Published on January 23, 2008
Platts Open Methodology ForumHyatt Ararat Park Hotel, Moscow May 22, 2006: Platts Open Methodology Forum Hyatt Ararat Park Hotel, Moscow May 22, 2006 Introducing Platts: Introducing Platts Dan Tanz Vice President, Global News and Pricing Slide3: Introducing Platts Transactions Assessments Market Reports Breaking news Platts is a specialist energy publisher founded by Warren Platt nearly 100 years ago, and owned by publisher McGraw-Hill Impartial and independent Slide4: The McGraw-Hill Companies Platts Global Coverage: Platts Global Coverage Recent Spot Market Developments: Recent Spot Market Developments Jorge Montepeque Director, Global Markets Today’s Agenda: Today’s Agenda 09:00-09:15 Introductory Remarks 09:15-09:45 Recent spot market developments 09:45-10:15 Assessment principles 10:15-10:45 European oil products methodology 10:45-11:00 <Coffee Break> 11:00-11:45 International crude oil assessments 11:45-12:00 Questions 12:00-12:30 Benchmarking Russian crude oil & products 12:30-13:00 Questions 13:00-14:30 <Lunch> 14:30 Meetings with editors Recent Oil Spot Price Developments: Recent Oil Spot Price Developments Brent & Urals: Brent & Urals Urals differentials to Brent: Urals differentials to Brent Market Drivers: Market Drivers Recurrent political tensions in Middle East Background of strong global economic growth Rampant oil demand growth, particularly in Asia Speculative investments in energy markets Limited spare production capacity outside Saudi Arabia A constrained refining environment Oil is key driver for other energies such as gas Quality Differentials: Quality Differentials Clean Fuel Parameters: Clean Fuel Parameters Gasoline Sulfur Aromatics Olefins Europe Auto Oil Program National regulations Gasoline Oxygenates Additives RVP Sulfur United States Clean Air Act Federal regulations Gasoline Sulfur Aromatics RVP Oxygenates Asia National regulations Diesel Sulfur Aromatics Biofuel content Diesel Sulfur Alternative fuels Vehicle fleet changes Diesel Sulfur Polyaromatics Cetane, SG, distillation Biofuel content Alternative fuels Vehicle fleet changes Alternative fuels Vehicle fleet changes Fuel Specifications Tighten: Fuel Specifications Tighten The table shows maximum level of sulfur in parts per million (ppm) allowed in fuels within the European Union in the period 2000-2009. Fuel qualities are set to tighten substantially during this period. Quality Differentials: Sulfur: Quality Differentials: Sulfur Markets Are Increasingly Volatile: Markets Are Increasingly Volatile Market volatility has been extreme Spreads between markets have been volatile Volatility affects short and long term cycles Market arbitrage transfers volatility between markets Markets Are More Connected: Markets Are More Connected Slide18: Questions? Jorge Montepeque Jorge_Montepeque@platts.com 44-207 176 6136 Assessment Overview: Assessment Principles & European Oil Products Assessment Methodology: Assessment Overview: Assessment Principles & European Oil Products Assessment Methodology Peter Stewart Executive Director, Pricing and Markets Slide20: Platts assesses transactable market levels Deals, bids and offers Transparency and consistency Repeatability and incrementability Verification procedures Methodology and accuracy Assessment Process Market Forces Determine Price: Market Forces Determine Price A market assessment is an exclusive process... ...zeroing in on the tradable level Use Of Platts In Pricing: Use Of Platts In Pricing Platts benchmarks are used to price term contracts Futures settlements are often tied to spot market Derivatives “price out” against Platts spot price assessments Slide23: Transparency Named companies Firm bids/offers Open to market at large Real-time price formation Defined audit trail Performance-based Assessment Process: Offers Bids 16:30 assessment Assessment Process Cut-off for new bids/offers Slide25: Time-Stamping Slide26: Consistency: Defining Standards Reporting Standards: Reporting Standards Platts uses highly structured methodologies to deliver accurate and precise assessments Transparent methodology allows internal and industry scrutiny Open methodologies; experience