2003 07 11 Downstream

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Energy Analysts International Westminster, Colorado

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For The California Energy Commission July 11, 2003 By Joseph J. Leto EAI, Inc. 12000 North Pecos, Suite 310 Westminster, Colorado 80234 303-469-5115 jjleto@eaiweb.com U.S. West Coast Petroleum Supply, Logistics and Economic Outlook:

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Overview Trends and Outlook for West Coast Gasoline Supply-Demand Trends and Outlook for West Coast Crude Oil Supply-Demand West Coast Refining Capabilities and Margins Market Pricing Relationships Presentation Outline Figure ES-1

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U.S. West Coast Petroleum Supply, Logistics and Economic Outlook Overview of Supply, Demand and Company Structure

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Western Region Refined Product Supply-Demand Network Western Region is relatively isolated from Gulf Coast until Longhorn starts up and KMPL is expanded Figure ES-2

Supply-Distribution Flowsheet Pacific Southwest – West Texas / New Mexico Corridor: 

Supply-Distribution Flowsheet Pacific Southwest – West Texas / New Mexico Corridor Puget Sound Area N. California Exports SF Bay Area Exports to Las Vegas N-S Balance Point Exports To Reno Exports to San Diego Rack Deliveries Truck To NV Market Local Rack Exports To PNW LA Basin Area SF vs LA Area Relative Growth Refinery Expansion Capabilities Carb III Gasoline – Company Production Plans Gasoline Displacement Truck Volume North El Paso Refining Viability Startup of Longhorn Expansion of KMPL east leg Crude Supply & Costs Demand Outlook Environmental Retrofit Costs SLC Area NW New Mexico Area El Paso Area Exports to Albuquerque Phoenix - Tucson LA vs El Paso Sources Diverging Gasoline Specification Availability of Supply Supply Absorption Rate – Phoenix / Tucson Growth Company Presence Local Refining / Orion Pl Mexico Figure ES-3

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U.S. West Coast Petroleum Supply, Logistics and Economic Outlook Trends and Outlook for West Coast Gasoline Supply-Demand

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Gasoline Supply and Distribution Pacific Southwest - 2002, MBPD Primary dynamics include constraint on WTX/NM sources, refinery output potential, consumption growth and waterborne inter-regional movements between the PNW and PSW Figure ES-4 Rev. 5/03

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Foreign 16 Foreign 7.7 Total Supply 1086.3 Product Supply Imports CARB/RFG Gasoline Supply and Distribution California and Phoenix Markets 2002 MBPD Other By Difference Foreign assumed to be CARB or CARB blend stock base Rev. 3/13/03 Figure ES-5

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Western Region Product Balance Outlook: Total Gasoline, MBPD Overall gasoline shortfall to increase from 175 to 253 MBPD over next five years driven primarily by the LA-Phoenix corridor; this does not include CA refinery pool shrinkage replacement Fresno-Bakersfield consumption included in NCA market area Rev. 5/2003 Figure ES-6

Gasoline Demand vs Refinery Output Historical and Projected Growth Rates Western Region Aggregate: 

Forecast Historical Gasoline Demand vs Refinery Output Historical and Projected Growth Rates Western Region Aggregate Figure ES-7

Western States Gasoline Growth Outlook Annual Average Rate 2003 through 2007(%/Year) Gasoline growth rates across all Western regions is forecast to average 1.8 % per year through 2005 & 1.3 % thereafter: 

Western States Gasoline Growth Outlook Annual Average Rate 2003 through 2007(%/Year) Gasoline growth rates across all Western regions is forecast to average 1.8 % per year through 2005 & 1.3 % thereafter Rev. 3/13/03 Figure ES-8

Incremental Gasoline Supply Requirements Western Regions (PNW, PSW and RM): 

Incremental Gasoline Supply Requirements Western Regions (PNW, PSW and RM) KM -> Arizona from El Paso PSW Waterborne/ Longhorn Phoenix Chase/UDS/Phillips to Dnvr With no refinery closures;assumes reasonable creep for PNW and PSW areas; MTBE phase-out impact on refinery intermediate stock loss included in plot Western regions will need approximately 60 MBPD of incremental gasoline over next 5 years Forecast Figure ES-9 Rev. 5/03

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U.S. West Coast Petroleum Supply, Logistics and Economic Outlook Trends and Outlook for West Coast Crude Oil Supply-Demand

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West Coast Crude Supply-Demand Structure Refining capacity at 3128 MBPD, with crude runs at 2560 MBPD Largest refining center in Southern California (923 MBPD crude run) followed by SFB (677), PNW (548), and AK/HW (277) Total West Coast crude production at 1840 MBPD with Alaska at 1038 and California at 802 West Coast crude production comprised 32% of US production West Coast imports at 720 MBPD and no exports. No ANS is being exported to foreign markets at present Figure ES-10

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West Coast Crude Oil Network Trends and Relationships 2001 Annual Average Volume, MBPD Phillips and BP are biggest ANS producers Decline of ANS production to stabilize near term ANS exports discontinued effective May 2000 Technology applications to increase recovery Figure ES-11 445

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West Coast Crude Balance Outlook Total Demand Near term, imports driven by decline of SJV/OCS crude and refining creep; longer term (post 2008) resumption of ANS decline will accelerate import requirement West Coast Import Requirement Alaska OCS San Joaquin Valley Coastal La Basin Figure ES-12

