科尔尼-preparing for global change in the petroleum supply chain-2005

8/3/2019 -preparing for global change in the petroleum supply chain-2005

1/59

Preparing for Global Change in the PetroleumSupply Chain

Preparing for Global Change in the PetroleumSupply Chain

University of Nevada / COPPEAD Petroleum Executive Logistics Course

Houston, Texas

30 June 2005


2/59

A.T. Kearney 82/7478 2

AgendaAgenda

About A.T. Kearney

Setting the stage oil is a complex global businessA look to the future

Petroleum supply chain value creation

About A.T. Kearney

Setting the stage oil is a complex global businessA look to the future

Petroleum supply chain value creation


3/59


About A.T. KearneyAbout A.T. Kearney


4/59A.T. Kearney 82/7478 4

A.T. Kearney is one of the worlds leading

management consulting firms

A.T. Kearney is one of the worlds leading

management consulting firmsIndustry

Practices

Aerospaceand

Defence Automotive

Communicationsand

High TechnologyFinancial

Institutions

Pharmaceuticaland

HealthcareEnergy Transportationand

Utilities

ConsumerGoods

and Retail

Operations Supply Chain Next Generation

Manufacturing Operating Asset

Effectiveness

Strategy andOrganization

Technology Solutions

ServicePractices

Our global service and industry practicesenable tailored solutions to specific issuesOur global service and industry practicesenable tailored solutions to specific issues


5/59A.T. Kearney 82/7478 5

We use deep energy expertise to accelerate

and expand results for our clients

We use deep energy expertise to accelerate

and expand results for our clientsSelected Oil & Gas Clients

Over 100 professionals specializing in Oil,Gas, and ChemicalsGlobal practice: the group is managed as afully integrated practice with no geographicor sub-practice boundaries so as to providethe best mix of people for any givenengagementServes the world's leading clients in allmarketsCapabilities include:

Strategy Operations Strategy Technology Strategy and

Implementation eBusiness Strategy Merger Integration Benchmarking Restructuring Process and Organisation Redesign Procurement Effectiveness Next Generation Cost Reduction Sourcing Supply Chain Network rationalization Commercial Optimization / Logistics

Cost Reduction

Contractor Optimization Net Working Capital Reduction Capital Projects Management

Energy Practice


6/59A.T. Kearney 82/7478 6

Setting the stage oil is acomplex global businessSetting the stage oil is acomplex global business


7/59A.T. Kearney 82/7478 7

Proven Natural Gas Reserves by Country Top 20 (Trillion ft 3) - 2005

Proven Oil Reserves by Country Top 20 (Billion Barrels) - 2005

050

100150

200250300

S a u d i

A r a b i a

I r a n

I r a q

K u w a i t

U . A . E

V e n e z u e l a

R u s s i a

L i b y a

N i g e r i a

U n i t e d

S t a t e s

C h i n a

Q a t a r

M e x i c o

A l g e r i a

B r a z i l

K a z

a k h s t a n

N o r w a y

A z e r b a i j a n

O m a n

C a n a d a

Note: (1) Canadian Association of Petroleum Producers (CAPP) reports 4.3 billion barrels; considering Alberta Oil Sands (174.5Bn Barrels on 2004) total reserves amount to178.8 billion barrels

Sources: EIA (Energy Information Administration), CAPP

Reserves Much of the traditional oil

reserve base is located in the Middle East

Reserves Much of the traditional oil

reserve base is located in the Middle East

0300600900

1,2001,5001,800

R u s s i a

I r a n

Q a t a r

S a u d i A r a b i a

U . A . E

U n i t e d S t a t e s

N i g e r i a

A l g e r i a

V e n e z u e l a

I r a q

I n

d o n e s i a

M a l a y s i a

N o r w a y

T u r k m

e n i s t a n

U z b e k i s t a n

K a z a k h s t a n

N e t h e r l a n d s

E g y p t

C a n a d a

K u w a i t

C h i n a

( 1 )


8/59A.T. Kearney 82/7478 8

Supply The global crude oil production

totals to US$ 1.07 trillion

Supply The global crude oil production

totals to US$ 1.07 trillionCrude Oil Production in 2004 (1)Crude Oil Production in 2004 (1)

Key Producing RegionsWorld Production

299

245

97

301

128

AsiaAsiaPacificPacific

Europe &Europe &EurasiaEurasia

AmericasAmericas

AfricaAfrica

Middle East

USUS35%35%

Americas

MexicoMexico18%18%

VenezuelaVenezuela14%14%

CanadaCanada15%15%

OtherOther7%7%

BrazilBrazil7%7%

ArgentinaArgentina4%4%

US$ 1.07 trillionUS$ 1.07 trillion

MiddleMiddleEastEast

Europe & Eurasia

Saudi ArabiaSaudi Arabia43%43%

IranIran17%17%

OthersOthers11%11%

IraqIraq8%8%

UnitedUnitedArabianArabian

EmiratesEmirates11%11%

KuwaitKuwait10%10%

RussianRussianFederationFederation

53%53%

NorwayNorway18%18%

UnitedUnitedKingdomKingdom

12%12%

OtherOther10%10%

KazakhstanKazakhstan7%7%

Note: (1) Based on production volume times regional spot crude oil pricesSource: BP Statistical review of world energy 2005


9/59


Supply Saudi Arabia, Russian Federation

and USA dominate crude oil production

Supply Saudi Arabia, Russian Federation

and USA dominate crude oil productionRegional Crude Oil Production BreakdownRegional Crude Oil Production BreakdownKey Producing Countries 1)(US$ Billion)

