Deloitte Oil and Gas Conference Summary Report

I just posted a copy of the summary report from Deloitte’s 2012 Oil & Gas Conference: A new world of opportunity on the MLP Resources page (click MLP Resources tab above to view full report). The report is a great summary of some current big picture energy trends, following are some highlights.

Changes in Meeting Global Demand through Refining

Admittedly environmental and regulatory issues will ALWAYS be looming like a cloud over refinery assets in the U.S., but the U.S. refining space continues to move forwards:

  • U.S. refiners now have a remarkable competitive advantage in world markets with advantaged feedstocks (i.e. cheaper) from heavy Canadian oil and U.S. shale oil coupled with low natural gas prices
  • “The U.S. has the best, most efficient refining system in the world: Now we need to use it to America’s competitive advantage.” Gary Heminger, President and CEO, Marathon Petroleum Corporation
  • In 2011 refined products became the top U.S. export with strong expected demand from Latin and South America and Europe (especially diesel for Europe)
  • Diesel demand expected to grow 3% in the U.S. during 2013 compared to just 0.5% for gasoline
    • Refineries that have an output slate closer to a 2:1:1 Crack Spread(1) compared to a 3:2:1 Crack Spread(2) will likely benefit more because they produce comparatively more diesel, like CVR Refining, LP (“CVRR”)
  • Increasing use of ethanol in U.S. gasoline is an ongoing concern

Future of Midstream

Michael Creel, President and CEO of Enterprise Products Partners, L.P. (“EPD”),  highlighted the size of the long-term development potential in the U.S.:

  • Marcellus – 100 years of development left, assuming 1,650 wells drilled per year
  • Utica – 80 years of development left, assuming 600 wells drilled per year
  • Eagle Ford – 40 years of development left, assuming 2,500 wells drilled per year
  • Barnet – 30 years of development left, assuming 1,000 wells drilled per year
  • Midstream MLPs have spent roughly $100 billion on infrastructure projects since 2007 and estimates for additional capital investment range as high as $250 billion over the next 20 years

The estimated number of future wells drilled in those four areas totals roughly 340,000 wells, for perspective that’s compared to the current U.S. total of around 1 million producing wells (as per U.S. Energy Information Administration 2011 data: oil, gas). The estimated capital investment need of $250 billion compares to current total midstream MLP enterprise value of around $500 billion. So it appears that there is still plenty of growth for midstream MLPs and plenty to keep the MLP Protocol busy going forwards.

(1) 2:1:1 Crack Spread – inputs of 2 barrels of crude converting into outputs of roughly 1 barrel of gasoline and 1 barrel of diesel

(2) 3:2:1 Crack Spread – inputs of 3 barrels of crude converting into outputs of 2 barrels of gasoline and 1 barrel of diesel

Disclosure: Long CVRR, long CVRR call options, short CVRR put options, long TSLA

About Philip Trinder

President of MLP Protocol, investor, trader, and proponent of Master Limited Partnerships.
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