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Future West Coast Crude Supply Mexican Maya and Canadian Bitumen blends likely to represent growing replacement streams for California heavy crude Access to Canadian bitumen blends will be limited in the short term by logistical constraints-projects underway or being considered to expand this capacity Shorter term, Mexican Maya crude likely to replace declining SJVH crude supply Ecuador, Columbia, Canada and Middle East crude supply to West Coast likely to grow in the longer term to replace SJV light and ANS Figure ES-13

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U.S. West Coast Petroleum Supply, Logistics and Economic Outlook West Coast Refining Capabilities and Margins

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Major Western Region Refineries Figure ES-14

Cumulative Incremental Production PNW, RM and California Refineries Total Gasoline, MBPD Base Year - 1989 Western region refineries have continually increased output; EAI forecasting all regions to continue to increase output capacity except for the Rocky Mountain refineries where some closures are likely: 

113 206 255 Cumulative Incremental Production PNW, RM and California Refineries Total Gasoline, MBPD Base Year - 1989 Western region refineries have continually increased output; EAI forecasting all regions to continue to increase output capacity except for the Rocky Mountain refineries where some closures are likely Rev. 3/13/03 Figure ES-15

West Coast Crude - Product Differentials 321 ANS Carb Gasoline Carb Diesel Crack 1997- 2003 Monthly: 

West Coast Crude - Product Differentials 321 ANS Carb Gasoline Carb Diesel Crack 1997- 2003 Monthly Gasoline - Crude Spread 9 10 14 14 9 Figure ES-16

West Coast Refinery Margin Components 1999- 2003 Monthly Product Price Largest Contributor To Overall Refinery Margins: 

West Coast Refinery Margin Components 1999- 2003 Monthly Product Price Largest Contributor To Overall Refinery Margins Product Margin Over Costs Feedstock Nat Gas Fuel Figure ES-17

West Coast vs Gulf Coast Refinery Margins Monthly Average Spot Crude - Rack Products West Coast Refinery Margins Generally Track Gulf Coast But With Special Volatility Associated With West Coast Product Market Vs Refinery Outages : 

West Coast vs Gulf Coast Refinery Margins Monthly Average Spot Crude - Rack Products West Coast Refinery Margins Generally Track Gulf Coast But With Special Volatility Associated With West Coast Product Market Vs Refinery Outages WC LA ANS GC WTS Figure ES-18

Gasoline vs Crude Price Volatility Volatility of product price much greater than crude price. : 

Gasoline vs Crude Price Volatility Volatility of product price much greater than crude price. ANS CARB Gas Figure ES-19

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Destination spot price minus Gulf Coast Pipeline Spot Price minus transportation. Market Margin Trend – Gulf Coast Origin Unleaded Regular Gasoline - Spot Market Figure ES-20

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Market Margin Trend – Gulf Coast Origin Unleaded Regular Reformulated Gasolines - Spot Market Destination spot price minus Gulf Coast Pipeline Spot Price minus transportation. Figure ES-21

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U.S. West Coast Petroleum Supply, Logistics and Economic Outlook Incremental and Replacement Supply Overview

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A large fraction of California imports originated in Singapore, Korea and Dubai in 2002 (approximately 11.4 MBPD or 54 percent). The primary importers were Trafigura, Vitol and Equiva. Trafigura is a major trading company based in Holland with U.S. offices in Long Beach and Stamford, CT. They tend to source product in Dubai, Singapore and Saudi Arabi. Vitol is also a major commodity trader with refinery ownership-alliance positions in Newfoundland, Virgin Islands and the Netherlands. Most of their gasoline product for the CA market was source in Korea (trading bbls). Gasoline Imports Figure ES-22

Product Imports to N. California 1995 Through 2002: 

Product Imports to N. California 1995 Through 2002 Rev. 3/18/03 Figure ES-23

Product Imports to S. California 1995 Through 2002: 

Product Imports to S. California 1995 Through 2002 Rev. 3/18/03 Figure ES-24

Gasoline Supply Trends & Outlook Southern California and Downstream Markets: 

Gasoline Supply Trends & Outlook Southern California and Downstream Markets PSW Waterborne/ Longhorn Driven by Consumption Growth Gasoline supply requirements will increase to replace SFB supply, and satisfy increasing consumption Forecast Figure ES-25 Rev. 5/03 Phoenix

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Foreign Origin Market Margin Trend Singapore to LA and NW Europe to NYH Unleaded Regular Gasoline - Platt’s Spot Prices Incremental supply for U.S. Gulf Coast tends to be a NYH barrel displaced With European supply and netbacked to Pasadena; this value laid into Chicago or West Coast markets tends to set incremental gasoline supply economics. On the West Coast, Asian product availability and pricing determines whether this GC incremental pricing mechanism can hold. Destination market price - origin price - transportation Figure ES-26

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Increasing supply from Puget Sound-refiners committing to additional CARB production Retraction of conventional gasoline from Portland-Columbia River market and replacement with foreign imports. Displacement of Phoenix-Tucson supply with Gulf Coast barrels via Longhorn-Kinder Morgan route (with startup and expansion respectively) Increasing waterborne supply from other domestic and foreign offshore sources Product blending and increasing demand has tightened tankage availability in California-will need to expand to accommodate future needs. Consumption outlook, level of product retraction and displacement supply (defined above) and refinery creep capabilities will determine need for waterborne product tankage and distribution capabilities Incremental West Coast-California Gasoline Supply Figure ES-27