130 129

110

5850 47 45 45

4335 33 30 28 27 25 23 22

1814 14 12 11 11 10 10 10

S a u

d i

A r a

b i a

U S A

R u s s

i a n

F e

d e r a t

i o n

M e x

i c o

N o r w

a y

C h i n a

I r a n

V e n e z u e

l a

C a n a

d a

U n i

t e d

K i n g d o m

N i g e r i a

U n i

t e d

A r a b

i a n

E m

i r a t e s

I r a q

K u w

a i t

A l g e r i a

B r a z i

l

I n d o n e s

i a

L i b

y a

O m

a n

A r g e n t

i n a

Q a t a r

M a

l a y s

i a

E g y p

t

I n d i a

K a z a

k h s t a n

A n g o

l a

80% of global market Middle EastAsia PacificAmericasAfricaEurope

50% of Global Market

Note: 1) Covering 90% of Entire Oil Production in 2004Source: BP, statistical review of world energy 2005 / A.T. Kearney Analysis


10/59

A.T. Kearney 82/7478 10

Demand The global crude oil

consumption totals to US$ 1.11 trillion

Demand The global crude oil

consumption totals to US$ 1.11 trillionCrude Oil Consumption in 2004 1)Crude Oil Consumption in 2004 1)

Key Consuming RegionsWorld Consumption

445

280

288

65

37

AsiaAsia

PacificPacific

Europe &Europe &EurasiaEurasia

AmericasAmericas

AfricaAfricaMiddleMiddleEastEast

Americas Europe & EurasiaUS$ 1.11 trillionUS$ 1.11 trillion

USUS70%70%

OtherOther10%10%

CanadaCanada8%8%

BrazilBrazil6%6%

MexicoMexico6%6%

Asia Pacific

OtherOther46%46%

GermanyGermany13%13%

RussianRussianFederationFederation

13%13%

FranceFrance10%10%

ItalyItaly9%9%

United KingdomUnited Kingdom9%9%

ChinaChina29%29%

OtherOther23%23%

SouthSouthKoreaKorea10%10%

IndonesiaIndonesia5%5%

JapanJapan23%23%

IndiaIndia11%11%

AustraliaAustralia4%4%

Note: (1) Based on production volume times regional spot crude oil pricesSource: BP Statistical review of world energy 2005/ A.T. Kearney analysis


11/59

A.T. Kearney 82/7478 11

Demand The USA, China, Japan are the

three dominant petroleum consumers

Demand The USA, China, Japan are the

three dominant petroleum consumersRegional Crude Oil Consumption BreakdownRegional Crude Oil Consumption BreakdownKey Consuming Countries 1)(US$ Billion)

311

8265

37 36 33 31 29 28 28 28 26 25 22 21 20 18 18 17 14 14 11 11 11 11

Middle EastAsia PacificAmericasAfricaEurope

Note: 1) Covering 85% of Entire Oil Production in 2004Source: BP, statistical review of world energy 2005/ A.T. Kearney Analysis

80% of global market50% of Global Market

U S A

C h i n a

J a p a n

G e r m a n y

R

u s s

i a n

F e d

e r a

t i o n

S o u

t h

K o r e a

C a n a

d a

I n d i a

F r a n c e

I t a

l y

B r a z i

l

M e x

i c o

U n

i t e

d

K i n g

d o m

S p a

i n

S a u

d i

A r a

b i a

O t h e r

A f r i c a

O t h e r

M i d d l e E a s

t

I n d o n e s

i a

N e

t h e r l a n

d s

B e l g i u m

&

L u x e m

b o u r g

A u s

t r a

l i a

T h a

i l a n

d

T a

i w a n

O t h e r

S .

&

C e n

t . A m e r i c a

I r a n


12/59

A.T. Kearney 82/7478 12

Balance: Demand and supply are spatially

separate resulting in complex product flows

Balance: Demand and supply are spatially

separate resulting in complex product flows

AmericasProduction vs. Consumption

AfricaProduction vs. Consumption

Asia PacificProduction vs. Consumption

Middle EastProduction vs. Consumption

Europe & EurasiaProduction vs. Consumption

Regional Crude Oil Production and Consumption(Million Barrels per Day)Regional Crude Oil Production and Consumption(Million Barrels per Day)

21 20 21

29 29 30

2002 2003 2004

16 1718

20 20 20

2002 2003 2004

2123 25

5 5 5

2002 2003 2004

8 8 8

22 22 23

2002 2003 2004

8 8 9

3 3 3

2002 2003 2004

= Production

= Consumption

Source: BP, statistical review of world energy 2005

WorldwideComparison

74 77 8077 78

2002 2003 2004

81


13/59

A.T. Kearney 82/7478 13

An imbalance between the supply and demand

for oil is driving recent price increases

An imbalance between the supply and demand

for oil is driving recent price increases

$0

$10

$20

$30

$40

$50

$60$70

Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05

NYMEX Light Sweet Crude Oil PricesNYMEX Light Sweet Crude Oil Prices

Source: Energy Information Administration


14/59

A.T. Kearney 82/7478 14

US Petroleum imports have increased

dramatically and are projected to continue

US Petroleum imports have increased

dramatically and are projected to continueUnited States Petroleum Supply, Consumption, and Imports, 1970-2025(Million Barrels Per Day)United States Petroleum Supply, Consumption, and Imports, 1970-2025(Million Barrels Per Day)

