutions

Transportation

OPERATIONAL RISK

& REGULATORY

COMPLIANCE

DIGITAL & WEB

SOLUTIONS

MARITIME

& TRADE

AEROSPACE,

DEFENSE &

SECURITY

AUTOMOTIVEENGINEERING &

PRODUCT DESIGN

ECONOMICS &

COUNTRY RISKENERGY

CHEMICALFINANCIAL

MARKETS DATA

& SERVICES

TECHNOLOGY,

MEDIA &

TELECOM

Addressing strategic

challenges with

interconnected

capabilities


Contents

tikraM SHI ot noitcudortnI


IHS Markit: Oil, Midstream, Downstream and Chemicals – Consulting

Coverage of service offering

Market Assessment & Strategies

• Market-specific analysis and strategy development, including new market entry or exit

• Policies and regulations and their impact

Analytical Models

• Forecasting models for long-term planning support

• Custom model development

Strategies & Scenario Planning

• Integrated scenario development

• Planning support and forecasting

• Strategy and investment review

• Downstream asset portfolio optimization

• Supply integration and network optimization

Transaction Support– sellers and buyers

• Mergers & acquisitions support for market intelligence, commercial and technical support and due diligence

• Target asset screening, selection and valuation

• Post-acquisition improvement and integration support

Competitive Benchmarking

• Financial performance benchmarking by sector

• Assessment of root-causes for good andpoor performance

• Forecast of earnings in future market environment

Refining Economics & Crude Valuation

• Refining economics assessment

• LP analysis, feasibility and optimization studies

• Crude valuation and commercialization

• Quality bank design and administration

Litigation Support

• Arbitration support and expert testimony

• Technical and commercial mediation

• Commercial contract review

Retail Assessment

• Network and margin assessment for site optimization

• Benchmarking and competitive assessment

5


Main Upcoming Air Quality Change Initiative-

Introduction to IMO 2020 Specifications

Analysis from a company-wide study into the heavy fuel oil market. Just completed a new multi-client study entitled:

Navigating Choppy Waters: Marine Bunker Fuel in a Low Sulfur, Low Carbon World

See: https://ihsmarkit.com/research-analysis/imo-2020-bunker-specification-change.html


Four

pathways

Switch to

compliant

low-sulphur

bunker fuel

(largest

pathway in

2020)

Install exhaust gas

cleaning systems,

aka scrubbers

(smaller pathway in 2020 but

expected to grow rapidly

after)

Switch to

liquefied

natural gas

(minor impact

in transition)

Non-compliance,

sanctioned or

otherwise (not a true

pathway – but cause

of great uncertainty)

7


The IMO 2020 bunker specification change requires to adopt new fuel quality

rules resulting in major disruption to the “bottom” of oil barrels


0

10000

20000

30000

40000

50000

60000

70000

2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

HSFO non-gasoil 0.50% bunkers Gasoil Lubricants Natural Gas

Bunker fuel demand structure by fuel type - Europe

Source: IHS Markit © 2019 IHS Markit

tho

usan

d t

on

nes

Beyond 2020, a strong adoption of scrubbers and acceptance of new 0.50%S

fuels is expected to reverse the HFO demand decrease

8

• A: Global adoption of 2020 IMO standards: Gasoil market share increases

from 32% in 2019 to 53% in 2020 (+10.9 MMt).

• B: Initial adoption of scrubbers, Hybrid fuel penetration, Blending into 0.50%S

bunker fuel, Sanctioned or Unsanctioned Non-compliance.

• C: Desulphurised residue to make 0.50%S bunkers, and more blending as

refiners/traders.”evitaerc“teg

• D: Higher uptake of scrubbers reduces gas/diesel oil market share to 19% by

2030.

• As IMO 2020 hits, E: Gasoil and 0.5% Bunkers peak, whilst G: the price of

3.5% drops to a low.

• F: The market will readjust, with the price spread narrowing, settling around

2030.

A combination of a peak of demand and price expected in Diesel/Gasoil in 2020,

could provide a short-term opportunity for storage. Longer-term, Residual fuel

demand will steadily increase, passing the share of 78 percent seen in 2017-

2018 by 2023.

