Crude Oil Quality Association Fall 2018 Conference

Sour crude diet: Venezuela production decline shifts lighter crude

slates for heavy refiners
25 October 2018

Ha Nguyen, Director, Global Crude Oil Markets, Ha.Nguyen@ihsmarkit.com

Confidential. © 2018 IHS MarkitTM. All Rights Reserved.

 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

Global heavy sour crude production

Thousand barrels per day

North America Europe CIS

6,000 United States Canada 160 400
140 350
5,000
120 300
4,000
100 250
3,000 80 200
60 150
2,000
40 100
1,000 20 50
0 0 0
2010 2017 2020 2030 2040 2010 2017 2020 2030 2040 2010 2017 2020 2030 2040

Latin America Africa Mideast

3,500 Venezuela Colombia Mexico Other 10 6,000 Saudi Arabia Iraq Iran Other
9
3,000 5,000
8
2,500 7 4,000
2,000 6
5 3,000
1,500 4
3 2,000
1,000
2
500 1,000
1
0 0 0
2010 2017 2020 2030 2040 2010 2017 2020 2030 2040 2010 2017 2020 2030 2040

World
14,000 North America Africa
Latin America Europe
12,000
CIS Mideast
10,000
8,000
6,000
4,000
2,000
0
2010 2017 2020 2030 2040

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 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

Global crude runs by region and quality

Thousand barrels per day

North America Europe CIS

20,000 LSW MSW LSR MSR HSR HSW 14,000 LSW MSW LSR MSR HSR HSW 7,000 LSW MSW LSR MSR HSR HSW
18,000
12,000 6,000
16,000
14,000 10,000 5,000
12,000
8,000 4,000
10,000
8,000 6,000 3,000
6,000
4,000 2,000
4,000
2,000 2,000 1,000
0 0 0
2010 2017 2020 2030 2040 2010 2017 2020 2030 2040 2010 2017 2020 2030 2040

Latin America Africa Asia

7,000 LSW MSW LSR MSR HSR HSW 3,000 LSW MSW LSR MSR HSR HSW 35,000 LSW MSW LSR MSR HSR HSW
6,000 2,500 30,000
5,000 25,000
2,000
4,000 20,000
1,500
3,000 15,000
2,000 1,000
10,000
1,000 500 5,000
0 0 0
2010 2017 2020 2030 2040 2010 2017 2020 2030 2040 2010 2017 2020 2030 2040

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 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

Latin offshore production will drive new capacity additions

Latin America terrain in 2017 Latin America crude oil production changes

Others
Percent

Offshore
Onshore Mexico
49%

Million barrels per day

51%

Colombia

Source: IHS Markit © 2018 IHS Markit

Venezuela

Latin America terrain in 2030

Argentina
Percent

Onshore
34% Brazil

-1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5

Offshore
66%

2030/2017 2040/2030
Source: IHS Markit © 2018 IHS Markit Source: IHS Markit © 2018 IHS Markit

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 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

Latin American crude output will shift increasingly sweet as Brazilian

production increases
Latin America crude quality in 2017 Latin America crude quality in 2030
Segregated Segregated
Condensate Condensate
1% 1%

Light Sweet
9% Light Sweet
Heavy Sour 19%
Light Sour 23%
10%
Percent

Percent
Heavy Sour
31%
Light Sour
5%
Heavy Sweet
2%
Medium Sour
5%
Medium Sweet
28%
Heavy Sweet
9%

Medium Sour Medium Sweet

12% 45%

Source: IHS Markit © 2018 IHS Markit Source: IHS Markit © 2018 IHS Markit

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 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

Latin American crude and condensate production

Major Latin American country crude and condensate production

12
Outlook

10
Million barrels per day

0
2005 2010 2015 2020 2025 2030 2035 2040

Brazil Mexico Venezuela Colombia Argentina Other

Source: IHS Markit © 2018 IHS Markit

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 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

Latin American oil production decline continues, driven by Mexico,

Venezuela, and Colombia
Latin American crude and condensate production outlook
12
Outlook

10
Million barrels per day

0
2005 2010 2015 2020 2025 2030 2035 2040

Base Sanctioned Unsanctioned Segregated Condensate Yet-to-find Tight Oil

Source: IHS Markit © 2018 IHS Markit

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 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

The path to self destruction : Recap of Venezuela’s struggle

Crude exports Currency
Inflation
Fleeing population
2017: 1.55 MMb/d devaluation
Since 2014, approximately 2 2018*:1.15 MMb/d
million Venezuelans have fled
the country due to failing
• Venezuela issues • Expected to
economy, lack of basic goods Quality to US:
(food, water, medical 2017: 17.81o API
new currency reach 1.5 million
equipment), and jobs.
2018*: 17.18o API which devalues % by end of 2018
bolivar by 96%

Refinery runs:
2017: 629 kbd
2018*: 366 kbd

Major Events
Aug. 2017: U.S. sanctions on Venezuela blocking the
Western Division (Maracaibo) country and PDVSA from issuing new debt.
• 2017: 363 kbd Nov. 2017: PDVSA put under military control.
• 2018*: 298 kbd May 2018: ConocoPhillips seizes PDVSA storage
Orinoco Belt
facilities and terminals in the Caribbean islands.
Aug. 2018: President Maduro releases new ‘sovereign
• 2017: 1,048 kbd
• 2018*: 826 kbd
bolivar’ tied the petro, an oil-backed cryptocurrency.
Aug. 2018: President Maduro announces that PDVSA
Eastern Division and foreign companies will be exempt from the 50%
• 2017: 524 kbd petroleum income tax.
• 2018*: 320 kbd