30

Domestic supply

Consumption

History Projections

Net imports

56%

68%

25

20

15

10

5

01970 1980 1990 2000 2010 2025

Source: Energy Information Agency


15/59

A.T. Kearney 82/7478 15

Most nations grew US imports with major

share gains from Persian Gulf and Canada

Most nations grew US imports with major

share gains from Persian Gulf and CanadaUS Crude Oil Import SourcesUS Crude Oil Import Sources

Key Importing Countries - 2004Total = 12,264 kBPD

Key Importing Countries - 1983Total = 5,051 kBPD

Mexico

Other

UnitedKingdom

Norway

Columbia

Canada

Venezuela

NigeriaSaudiArabia

IraqPersian Gulf(Remainder)

Iraq

Saudi

Arabia

Nigeria

Venezuela

CanadaColumbia

Mexico

UnitedKingdom

Norway

Persian Gulf(Remainder)

Other

Source: Energy Information Administration / A.T. Kearney Analysis


16/59

A.T. Kearney 82/7478 16

In 1997 there were fifty refining & marketing

companies in the US

In 1997 there were fifty refining & marketing

companies in the US

0

500

1000

1500

2000

2500

V a l e r o

H u n t

G i a n t

W a i n c o

T i m

e

P a r a m o u

P r i d

e G

P l a c i d

C o a s t a l

P e t r o

S t a r

L i o n

U n i t e d

P e n n z o

i l

H o l l y

U l t r a m a r

T e s o r o

B H P

F a r m

l a n d

C e n e x

M u r p

h y

S i n c l a

i r

T o t a l

C r o w n

D i a m o n

d F i n a

M a p c o

C o a s t a l

L y o n

d e l

l

S o

l o m o n

P h i l l i p s

C l a r k

A s h

l a n

d

T e x a c o

U n o c a l

T o s c o

A r c o

D u p o n t

P D V

K o c h

B P

U S X

S t a r

S u n

M o b i l

A m o c o

E x x o n

C h e v r o n

S h e l

l0

500

1000

1500

2000

2500

V a l e r o

H u n t

G i a n t

W a i n c o

T i m

e

P a r a m o u

P r i d e G

P l a c i d

C o a s

t a l

P e t r o

S t a r

L i o n

U n i t e d

P e n n z o i

l

H o l l y

U l t r a m a r

T e s o r o

B H

P

F a r m

l a n d

C e n e x

M u r p

h y

S i n c l a i r

T o t a l

C r o w

n

D i a m o n d

F i n a

M a p c o

C o a s

t a l

L y o n

d e l

l

S o

l o m o n

P h i l l i p s

C l a r k

A s h

l a n d

T e x a c o

U n o c a l

T o s c o

A r c o

D u p o n t

P D

V

K o c h

B

P

U S

X

S t a r

S u n

M o b i l

A m o c o

E x x o n

C h e v r o n

S h e l

l

50 R&M CompaniesAverage Size = 302 kBPD

R e

f i n

i n g

C a p a c i t y

k B P D

1997 US Refining Capacity in kBPD1997 US Refining Capacity in kBPD



17/59

A.T. Kearney 82/7478 17

and these companies traditionally

struggled to achieve strong returns

and these companies traditionally

struggled to achieve strong returns

-10%

-5%

0%5%

10%

15%

20%

25%

30%

35%

40%

1 9 8 5

1 9 8 6

1 9 8 7

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

R e t u r n o n

E q u

i t y

US Majors Independent Refiners S&P Nonenergy Industrials

Annual Return on Equity for PetroleumCompanies Relative to US IndustryAnnual Return on Equity for PetroleumCompanies Relative to US Industry



18/59

A.T. Kearney 82/7478 18

Consolidation of majors and growth of

independents resulted in structural change

Consolidation of majors and growth of

independents resulted in structural change2004 US Refining Capacity in kBPD2004 US Refining Capacity in kBPD

0

500

1000

1500

2000

2500

P a r a m o u n

t

H u n

t

G W i l l i a m s

C a l u m e t

S u n c o r

A l o n

P e t r o S

t a r

U n i t e d

G i a n t

W e s

t e r n

H o l

l y

P e g a s u s

E r g o n

C

H S

F r o n

t i e r

M u r p h y

R o s e m o r e

S i n c l a i r

C h a l m e t

t e

T o t a l

L y o n

d e l l

D e e r P a r

k

T e s o r o

S h e l l

P

D V

M o t i v a

K o c

h

P r e m c o r

S u n o c o

M a r a t

h o n

C h e v r o n

V a l e r o B

P

E x x o n

C o n o c o

0

500

1000

1500

2000

2500

P a r a m o u n

t

H

u n t

G W i l l i a m s

C a l u m e t

S u n c o r

A

l o n

P e t r o

S t a r

U n i t e d

G i a n t

W e s

t e r n

H o l

l y

P e g a s u s

E r g o n

C H S

F r o n

t i e r

M u r p h y

R o s e m o r e

S i n c l a i r

C h a l m e t

t e

T o t a l

L y o n

d e l l

D e e r P a r

k

T e s o r o

S h e l l

P D V

M o t i v a

K o c

h

P r e m c o r

S u n o c o

M a r a t

h o n

C h e v r o n

V a l e r o B

P

E x x o n

C o n o c o

R e f i n

i n g

C a p a c

i t y k

B P D

Source: Energy Information Agency: January 1, 2005

Year 1997 2003 2004Number ofR&MCompanies

50 35 50+

AverageSize

302 485 335


19/59

A.T. Kearney 82/7478 19

Capacity grew even though there were

substantial refinery closures

Capacity grew even though there were

substantial refinery closures

14,000

14,500

15,000

15,500

16,000

16,500

17,000

1 9 8 5

1 9 8 6

1 9 8 7

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

D i s t i l l a t i o n

C a p a c

i t y

( k B P D )