A

B

C

D

-40

-30

-20

-10

0

10

20

30

2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

0.5% Bunkers $/B 3.5% FO $/B 0.1%S Gasoil $/B

Price spreads (vs Dated Brent), 2014-2040


$ p

er

barr

el

E

F



Spreads and futures provide an indication that the market is moving in the expected

direction. Impact of the changes in the Saudi Arabia production still uncertain.

• HSFO crack spreads have been volatile but are increasingly going downwards

compared to LSFO crack spreads,

• Over the course of 3Q2019, European HSFO crack spread futures prices for

January 2020 have taken a notable downward shift, demonstrating increasing

pessimism.’0202OMI‘tsoptekramOFSHehttuoba

• This is in contrast to the trend for much of the past year, with the HSFO

futures spread for January 2020 having narrowed considerably from mid-2018

to mid-2018, as market participants became more confident about scrubber

uptake -25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

14/07/2019 24/07/2019 03/08/2019 13/08/2019 23/08/2019 02/09/2019 12/09/2019 22/09/2019

LS Fuel oil HSFO

NWE CIF crack spreads to crude and refinery margins

(Forties delivered-NWE basis)

Source: IHS Energy © 2018 IHS

Cra

ck

s $

/bb

l

9


-200-150-100-50

050

100150200250300

Jan

-15

Ma

r-15

May-1

5

Jul-1

5

Se

p-1

5

Nov-1

5

Jan

-16

Ma

r-16

Ma

y-1

6

Jul-1

6

Se

p-1

6

Nov-1

6

Jan

-17

Ma

r-17

Ma

y-1

7

Jul-1

7

Se

p-1

7

Nov-1

7

Jan

-18

Ma

r-18

Ma

y-1

8

Jul-1

8

Se

p-1

8

Nov-1

8

Jan

-19

Ma

r-19

Ma

y-1

9

Saudi Arabia fuel oil net imports


tho

usan

d b

/d

-30

-25

-20

-15

-10

-5

0

Aug-17 Nov-17 Mar-18 Jun-18 Sep-18 Dec-18 Apr-19 Jul-19

N-WE 3.50%S fuel oil crack spread futures - January 2020 contract

Source: IHS Markit from CME data © 2019 IHS

Do

llar

per

barr

el


Decarbonization Initiatives for Transportation Fuels

Analysis has arisen from an in-depth company-wide study into the future of light vehicle transportation as a whole. A

multi-client study entitled:

Reinventing the Wheel: The future of cars, oil, chemicals, and electric power

See: https://ihsmarkit.com/products/reinventing-wheel-multiclient-study.html

Recently enhanced with a new multi-client study entitled:

Reinventing the Truck: Understand the impact of new technologies and powertrain shifts on the

logistics, trucking and energy industries

See: https://ihsmarkit.com/products/reinventing-the-truck.html


Primary Forecast drivers – GDP, population, and vehicle growth

11

Compound annual growth rates (CAGR)GDP

Population

Light Duty Vehicles (general car fleet, <8,500 lbs GVWR)

Total Gasoline & Diesel Demand


-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

'00-'10 '10-'20 '20-'30 '30-'40 40-'50

North America


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

'00-'10 '10-'20 '20-'30 '30-'40 40-'50

Latin America


-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

'00-'10 '10-'20 '20-'30 '30-'40 40-'50

Europe


-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

'00-'10 '10-'20 '20-'30 '30-'40 40-'50

CIS


-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

'00-'10 '10-'20 '20-'30 '30-'40 40-'50

Middle East


-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

'00-'10 '10-'20 '20-'30 '30-'40 40-'50

China


0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

'00-'10 '10-'20 '20-'30 '30-'40 40-'50

Africa


-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

'00-'10 '10-'20 '20-'30 '30-'40 40-'50

Rest of Asia


China has grown dramatically

from low levels of car

ownership in the early 2000s

to become the world’s largest

car market

Note: This map is not to be used or cited as evidence in connection with any territorial claim. IHS Markit is impartial and

not an authority on international boundaries which might be subject to unresolved claims by multiple jurisdictions.