Confidential. © 2018 IHS MarkitTM. All Rights Reserved. * 2018 data is recorded from January to July 8
 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

Despite announcements of new funding and joint drilling agreements,

Venezuela’s production continues to fall
Venezuelan crude production Venezuela crude distillation capacity utilization

2.5 80%

70%

2.0 60%
MMb/d

50%

Percent
1.5
40%

30%
1.0

20%

0.5 10%
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan Feb Mar Apr Mar Jun Jul Aug Sept Oct Nov Dec
5 Year Max-Min Range 2017 2018
Venezuela Production Production outlook
Source: IHS Markit © 2018 IHS Markit Source: IHS Markit © 2018 IHS Markit

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 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

Crude-by-rail and the timing of the Line 3 project are critical to Canadian
price recovery, but the larger Keystone XL project will still be needed
Western Canada crude oil takeaway capacity

Outlook
6,000 Western Canadian Export Supply

5,000 Trans Mountain Expansion

Thousand barrels per day

Keystone XL
4,000 Trans Mountain

Keystone
3,000 Clipper/Line 3 replacement

2,000

Canadian mainline
1,000

0 Rangleland/Milk River/Express
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Source: IHS Markit © 2018 IHS Markit

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 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

Canadian heavy sour crude share of USGC market is growing

Western Canadian Heavy Sour Crude Balance

5,000
Outlook
4,500

4,000
Thousand barrels per day

3,500

3,000

2,500

2,000

1,500

1,000

500

0
2007 2010 2015 2020 2025 2030

Supply to U.S. Supply to Export Markets Supply to Canada

Note: Total Western Canada heavy sour supply (includes diluent)

Source: IHS Markit © 2018 IHS Markit

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 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

2018 major importers from Venezuela

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 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

Global crude slate changes: Past, mid term, and long term

Global crude slate changes: Past, mid term, and long term
6

2
Million barrels per day

-2

-4
HSR

HSR

HSR
LSW

LSR

MSR

HSW

LSW

LSR

MSR

HSW

LSW

LSR

MSR

HSW
COND

MSW

COND

MSW

COND

MSW
SEG

SEG

SEG
2017/2005 2030/2017 2040/2030

North America Africa Asia CIS Europe Latin Middle East

Source: IHS © 2018 IHS Markit

Note: SEG COND = segregated condensate, LSW = Light sweet, MSW = Medium sweet, LSR = Light sour, MSR = Medium sour, HSR = Heavy sour, HSW=Heavy Sweet

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 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

US and CIS average crude qualities shifts lighter over time, Canada & Middle
East shifts heavier
Global crude quality trends: Change from 2017-2030
3.0
light
Latin America

2.0

US
1.0 Africa
API gravity

CIS
World
0.0
Middle East
Canada

-1.0 Asia

Europe
heavy
-2.0
0.6 0.4 0.2 0 -0.2 -0.4 -0.6
Sulfur content (percentage)
sour sweet
Note: Grey filled bubbles indicates negative production.
Source: IHS Markit © 2018 IHS Markit

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 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

Latin American crude exports to Asia have risen by 700,000 b/d compared
with 2012

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 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

Venezuelan exports remained stable compared to the previous 3 months,

supported by large shipments to China and India
Venezuela exports to major countries Venezuela exports to US and China
2.0 1.20

1.8
1.00
1.6

1.4
0.80
1.2

1.0
MMb/d

MMb/d
0.60
0.8

0.6 0.40

0.4

0.20
0.2

0.0
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 0.00
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
United States China India Spain Malaysia Other
United States China
Notes: Only US and China have import data from Venezuela in November and December of 2017
IHS Markit © 2018 IHS Markit Source: IHS Markit © 2018 IHS Markit

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 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

US refiners have reduced significant import volumes in recent months

Jan-Feb 2017 average Latin American exports to major importers Jan-Feb 2018 average Latin American exports to major importers
2,000 2,000
Other, 34 Other,
XOM, 51 73
1,800 1,800
XOM, 9
CVX, 116
740 CVX,
1,600 1,600
Thousand barrels per day

Thousand barrels per day

70
P66,
P66, 0 337
116
1,400 1,400 Citgo,
Citgo, 128
224
1,200 1,200
Valero
1,000 412 Valero 1,000 352 , 78
642 712
,177

800 800
82
226
600 600
141
402 263 355
400 676 400
510 396
136 287 230
200 200

98 88
0 0
China India United States China India United States

Argentina Brazil Colombia Ecuador Mexico Venezuela Argentina Brazil Colombia Ecuador Mexico Venezuela
Source: IHS Markit, SIAVI © 2018 IHS Markit Source: IHS Markit, SIAVI © 2018 IHS Markit

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 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

Latin crude oil exports: 2017 versus 2018 (Jan-Feb month average)

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 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

Global heavy sour crudes

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 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

Appendix I: Links to IHS Markit Oil Markets, Midstream & Downstream resources
IHS Markit Webinars and Events
IHS Markit Event: WPC 2019: 34th
Annual World Petrochemical Conference (19-22 March 2019)
IHS Markit Event: CERAWeek 2019 (11-5 March 2019)
IHS Markit Event: Latin American LPG Seminar & Workshops (6-8 November 2018)
IHS Markit Webinar Vaca Muerta: Shaping Argentina’s Oil Markets (September 2018)
IHS Markit Webinar The Rule of 3: Global oil market outlook (September 2018)
IHS Markit Webinar Reinventing the Truck (August 2018)
IHS Markit Webinar IMO 2020 – The Biggest Ever “Planned Disruption” to the Oil Markets? (June 2018)

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 Sour crude diet: Venezuela production decline shifts lighter crude slates for heavy refiners / COQA October 25, 2018

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