and judgment are important ingredients Platts is only reporting agency with formal compliance procedures Slide28: Price as a function of time: Market on Close Transparency and verification standards Normalization procedures Recent additions/enhancements Oil Products Assessment Methodology Alignment of Fixed Price and Spreads: Alignment of Fixed Price and Spreads $580/mt $590/mt $560/mt $570/mt Price is a function of time European Cargo Assessments: European Cargo Assessments Slide31: An Inclusive Process Deals, bids, offers Swaps Premiums Spreads SPOT PRICES Transport costs Triangulation: Triangulation Fixed Swaps EFP-linked Slide33: Fixed Price = Underlying basis + or - Differentials Premium Algebra Fixed & Floating Price Incorporating Time Gradient: Incorporating Time Gradient P + 25 P + 10 The example shows fuel oil CIF NWE at a $5/mt premium to swaps. The value of the swap on b/l date of the physical cargo may be inferred from swaps market time gradient, which is usually linear $5 premium M01 swap M02 swap Floating Price Transaction Example: Floating Price Transaction Example Slide36: Optionality & Restrictions: A Few Examples PGA005 Participation: PGA005 Participation Slide38: Questions? Peter Stewart Peter_Stewart@platts.com +44-207 176 6136 International Crude Oil Assessment Methodology: International Crude Oil Assessment Methodology Jorge Montepeque Director, Global Markets Slide40: Platts publishes more than 100 key benchmarks daily Coverage includes the oil, gas, coal, emissions, power, shipping and metals markets Key publications of record are used throughout the energy value chain Platts assessments are used in settlement of billions of dollars of oil commerce daily Crude Oil Assessment Methodology Benchmark Assessments: Benchmark Assessments Use Of Benchmarks In Pricing: Benchmarks act as a barometer of outright values Differentials are negotiated off benchmark price Benchmark does not change physical value Responsive to supply/demand fundamentals Algebra Platts +/- differential = Fixed price Use Of Benchmarks In Pricing Brent Market Structure: Brent Market Structure Brent Blend is a crude oil produced in the UK North Sea. It has become an important international benchmark price for the oil industry. Most crude oil produced in Africa, the Middle East, the North Sea, the Mediterranean, Russia and the Caspian is tied directly or indirectly to the Brent price. Slide44: Brent & North Sea Light Platts introduced alternative delivery system for Brent in 2002 Platts’ Brent assessment reflects the most competitive of Brent, Forties and Oseberg Declining production in North Sea grades looks set to continue Platts is fine-tuning BFO mechanism to define North Sea Light as a crude class Current Standards: Current Standards Platts Brent assessments reflect the most competitive of Brent, Forties and Oseberg crude Platts typically reflects Brent FOB Sullom Voe but ship-to-ship transfers of Brent crude oil at Scapa Flow are also considered Platts will only consider such offers where the oil has been recently loaded at Sullom Voe and remains in its original condition In addition, Platts specified that the offers would be considered only when the seller agrees to pay all extra costs incurred by the buyer Current Supply Locations: Current Supply Locations Recent & Ongoing Developments: Recent & Ongoing Developments Injection of Grane into Oseberg Blend Upcoming injection of Buzzard into Forties: quality impact Ongoing output developments will result in a wider mix by 2007 - Ekofisk likely candidate Other supply points may be considered in NWE Inclusion Of Other Supply Locations?: Inclusion Of Other Supply Locations? Slide49: Sour Crude Benchmarks & Urals Sour crude now dominant source of supply in global markets Divergences in price between sweet crude benchmarks and sour grades Platts has encouraged development of more robust sour benchmarks Urals identified as potential benchmark for sour crude entering Europe Physical Crude Assessments: Physical Crude Assessments Russian Crude Price Formation: Physical Urals differential to dated Brent Dated Brent differential to cash BFO Cash BFO (Brent-Forties-Oseberg) Russian Crude