39%27%

18%

9%

3% 3% 3% 2%

-5%

LV

Tru

cks

Pe

tro

ch

em

ica

ls

Avia

tion

Re

sid

en

tial

Oth

er

tra

nsp

ort

atio

n

Oth

er

uses

Ag

ricultu

re

Ele

ctr

icity

Share in incremental global refined product demand growth, 2000–16

Source: IHS Markit

Note: Includes refined products, NGLs, biofuels and miscellaneous liquids, light vehicle (LV) demand

includes two-wheelers. Aviation is jet fuel only. Other uses include asphalt, lubricants, waxes, aviation

gasoline, petcoke, white spirits, and other miscellaneous products.

© 2019 IHS Markit

% o

f in

cre

me

nta

l d

em

an

d g

row

th

20

00

–16

98.5% of sales today

Traditional Mobility New Mobility

12

New mobility, electrification and automation are expected to drive change in

the cars and trucks segments - the largest drivers of demand growth


Confidential. © 2019 IHS MarkitTM. All Rights Reserved. 1313

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2020 2030 2040

Rivalry

Diesel Gasoline Natural gas Electricity Hydrogen Other

Energy demand from trucking – China, Europe, Japan, USA


Sh

are

of

en

erg

y d

em

an

d


Global LDV hybrid and electric vehicle share in the total fleet to approach

35%. Only limited impact is expected from electrification in trucks

0

500

1,000

1,500

2,000

2,500

2000 2005 2010 2015 2020 2025 2030 2035 2040

Gasoline LDV Diesel LDV Alt. LDV China Gasoline LDV

Global light duty vehicle fleet breakdown

Mil

lio

n V

eh

icle

s

China accounts for 22% of the

the global gasoline LDV fleet at

peak of 2024

Source: IHS Markit Mobility Energy Futures © 2019 IHS Markit


The oil industry is questioning how robust demand is in non-road

transportation sectors

14

1.0

1.5

2.0

2.5

3.0

3.5

2000 2005 2010 2015 2020 2025 2030 2035 2040

Oil sector demand drivers

Note: Year 2000 indexed to 1.0 and 2017 reindexed to 2017 to compare relative growth rates over the historical and forecast periods.


Gro

wth

In

de

x, 2

00

0 a

nd

20

17

= 1

.00


Light-duty miles traveled

Waterborne ton-miles

Aviation passenger seat miles

Commercial trucking ton-miles


Sustainable growth is a major challenge for aviation and shipping


0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2-Degree Scenario

Rivalry (Base Case) Scenario

Global CO2 emissions—Trucking

Note: CO2 = carbon dioxide.


2018 =

1

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2-Degree Scenario


Global CO2 emissions—Aviation


20

18

= 1

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2-Degree Scenario


Global CO2 emissions—Shipping


20

18

= 1

15


The energy demand mix

The fleets of the future

The demand for aviation and

shipping

Who will invest in infrastructure to supply fuels?

Which fuels will be the most cost- and carbon-efficient?

Which propulsion technologies will emerge as winners?

Will regulation become technology-forcing?

To what extent will societal change, technology, and

increased operational efficiency offset growth in demand

for aviation and shipping?

Reinventing the Aircraft and the Ship will examine regulatory, technological,

and societal factors impacting the future of aviation and shipping

16

Key questions Key outcomes



Outlook for Global and European Demand and Trade


Global Market Overview – We see ‘Peak Demand’ around 2035, but significant

differences between regions


18

0

20

40

60

80

100

120

2005 2010 2015 2020 2025 2030 2035 2040

Gasoil/diesel Naphtha Other Gasoline Jet/Kero Residual fuel oil

World refined product demand

Millio

n b

/d


-2,500

-1,500

-500

500

1,500

2,500

3,500

2005 2010 2015 2020 2025 2030 2035 2040

Asia Middle East Latin America Africa CIS Europe North America

World refined product demand growth by region

Th

ou

san

d b

/d



Medium-term demand outlook for road fuels is positive but will ultimately

peak


19

0

5

10

15

20

25

30

35

2005 2010 2015 2020 2025 2030 2035 2040


Global gasoline demand

Millio

n b

/d


0

5

10

15

20

25

30

35

2005 2010 2015 2020 2025 2030 2035 2040


Global gasoil/diesel demand

Millio

n b

/d



Asia and Middle East will dominate in terms of new refinery runs. Europe is

expected to experience the largest decline in refinery runs


20

0

10

20

30

40

50

60

70

80

90

100

2000 2005 2010 2015 2020 2025 2030 2035 2040

North America Latin America Africa China Rest of AsiaCIS Europe Middle East India