0

50

100

150

200

250

N u m

b e r o

f R e f i n e r

i e s

14,000

14,500

15,000

15,500

16,000

16,500

17,000

1 9 8 5

1 9 8 6

1 9 8 7

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

D i s t i l l a t i o n

C a p a c

i t y

( k B P D )

0

50

100

150

200

250

N u m

b e r o

f R e f i n e r

i e s

US Refining Count and Capacity TrendsUS Refining Count and Capacity Trends



20/59

A.T. Kearney 82/7478 20

Until this last year, returns still did not

achieve the costs of capital

Until this last year, returns still did not

achieve the costs of capitalUS Refining & Marketing Returns on Invested Capital(1996-2002)US Refining & Marketing Returns on Invested Capital(1996-2002)

7.73%

6.94%

5.39%

Top 4 Next 5-12 All Other

7.73%

6.94%

5.39%

Top 4 Next 5-12 All Other



21/59

A.T. Kearney 82/7478 21

The industry is now more efficient but

consolidation and cost focus will continue

The industry is now more efficient but

consolidation and cost focus will continueUS Refined Product Margins and Costs per Barrel ofPetroleum Product Sold(1981-2003)

US Refined Product Margins and Costs per Barrel ofPetroleum Product Sold(1981-2003)

(1) Gross Margins Decline Crude Cost Increase Product Prices Stagnant due to

Over Supply and Economy

(2) Operators Respond

(3) Net Margins Remain Low

Marginscontinue tostrengthen

through 2004/ 2005



22/59

A.T. Kearney 82/7478 22

Declining crude quality drives costs and

capital and is forcing portfolio decisions

Declining crude quality drives costs and

capital and is forcing portfolio decisions

30.0

30.5

31.0

31.5

32.0

32.5

33.0

33.5

34.0

34.5

35.0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

A P I G r a v i

t y , D

e g r e e s

0.85

0.97

1.09

1.21

1.33

1.45

S u

l f u r

C o n

t e n t ,

W t %

API Gravity Sulfur

30.0

30.5

31.031.5

32.0

32.5

33.0

33.5

34.0

34.5

35.0

1 9 8 2

1 9 8 4

1 9 8 6

1 9 8 8

1 9 9 0

1 9 9 2

1 9 9 4

1 9 9 6

1 9 9 8

2 0 0 0

2 0 0 2

2 0 0 4

A P I G r a v i

t y , D

e g r e e s

0.85

0.97

1.09

1.21

1.33

1.45

S u

l f u r

C o n

t e n t ,

W t %

API Gravity Sulfur


US Refining Crude Input Quality TrendsUS Refining Crude Input Quality Trends


23/59

A.T. Kearney 82/7478 23

In supply, Kinder & others employ strategies

similar to the independents in refining

In supply, Kinder & others employ strategies

similar to the independents in refining

0 100 200 300 400 500

Point Agguello

Lakehead

ARCO

Chevron

SFPP

Amoco

Shell

Colonial

Exxon

BP

Net Income (millions)

0 100 200 300 400 500

Williams

Mars

Phillips

Koch

Colonial

Marathon

Kinder Morgan

ExxonMobil

BP

Shell

Net Income (millions)

1994 Top 10 Interstate Oil PipelineCompanies Net Income (millions)1994 Top 10 Interstate Oil PipelineCompanies Net Income (millions)

2002 Top 10 Interstate Oil PipelineCompanies Net Income (millions)2002 Top 10 Interstate Oil PipelineCompanies Net Income (millions)

There is an emerging trend toward common distribution assets industrypipelines, trucks and terminals in operations that are not differentiators

There is an emerging trend toward common distribution assets industrypipelines, trucks and terminals in operations that are not differentiatorsSource: Oil & Gas Journal Annual Pipeline Survey


24/59

A.T. Kearney 82/7478 24

Technology has helped but the holy grail

of integrated information is not realized

Technology has helped but the holy grail

of integrated information is not realizedProven Technologies

SCADATelemetry

Linear Programming

Multiphase Flow ModelsOne call response

Vision for the Future

Demand drivenIntegrated real-timedemand, flow, stockinformation

Some progress Shell / i2 Aspentech

Real time damagemonitoring Satellite surveillance

Opportunity commonlybelieved to be $0.50/BBL


25/59

A.T. Kearney 82/7478 25

US supply chain participants are beginning

to focus on customer profitability

US supply chain participants are beginning

to focus on customer profitability

-1.5 -0.3

82.11.3

6.5 89.9 89.5

-3.0-0.2-1.4-1.4

ProductRevenue

FreightRevenue

HedgingGains

TotalRevenue

ProductCost

Freightcost

TradeDiscounts

GrossMargin

SGA Costs Earlypayment

NetMargin

Sales Revenue = 83.4COGS 3 = 87.7

Customer Cost to Serve Analysis for LS No. 2Diesel - (cpg)Customer Cost to Serve Analysis for LS No. 2Diesel - (cpg)

Limited marketsegmentation

Over-servecustomers that dontvalue extras

Under-servecustomers that dovalue extras

Pricing optimizationshortfall

Limited marketsegmentation

Over-servecustomers that dontvalue extras

Under-servecustomers that dovalue extras

Pricing optimizationshortfall


26/59

A.T. Kearney 82/7478 26

Finally, complexity remains an issue and

an opportunity

Finally, complexity remains an issue and

an opportunityCAFE standards

Regulatory requirements drive 15 different gasolineformulations

Few standards on operations

Few standards on blending

Limited information exchange standards

Complexity within the organization.people dont talk Marketing / Supply / Logistics