Price Formation Urals Assessment Normalization: Urals Assessment Normalization Standardized Urals Med volume at 80,000mt Novorossisk The assessment is inclusive incorporating typical qualities and cargo sizes Launched new assessments for Urals 80,000mt and 140,000 mt FOB freight netback Earlier cut off time 1545 London time for bid/offer entry allows wider international oil company participation Urals Fine-Tuning: Urals Fine-Tuning Standardized delivery and nomination procedures Current standard reflects five-day loading windows Fine-tuning parameters to avoid restrictive bidding on narrow dates Urals Pricing Background: Urals Pricing Background Price formation on Urals was historically on a CIF basis because Soviet-flag vessels used Northwest Europe basis Rotterdam Mediterranean basis Augusta Increasing transparency emerging on both CIF and FOB basis FOB assessments represent freight netback Platts considering delinking FOB/CIF to fully reflect arbitrage value on FOB assessments Platts would start additional FOB assessments and maintain freight netbacks Further Enhancements: Further Enhancements Three new Angolan crude assessments added at end 2005: Hungo, Kissanje, Girassol Dubai assessment strengthened by addition of Upper Zakum as alternative delivery grade Platts to assess BTC crude on FOB Ceyhan basis when deliveries through pipeline begin Slide56: Caspian Pipeline Map Source: US Department of Energy, EIA Country Analysis Briefs Possibilities For The Future: Possibilities For The Future Slide58: Questions? Jorge Montepeque Jorge_Montepeque@platts.com +44-207 176 6136 Russian Domestic Market Focus: Russian Domestic Market Focus Peter Stewart Executive Director, Pricing and Markets Slide60: Platts to introduce daily assessments of Russian domestic market in 2006 Coverage to include crude and oil products Urals FIP Ufa Gasoline, diesel and fuel oil FCA Privolzhsky Federal District (PFD) basis Ufa and FCA Central Federal District (CFD) basis Moscow Information delivered electronically Russian Domestic Pricing Slide61: Crude market commentary Russian domestic crude oil price eased on increased supply levels due to reduced export volumes. With lower export price, high export duties and high prices on internal market the economics is favoring selling the barrels on domestic market. Producers are striving to maintain last month’s price levels of 8,200 Rb/mt, with Surgutneftegas even offering as high as 8500 Rb/mt, however, the netback to production area works out as around 7,500 Rb/mt. As refineries still have to run a consensus should be figured out, which would look reasonable in a 7,800–7,900 Rb/mt range, according to trading sources. So far only volumes have been set for June delivery, with the price still being discussed. The market is expecting to come up with a price range for June in the next few days. Slide62: Products market commentary Russian domestic gasoline market strengthened further last week with Regular grade leading up the whole complex. With driving season taking off, demand for the Regular grade has been boosted. Regular grade comprises roughly 50% of the gasoline market consumption, according to trading sources. Normal and premium grades also firmed, though lagging Regular grade’s upward change, with Normal/Regular spread widening and Regular/Premium spread narrowing. Slide63: Assessment Criteria Production volume Open trade free of bottlenecks Fungible quality Wide equity and customer base Market liquidity Price Transparency Market forces determine price Price cannot be dictated by any single party Slide64: Urals Assessment Parameters Urals (GOST R 51858 - 2002) Daily spot price assessment Basis is FIP (free in pipeline) Ufa Parcels of over 5,000 mt are used for the assessment Delivery for month ahead with roll on 25th of the month Slide65: Russian domestic market: Crude Oil FIP Ufa –May 12 London (Platts)—12May06/20:55 am GMT-04:00/1655 GMT Low/High Mid Price Rb/mt Assessment Point Change $/barrel Urals FIP Ufa 7,990/8,010 8,000 +350 40.76 -- Pipeline charge -- FIP Price Nizhnevartovsk 160 7,840 Surgut 125 7,875 Samara 45 8,045 Volgograd 95 8,095 Novorossiysk 155 8,155 Nizhniy Novgorod 90 8,090 