Crude and condensate runs by region

Millio

n b

/d


0

5

10

15

20

25

30

35

40

45

2000 2005 2010 2015 2020 2025 2030 2035 2040

Diesel Gasoline Other Products Jet/Kero Naphtha Fuel Oil

World refinery yields


Perc

en

t yie

ld o

n t

ota

l p

rod

ucti

on


Long-term outlook is for growing refined product imbalances

21


-5,000

-4,000

-3,000

-2,000

-1,000

0

1,000

2018 2020 2030 2040 2050

North America

Th

ou

san

d b

/d

© 2019 IHS MarkitSource: IHS Markit

-3,000

-2,500

-2,000

-1,500

-1,000

-500

0

500

1,000

2018 2020 2030 2040 2050

Europe

Th

ou

san

d

b/d


-3,500

-3,000

-2,500

-2,000

-1,500

-1,000

-500

0

500

1,000

2018 2020 2030 2040 2050

CIS

Th

ou

san

d b

/d


-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2018 2020 2030 2040 2050

Latin America

Th

ou

san

d b

/d


-5,500

-4,500

-3,500

-2,500

-1,500

-500

500

2018 2020 2030 2040 2050

Middle East

Th

ou

san

d b

/d


-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

2018 2020 2030 2040 2050

China

Th

ou

san

d b

/d


-1,000

0

1,000

2,000

3,000

4,000

5,000

2018 2020 2030 2040 2050

Africa

Th

ou

san

d b

/d


-3,500

-3,000

-2,500

-2,000

-1,500

-1,000

-500

0

500

1,000

2018 2020 2030 2040 2050

IndiaT

ho

usan

d b

/d© 2019 IHS MarkitIndia

Th

ou

san

d b

/d


0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2018 2020 2030 2040 2050

India

Th

ou

san

d b

/d

© 2019 IHS MarkitAsia ex-China & India

Th

ou

san

d b

/d


Notes: All rights reserved. Provided “as is”, without any warranty. The map is not to be reproduced or disseminated and is not to be used nor cited as evidence in connection with any territorial claim. IHS Markit is impartial and not an authority on international boundaries, which might be subject to unresolved claims by multiple

jurisdictions. © 2019 IHS Markit


European Market Overview - Demand is forecast to remain virtually constant

until early 2020’s before gradually declining – mainly diesel and gasoline


22

0

100

200

300

400

500

600

700

800

2000 2005 2010 2015 2020 2025 2030 2035 2040

Fuel Oil Diesel/Gasoil Jet/Kero Gasoline Naphtha LPG Other

Europe refined product demand outlook


mil

lio

n t

on

ne

s p

er

an

nu

m

Notes: Other products includes bitumen, lubricants, waxes, white spirits, petcoke and other grades.

0

100

200

300

400

500

2000 2005 2010 2015 2020 2025 2030 2035 2040

Gasoline Diesel

Hybrid electric vehicle Plug-in hybrid electric vehicle

Battery electric vehicle Hydrogen fuel cell electric vehicle

Natural Gas Liquefied propane gas vehicle

Europe light duty vehicle (LDV) outlook

Mil

lio

n V

eh

icle

s

2007-2017 CAGR: 1.5% 2017-2040 CAGR: 0.1%



Pressure from imports and reduced demand will weigh on the European

industry

• Refineries are expected to run hard during

the 2020-2021 period in order to meet

temporarily increased demand for gasoils,

as refiners grapple with IMO specification

change.

• In the longer term pressure on refiners will

be maintained as Asia, Middle East and

Russia continue to target Europe

• Refiners are expected to explore

alternative routes to profitability, potentially

increasing jet yields to meet strong

regional demand, while enhancing

petrochemicals integration post-2020


23

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

100

200

300

400

500

600

700

800

900

Crude & Condensate Runs

Capacity

Utilisation (Right Axis)

Europe crude and condensate refinery

distillation runs outlook


Millio

n t

on

nes p

er

an

nu

m

0

100

200

300

400

500

600

700

800

Heavy Fuel Oil Diesel/Gasoil Jet/Kero

Gasoline Naphtha LPG

Other

Europe refined product production outlook

IHS Markit © 2019 IHS Markit

Millio

n t

on

nes p

er

an

nu

m

Notes: Other products includes bitumen, lubricants, waxes, white spirits, petcoke and

other grades.