CAFE standards

Regulatory requirements drive 15 different gasolineformulations

Few standards on operations

Few standards on blending

Limited information exchange standards

Complexity within the organization.people dont talk Marketing / Supply / Logistics


27/59

A.T. Kearney 82/7478 27

A look to the futureA look to the future


28/59

A.T. Kearney 82/7478 28

The Global Business Policy Council

provides deep insight into future trends

The Global Business Policy Council

provides deep insight into future trendsThe Global Business Policy Council was formed over a decade agowith the objective of providing early warning against accelerating

shifts in economics, politics, technology, demographics, and culturethat are poised to shape and shake the global business environment

Membership in the Global Business Policy Council is limited to aselect group of corporate leaders (~50) and their companies joined bya small group of world-renowned policy makers, scholars, and otherthought leaders and their companies. Each year, these membershave three opportunities to gather for two-to-three days of intensediscussion and reflection on the forces shaping a volatile andcontinually changing global business environment

The Council produces a series of intellectual capital products thatprovide a broad range of insights on important global trends

The Global Business Policy Council was formed over a decade agowith the objective of providing early warning against accelerating

shifts in economics, politics, technology, demographics, and culturethat are poised to shape and shake the global business environment

Membership in the Global Business Policy Council is limited to aselect group of corporate leaders (~50) and their companies joined bya small group of world-renowned policy makers, scholars, and otherthought leaders and their companies. Each year, these membershave three opportunities to gather for two-to-three days of intensediscussion and reflection on the forces shaping a volatile andcontinually changing global business environment

The Council produces a series of intellectual capital products thatprovide a broad range of insights on important global trends


29/59

A.T. Kearney 82/7478 29

Any increasing number of important risks

are affecting corporate operations

Any increasing number of important risks

are affecting corporate operationsMost Critical Risks to Firm Operations (2004)(% of Total Respondents)Most Critical Risks to Firm Operations (2004)(% of Total Respondents)

Traditional Risks

64% 60%51%

46%

30%28% 26% 26%

Government

Regulation / Legal Decisions

Country

Financial Risk

Currency /

Interest RateVolatility

Political and

SocialDisturbances

Corporate

GovernanceIssues

Theft of

IntellectualProperty

Terrorist

Attacks

Security

Threats toEmployees andAssets

Emerging Risks

Decrease of 7 16%From 2003

Increase of 4 11% From 2003


30/59

A.T. Kearney 82/7478 30

Large firms often attribute earnings under-

performance to unexpected external events

Large firms often attribute earnings under-

performance to unexpected external eventsExternal Events Reported in 2003 AnnualReports of the Fortune 100External Events Reported in 2003 AnnualReports of the Fortune 100

43% of Fortune 100 companiesblamed unexpected external events forfailure to meet earnings expectations

43% BlameExternal

Events

Crisis in Latin America 20%

War in Iraq 12%

September 11 12%

Foreign Exchange Crisis 11%

Terrorism 9% (1)

Note: (1) Percentages do not add up due to multiple events reported by some companiesSources: A.T. Kearney analysis, company annual reports


31/59

A.T. Kearney 82/7478 31

Over time, the impact of risks on large

corporations is clear

Over time, the impact of risks on large

corporations is clearChange in the Fortune 500Change in the Fortune 500

200270

333

500

Today1990s1980s1970s

Almost50% oforiginal

500gone

A thirdgone (1) 60% of

original

500gone

Note: (1) Bought out or no longer in businessSources: INSEAD, A.T. Kearney analysis


32/59

A.T. Kearney 82/7478 32

To better understand risks, A.T. Kearney

focuses on the forces reshaping the world

To better understand risks, A.T. Kearney

focuses on the forces reshaping the world


33/59

A.T. Kearney 82/7478 33

The implications for oil and gas supply

chains are immense

The implications for oil and gas supply

chains are immense

New ConsumersGlobalization

NaturalResources &Environment

Demographics

Regulation& Activism

Sourcing Labor Conditions Environment Privacy

Increasing segmentation

Shift of location of demand

Fundamental shift in customer demand and labor supply

Major growth outside US

New competitors

Potential supply disruptions

Wildcards

Technology &Innovation

Continuous opportunities/threats from new products, processes, technologies

Globalization / New Consumers


34/59

A.T. Kearney 82/7478 34

New markets will arise almost everywhere New markets will arise almost everywhere

Source: World Bank, EIU, U.S. Census Bureau, A.T. Kearney analysis

India

ChinaJapan

SouthKorea

Taiwan

U.K.

Brazil

Mexico

Canada

Singapore

Hong Kong

NorthernAfrica

SouthAfrica

Russia

Philippines

AustraliaIndonesia

New Zealand

Pakistan

Iran

Turkey

Israel

East

Europe

Baltics

Scandinavia

Benelux

France

Spain

Italy

United States

Vietnam

68m 71m

145m

595m

82m

24m

33m 9m 9m

49m

39m

24m

30m

27m

19m

Germany

Malaysia

Upper IncomeUpper MiddleMiddle Income

how will you seize them?how will you seize them?