Ryazan 115 8,115 Moscow 120 8,120 Yarolavl 115 8,115 Primorsk 165 8,165 --Platts Global Alert-- Sample Assessment Table Slide66: Urals Quality Urals (GOST R 51858 - 2002) API gravity is approximately 31-33 degrees (specific density at 15°C is 0.8545 - 0.8744 g/cm³) normalized to 32 degrees (0.8654 g/cm³) Sulphur content reflects normal pipeline quality – typically 1.3% Maximum paraffin content is 6% Maximum water content is 0.5% Maximum salt content is 300 mg/dm³ Slide67: Assessment Timeline The spot month for Russian domestic pipeline crude oil changes on the first business day after the 25th of the calendar month The roll-over coincides with the date Transneft's crude oil pipelines require scheduling to be completed for deliveries in the following month For instance, on May 25th Platts will reflect June deliveries but on May 26, the month will advance to July Slide68: Location Normalization The Urals domestic assessment reflects Urals FIP Ufa Transactions occurring at other delivery points within the Middle Volga region and Western Siberia region considered Such transactions will be normalized on a freight differential basis back to Ufa Slide69: Oil Products Assessments Unleaded gasoline Normal, regular and premium Diesel – 0.2% Summer grade Winter grade Fuel Oil Fuel oil Low Sulfur Fuel oil 3.5% M-100 Location: FCA PFD basis Ufa and FCA CFD basis Moscow Size: Parcels of 1,000-5,000 mt each normalized to 1,000 mt Timing: Reflects deliveries 5-25 days ahead, normalized to mid-point of range Sample Assessment Table: Sample Assessment Table Russian domestic market: Gasoline--May 12 FCA Privolzhsky Federal District/Basis Ufa London (Platts)12May06/20:55 am GMT+04:00/1655 GMT Low/High Mid Price Rb/mt Assessment Point Change Prem Unl 18,290/18,310 18,300 +165 Reg Unl 17,340/17,360 17,350 +335 Norm Unl 15,740/15,760 15,750 +200 --Platts Global Alert-- Slide71: Location Normalization Location 1: FCA Privolzhsky Federal District. The assessment basis is FCA Ufa. Material from other origins in the Privolzhsky Federal District is normalized to Ufa basis on an incremental freight differential. Location 2: FCA Central Federal District. The assessment basis is FCA Moscow. The assessment reflects spot activity in the Central Federal District, with the value normalized to Moscow basis. Slide72: Gasoline Quality: Normal Unleaded RON is 80 and the MON is 76 Specific density at 15°C is 0.700 - 0.750 g/cm³ Maximum lead content is 0.01% g/dm³ Maximum sulphur content is 0.05% The assessment will also consider A - 76 grade GOST 2084 - 77 as it has similar specifications Slide73: Gasoline Quality: Regular Unleaded RON is 92 and the MON is 83 Specific density at 15°C is 0.725 - 0.780 g/cm³ Maximum lead content is 0.01% g/dm³ Maximum sulphur content of 0.05% Slide74: Gasoline Quality: Premium Unleaded RON is 95 and the MON is 85 Specific density at 15°C is 0.725 - 0.780 g/cm³ Maximum lead content is 0.01% g/dm³ Maximum sulphur content of 0.05% Slide75: Diesel : Summer Spec Summer - 0.2% - 62: Maximum sulphur content is 0.2% Minimum flash point is 62°C Specific density at 20°C is 0.860 g/cm³ Minimum cetane number is 45 Summer spec reflected from 15 apr to 15 oct Slide76: Diesel : Winter Spec Winter - 0.2% - 35: Maximum sulphur content is 0.2% Maximum pour point -35°C Specific density at 20°C is 0.840 g/cm³ Minimum cetane number is 45 Winter spec reflected from 16 oct to 14 apr Slide77: Fuel Oil Quality Fuel oil Low Sulfur: Maximum sulphur content is 1.5% Maximum viscosity at 100°C is 50 cSt (6.8 Engler) Minimum flash point is 65°C Maximum water content is 1% Maximum pour point is 42°C Maximum ash content is 0.14% Minimum NCV kJ/kg is 40,530 Fuel Oil Quality: Fuel Oil Quality Fuel oil 3.5% M-100: Maximum sulphur content is 3.5% Maximum viscosity at 100°C is 50 cSt (6.8 Engler) Minimum flash point is 65°C Maximum water content is 1% Maximum pour point is 42°C Maximum ash content is 0.14% Minimum NCV kJ/kg is 39,900 Visit our website at: www.platts.com, www.platts.ru : Visit our website at: www.platts.com, www.platts.ru Slide80: Questions? Peter Stewart Peter_Stewart@platts.com +44-207 176 6136
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