Includes production from condensate splitters and petrochemicals sector.


European gasoline’s surplus to tighten, jet fuel deficit to increase while gasoil

import dependency will decline

-100

-80

-60

-40

-20

0

20

40

60

80

100

2000 2017 2020 2025 2030 2040

Fuel Oil Diesel/Gasoil Jet Fuel /Kero Gasoline Naphtha

Europe product net trade balance, 2000-2040


Millio

n t

on

ne

s p

er

an

nu

m

NET IMPORTS

NET EXPORTS

• Gasoline: Europe’sotsknaht,nethgitottessulprusegral

increased demand and reduced runs

• Jet/kerosene: Robust demand outlook calls for growth in import

requirements

• Gasoil/diesel: Europe’sgnidnep,0202nikaepotstropmiten

scrubber uptake. Longstanding net import dependency on diesel

set to decline for Europe as a whole

• Residual Fuel Oil: Europe’sgnidnep,0202niegrusotstropxe

scrubber uptake


24


European gasoline and diesel trade flows, Africa to become the main outlet for

European exports


25

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2005 2010 2015 2020 2025 2030 2035 2040

Africa Asia CIS Latin America Middle East North America Other

Europe Gasoline Exports


Th

ou

san

d t

on

nes

per

year

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2005 2010 2015 2020 2025 2030 2035 2040


Europe Gasoline Imports


Th

ou

san

d t

on

nes

0

10,000

20,000

30,000

40,000

50,000

60,000

2005 2010 2015 2020 2025 2030 2035 2040


Europe Diesel/Gasoil Exports


Th

ou

san

d t

on

nes

per

year

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2005 2010 2015 2020 2025 2030 2035 2040


Europe Diesel/Gasoil Imports


Th

ou

san

d t

on

nes

per

year


European Fuels Market Outlook


26

• Impending bunker fuel specification change likely to be a major disruption to the “bottom”

of oil barrels

• Potential steep changes for trade flows, bunker fuel blending and heavier product storage

• An opportunity that IHS Markit can help you assess for your particular circumstances

• The decarbonisation of transportation fuels through alternative fuels/engine-trains has

been accelerating

• But takes time to turn-over the fleet

• Generally stable trade situation expected in Europe

• Global trade routes however expected to change with change in balances for gasoline, jet fuel and gasoil

Summary

IHS Markit Customer Care

[email protected]

Americas: +1 800 IHS CARE (+1 800 447 2273)

Europe, Middle East, and Africa: +44 (0) 1344 328 300

Asia and the Pacific Rim: +604 291 3600

Disclaimer

The information contained in this presentation is confidential. Any unauthorized use, disclosure, reproduction, or dissemination, in full or in part, in any media or by any means, without the prior written permission of IHS Markit Ltd. or any of its affiliates ("IHS Markit") is

strictly prohibited. IHS Markit owns all IHS Markit logos and trade names contained in this presentation that are subject to license. Opinions, statements, estimates, and projections in this presentation (including other media) are solely those of the individual author(s) at the

time of writing and do not necessarily reflect the opinions of IHS Markit. Neither IHS Markit nor the author(s) has any obligation to update this presentation in the event that any content, opinion, statement, estimate, or projection (collectively, "information") changes or

subsequently becomes inaccurate. IHS Markit makes no warranty, expressed or implied, as to the accuracy, completeness, or timeliness of any information in this presentation, and shall not in any way be liable to any recipient for any inaccuracies or omissions. Without

limiting the foregoing, IHS Markit shall have no liability whatsoever to any recipient, whether in contract, in tort (including negligence), under warranty, under statute or otherwise, in respect of any loss or damage suffered by any recipient as a result of or in connection with

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owners (or their products/services). IHS Markit is not responsible for either the content or output of external websites. Copyright © 2019, IHS MarkitTM. All rights reserved and all intellectual property rights are retained by IHS Markit.


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