Thailand

Ireland

Natural Resources & Environment


35/59

A.T. Kearney 82/7478 35

The key conventional energy resources will

face challenges after 2020

The key conventional energy resources will

face challenges after 2020Energy Resources ConstraintsEnergy Resources Constraints

Technology improvements couldTechnology improvements couldretard the oil scarcityretard the oil scarcity

ConventionalConventionalenergyenergy

resourcesresources

OilOil

The future of the nuclear energyThe future of the nuclear energysupply depends on technology andsupply depends on technology andregulatory advancesregulatory advances

High resource uncertainty as gas isHigh resource uncertainty as gas islikely to be more scarce than oillikely to be more scarce than oil

Resources will focus on limitedResources will focus on limitedcountries driven by distance fromcountries driven by distance fromthe marketthe market

Gas

Nuclear power

Gas

Nuclear Power

Coal

Competition with food and leisureCompetition with food and leisurefor land usefor land use

Prices will further be reduced, newPrices will further be reduced, newforms of energy storage requiredforms of energy storage required

RenewableRenewableresourcesresources

Biofuels

Solar, wind & water

19901990 20002000 20102010 20202020 20302030 20402040

Source: A.T. Kearney; Shell Study 2050

Technology & Innovation


36/59

A.T. Kearney 82/7478 36

The race for the future energy technologies

is still open

The race for the future energy technologies

is still openCommercial introduction ofnew primary energy takes~ 25 years to obtain 1% ofglobal market

Future energy resourceswill focus on low emissions

but several issues have stillto be solved Nanotechnology:

hydrogen/ energy storage

costs efficiency

Solar energy Government efforts and

interests

Commercial introduction ofnew primary energy takes

~ 25 years to obtain 1% ofglobal market

Future energy resourceswill focus on low emissions

but several issues have stillto be solved Nanotechnology:

hydrogen/ energy storage

costs efficiency

Solar energy Government efforts and

interests

New TechnologiesNew Technologies

18001800 18501850 19001900 19501950 20002000

Energy Technology DiscontinuitiesEnergy Technology Discontinuities

Wood,wind,water,

ani-mals

Steam engine,coal

Electric

dynamo,coal

Internalcom-

bustionengine, oil

Nu-clear

power1970-1990

CCGTgas1)>1990

Solarenergy ?

Fuel Cellhydrogen?

1) Combined cycle gas turbineSource: A.T. Kearney; Shell Study 2050

Technology & Innovation

l ll ll f


37/59

A.T. Kearney 82/7478 37

Fuel Cells will create significant

opportunities when commercialized

Fuel Cells will create significant

opportunities when commercializedFuel Cell Market Scenario 2015Fuel Cell Market Scenario 2015

0

5000

10000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Market volume 1)(US$ millions)

Portable

Stationary

Mobile

PrototypePrototypephasephase

Commercialphase

Mobile

Portable

Stationary

Passengercars

Other cars &vehiclesBattery

replacement

Generators

Commercial/industrial

Residential

Expected Market Share in 2015

2-10%

(of new car registrations)

10%

30%

1) Market covers only Fuel Cells, excl. revenues from new fuelsSource: A.T. Kearne anal sis

Prototype phasePrototype phase



Launch

LaunchCommercial phase

Launch

Launch

Commercial phase

Launch

Launch

Commercial

phase

B e s t C a s e

B e s t C a s e S c e n a r i o s S c e n a r i o s

Natural Resources & Environment

l d b f


38/59

A.T. Kearney 82/7478 38

Supply disruptions may occur because of

disruption at a transit chokepoint

Supply disruptions may occur because of

disruption at a transit chokepointSupply Chokepoint Oil & Gas:Supply Chokepoint Oil & Gas:

Potential TransitChokepoint

Politically Unstable

Country With OilOr Gas Resources

Regulation & Activism

d l b h llA d l b h ill


39/59

A.T. Kearney 82/7478 39

A deregulatory era may be over how will

you manage governments visible hand?

A deregulatory era may be over how will

you manage governments visible hand?

Powerful Forces Push New Constraints

The growing crisis of corporate credibility

Mingling of science and ethics including human cloning

and ongoing biotechnology developments

63% of US citizens believe corporations are too powerful (1)

Powerful Forces Push New Constraints

The growing crisis of corporate credibility

Mingling of science and ethics including human cloningand ongoing biotechnology developments

63% of US citizens believe corporations are too powerful (1)

(1) Source: The Arlington Institute

Gl b l B i P li C il iGl b l B i P li C il i


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A.T. Kearney 82/7478 40

Global Business Policy Council executives

recently identified three future scenarios

Global Business Policy Council executives

recently identified three future scenariosCircle the Wagons suggests the US becomesisolationist

Patchwork World the US remains engaged in worldaffairs, but with limited friends

Open Society combines multilateral problem solvingwith global open markets

Circle the Wagons suggests the US becomesisolationist

Patchwork World the US remains engaged in worldaffairs, but with limited friends

Open Society combines multilateral problem solvingwith global open markets

Ci l h W h USCi l th W t th US


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A.T. Kearney 82/7478 41

Circle the Wagons suggests the US

becomes isolationist

Circle the Wagons suggests the US

becomes isolationist

US isolated and focused inward Europe seeks to rival US power and/orcreate Fortress Europe

Emergence of Teenage Drivers as rising,unstable China and India flex their musclesInternational Organizations are ineffective

USA

Hotspots

FriendsAlliesRivalsAdversaries

PoliticalWaterOil

TransitDemographic

P t h k W ld US i dP t h k W ld US i g g d


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A.T. Kearney 82/7478 42

Patchwork World US remains engaged

in world affairs, but with limited friends

Patchwork World US remains engaged

in world affairs, but with limited friends

Resembles 2004US engages on issues of national interestMixed EU-US relationship with bothcooperation and tensions

Most conflicts remain localizedInternational Organizations remain activebut weak

USA

Hotspots


PoliticalWaterOil

TransitDemographic

O S i t bi ltil t lOpen Society combines multilateral


43/59

A.T. Kearney 82/7478 43

Open Society combines multilateral

problem solving with global open markets

Open Society combines multilateral

problem solving with global open markets

Emphasis on multilateral problem solvingGlobal problems moderated by action

Resumption of robust global growth andstabilityCoalitions counter terror and local conflict

USA

Hotspots


PoliticalWaterOil

TransitDemographic

Wild Cards could shock the globalWild Cards could shock the global


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A.T. Kearney 82/7478 44

Wild Cards could shock the global

operating environment what is your risk?

Wild Cards could shock the global

operating environment what is your risk?

Country

Disintegration

WarErupts

New

Mercantilism

Terrorist

Resurgence

HackerHell

QuantumLeap

Global

Epidemic


45/59

A.T. Kearney 82/7478 45

Petroleum supply chainvalue creationPetroleum supply chainvalue creation

The Petroleum supply chain is truly globalThe Petroleum supply chain is truly global


46/59

A.T. Kearney 82/7478 46

The Petroleum supply chain is truly global

with some of the largest complexities

The Petroleum supply chain is truly global

with some of the largest complexities

Africa Bonny Forcados

Asia Alif Belida Hydra

Australia Cossack Gippsland Kutubu...

Latin America Leona Isthmus Medanito

Middle East Saudi Iranian Iraqi

North America Alaska North Slope West Texas Inter. Hibernia

North Sea Brent Blend Danish North Sea Liverpool Bay

Refining &Conversion

ProductMix

OutboundTransport

Bulk Distr.Terminals

Markets /Retail Outlets

CrudeSources

InboundTransport

Asia Refinery

Asia Refinery

Europe Refinery

Asia Refinery

Asia Refinery

Asia Refinery

Europe Refinery

Africa Refinery

Asia Refinery

Asia Refinery

LPG Butane Premium

Gasoline Mid Grade

Gasoline Regular

Gasoline Military Jet Fuel Commercial Jet

Fuel Heater Oil Low sulfur

diesel High sulfur

diesel Aromatics

and otherChemicalFeedstocks

Asphalt Coke Sulfur

Others

Ship Pipeline Barge Rail Truck

Pipeline Barge Rail Truck

MarketCenters

Industrial Users Petrochemical Construction Electricity Others

Retail Outlets

U.S. Refinery

U.S. Refinery

U.S. Refinery

U.S. Refinery

U.S. Refinery

U.S. Refinery

U.S. Refinery

Europe Refinery

Asia Refinery

Asia Refinery

US supply chain infrastructure is one of theUS supply chain infrastructure is one of the


47/59

A.T. Kearney 82/7478 47

US supply chain infrastructure is one of the

most complex systems in the world

US supply chain infrastructure is one of the

most complex systems in the world

US Petroleum Supply Chain Selected Physical Statistics(Latest Available Estimates)

Refining Pipelines Terminals

Barge (Excludes Ocean Tankers) Truck RailLiquid carriers 3,614Throughput (kBPD) 4,180

Petroleum Tank Trucks (thousands) 170.4Throughput (kBPD) 600

Number of Tank Cars (thousands) 3,411Throughput (kBPD) 300

Number 144Capacity (kBPD) 16,761Throughput (kBPD) 14,926Utilization (%) 89

Crude stocks (mBBL) 294

Total Miles ~190,000 Crude trunk line ~55,000 Crude gathering line ~40,000 Refined Product ~95,000

Throughput (kBPD) 25,000Crude + Product

Number 1,612Total storage capacity (mBBL) 700Typical stocks (mBBL) 237Utilization (%) 34

Source: Energy Information Administration / Association of Oil Pipelines / BP Statistical

Petroleum enters and leaves the US supplyPetroleum enters and leaves the US supply


48/59

A.T. Kearney 82/7478 48

Petroleum enters and leaves the US supply

chain at many locations

Petroleum enters and leaves the US supply

chain at many locationsUS Petroleum Oil Flow - Supply Chain Energy Balance - 2000(Quadrillion Btu)US Petroleum Oil Flow - Supply Chain Energy Balance - 2000(Quadrillion Btu)


Supply chain is a substantial portion of theSupply chain is a substantial portion of the


49/59

A.T. Kearney 82/7478 49

Supply chain is a substantial portion of the

downstream sector controllable costs

Supply chain is a substantial portion of the

downstream sector controllable costs

$1.56 $0.48

$0.68

$0.20

$0.20$0.00

$0.20

$0.40

$0.60$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

R e t a

i l P r i c e

T a x e s

C

r u d e C o s

t s

R e

f i n i n g

C o s

t s &

P r o

f i t s

D

i s t r i b u t i o n

/

M a r

k e t i n g

C o s

t s &

P r o

f i t s

Cost Contribution to US Retail Gasoline Prices - 2003Cost Contribution to US Retail Gasoline Prices - 2003

Roughly Equivalent

Source:Energy Information Administration / Department of Energy / A.T. Kearney Analysis

Executive expectation of supply chain as aExecutive expectation of supply chain as a


50/59

A.T. Kearney 82/7478 50

Executive expectation of supply chain as a

source of value creation is rising rapidly

Executive expectation of supply chain as a

source of value creation is rising rapidlyImportance of Procurement in Company Efforts(Average Responses from 2004 CEO Survey)Importance of Procurement in Company Efforts(Average Responses from 2004 CEO Survey)

1 = Low

4 = High

2.6

1.8

3.4

2.8

3.7

3.5

Cost Reduction Efforts Delivering Value Beyond Cost

PastCurrentFuture

Integrating and making our value chain more effective

Create value through effective innovation with key suppliers

CEOs priorities:

A T Kearney has identified four key leversA.T. Kearney has identified four key levers


51/59

A.T. Kearney 82/7478 51

A.T. Kearney has identified four key levers

for supply chain value creation

A.T. Kearney has identified four key levers

for supply chain value creation

I n n o v a t i o n

a n d G r o w t h

V a l u e

C h a i n

O p t i m i z a

t i o nA d v a n c

e d

C o s t M a n a g e m e n t

R i s k

M a n

a g e m

e n t /

S u p p l y

C o n t i

n u i t y

ValueCreation

Increasing customer demands and reducedIncreasing customer demands and reduced


52/59

A.T. Kearney 82/7478 52

Increasing customer demands and reduced

product cycle times have necessitated anincreased commitment to innovation

Increasing customer demands and reduced

product cycle times have necessitated anincreased commitment to innovation

Why Are Companies Focusing On It?

Customers look for innovation that cutsthrough the clutter and creates demand,not just satisfies it

Long-term profitable growth triggerssuperior share price performance

The pace of innovation in manyindustries has increased and become adifferentiating factor for successfulcompanies

I n n o v a t i o n

a n d G r o w t h

V a l u

e C h a

i n

O p t i m

i z a t i o

nA d v a n c e d


R i s k M a n

a g e m

e n t /

S u p p l y

C o n t i

n u i t y

ValueCreation

As companies focus on their coreAs companies focus on their core


53/59

A.T. Kearney 82/7478 53

As companies focus on their core

competencies, the importance of using thevalue chain as effectively rises

p

competencies, the importance of using thevalue chain as effectively rises


Concentrating on activities that makebest use of company assets helps fuelgrowth without investing capital

Best-in-class capabilities are oftenavailable from other partners in the valuechain

I n n o v a t i o n

a n d G r o w t h

V a l u

e C h a

i n

O p t i m

i z a t i o

nA d v a n c e d


R i s k M a n

a g e m

e n t /

S u p p l y

C o n t i

n u i t y

ValueCreation

Leaders are moving beyond basic savings /Leaders are moving beyond basic savings /


54/59

A.T. Kearney 82/7478 54

g y g

efficiency approaches to more advancedconcepts

g y g

efficiency approaches to more advancedconcepts


Basic approaches have yielded majorbenefits but additional gains will belimited unless tactics are changed

Advanced cost management approachesprovide an opportunity to improve overallvalue

I n n o v a t i o n

a n d G r o w t h

V a l u

e C h a

i n

O p t i m

i z a t i o

nA d v a n c e d


R i s k M a n

a g e m

e n t /

S u p p l y

C o n t i

n u i t y

ValueCreation

Many efforts to improve supply chainMany efforts to improve supply chain


55/59

A.T. Kearney 82/7478 55

y p pp y

efficiency have also increased supply chainrisks

y p pp y

efficiency have also increased supply chainrisks


Several measures which have improvedefficiency have also increased supplyrisks

Supplier consolidation Global sourcing JIT and Lean Manufacturing

Supply risk management is an importantpart of an enterprises overall risk

management strategy

I n n o v a t i o n

a n d G r o w t h

V a l u

e C h a

i n

O p t i m

i z a t i o

nA d v a n c e d


R i s k M a n

a g e m

e n t /

S u p p l y

C o n t i

n u i t y

ValueCreation

Supply chains able to create value exhibitSupply chains able to create value exhibit


56/59

A.T. Kearney 82/7478 56

pp y

common characteristics

pp y

common characteristicsInternal Capabilities of Supply Chains Capableof Delivering Value Beyond Cost ControlInternal Capabilities of Supply Chains Capableof Delivering Value Beyond Cost Control

Are You Ready To Deliver Value?

The Supply Chain is involved in setting company strategy

Our company systematically applies advanced cost managementstrategies across our spend base

We understand our supply risks and have mitigation strategies inplace for all major spend categories

Our organization is continuously developing and strengthening theskills required to successfully apply advanced techniques

The Supply Chain fosters cross-functional teaming throughout thecompany

We have a comprehensive management plan to attract and retain thebest talent


57/59

A.T. Kearney 82/7478 57

In summaryIn summary

Petroleum supply chains must anticipate andPetroleum supply chains must anticipate and


58/59

A.T. Kearney 82/7478 58

pp y p

adapt to the coming changeadapt to the coming changeOver the last 20 years, refiners consolidated inefficient and excesscapacity and are beginning to make gains in business returns

Consolidation of distribution assets is just beginningEnormous amounts of infrastructure and capital are invested in thefixed asset base particularly in the US

These investments are at risk from changing conditions Crude quality Shifting demographic and economic centers China and India Potentially disruptive technologies

Petroleum supply chains that employ leading practices can anticipatethese changes, capture additional value and thrive well into the future

Over the last 20 years, refiners consolidated inefficient and excesscapacity and are beginning to make gains in business returns

Consolidation of distribution assets is just beginningEnormous amounts of infrastructure and capital are invested in thefixed asset base particularly in the US

These investments are at risk from changing conditions Crude quality Shifting demographic and economic centers China and India Potentially disruptive technologies

Petroleum supply chains that employ leading practices can anticipatethese changes, capture additional value and thrive well into the future


59/59

Preparing for Global Change in the PetroleumSupply ChainPreparing for Global Change in the PetroleumSupply Chain

University of Nevada / COPPEAD Petroleum Executive Logistics Course

Houston, Texas

30 June 2005

Documents

科尔尼-preparing for global change in the petroleum supply chain-2005