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Refining margins under pressure to 2015

06.01.2011  |  Thinnes, Billy,  Hydrocarbon Processing Staff, Houston, TX

Keywords: [refining] [outlook] [margins] [capacity] [world] [bpd] [crude oil] [production]

KBC Advanced Technologies recently published its refining outlook, a report that analyzes issues facing the global oil refining sector and discusses their impact on the crude-oil and refined-products markets. KBC foresees global refining margins continuing under pressure in the medium term as recovering global demand is met by a continuing wave of new refining capacity construction that will see global refining utilization rates remain around 85% of nameplate capacity at least through 2015.

The report highlights the key pressures that face refiners, including declining demand in mature economies; tightening global standards for marine fuel quality; increased taxation and regulation of carbon dioxide emissions; and competition from biofuels and natural gas liquids (NGLs) from export-oriented refining countries like India, Russia and, increasingly, Brazil.

In the Americas, major investment in a number of Latin American countries, coupled with increased distillate production capability in US Gulf Coast refineries, will see a rise in the export of finished products to Europe and Africa. Brazil alone is set to add over 1.2 million bpd of new refining capacity by 2020 as it aims to process most of its expanding crude-oil production domestically and to export the products.

In Asia, KBC sees both China and India continuing to add refining capacity. China is expected to build new capacity in line with its surging domestic demand for transport fuels and petrochemical feedstock, driving global demand for crude oil while still having only a limited impact on product markets. India’s refiners—both public sector and private—continue to advance plans that will keep the country in strong surplus, eagerly eyeing export markets in other Asian countries and further abroad.

Middle Eastern refiners are also expected to add refining capacity above their domestic requirements, with 1.6 million bpd of firm new capacity expected by 2016 in Saudi Arabia and the UAE, and more than 1 million further bpd of potential capacity to be built elsewhere on the Arabian Peninsula. Iran and Iraq both continue to plan significant new additions as well, though geopolitical realities suggest no clear timeline for these additions. Surplus output from Middle Eastern refineries will compete with Asian products for markets in Asia and Europe, making operational efficiency, freight costs and crude-oil pricing key parameters in a highly competitive market.

European refiners face rising clean-fuels import competition from the Americas, Asia and Russia. KBC anticipates a significant wave of Russian refining upgrading investment driven by recent reforms in Russia’s export tariff structure. These upgrades could see Russia’s exports swing from relatively low-quality intermediates, like vacuum gasoil and M-100 fuel oil, to higher-quality finished products that meet European standards. With declining export markets for surplus gasoline, a functioning carbon market from 2013 and a swing to distillate bunker fuels in the North Sea/Baltic corridor, Europe’s refiners face the greatest pressure in the global scenario, although unlike some more bearish analysts, KBC anticipates only limited future closures, instead anticipating a prolonged period of relatively low utilization rates.

With over 2 million bpd of refining capacity earmarked for closure and around 8 million bpd announced for sale, or sold, since 2009, the refining industry faces an anxious period of transition over the next five years, with new entrants attempting to profit where experienced operators have chosen to exit. KBC sounds a note of caution in this year’s annual refining outlook—undoubtedly the refining market is better now than it was a year ago, but this is not necessarily an upward trend. Refining will remain a tough business over the next few years.  HP

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The tightening global standards for marine fuel quality and the increased taxation and regulation of carbon dioxide emissions are two issues that will continue to adversly affect the refining industry. Both of these greatly impact the economy of each country. Neither serve people anywhere.


The tightening global standards for marine fuel quality and the increased taxation and regulation of carbon dioxide emissions are two issues that will continue to adversly affect the refining industry. Both of these greatly impact the economy of each country. Neither serve people anywhere.


India Refiners with large investments on technologies to give cleaner fuels are expected to gain greater global market share and good refinery margins


We need to clealry state that refineries owned by major oil companies are supplied by their own crude supplies allows them flexibility in the marketing side of the refienry equation.

An example is if Valero wants to capture market shares, it has to procure more outlets either by discounts or other inducements at the distributor and retail level.

The major oil companies have a unique position when they own the oil for their refineries. They can sell their end products cheaper and also take market shares.

The independent refieries without crude supplies with long-term and discounted contracts may well go out of business.

I do see more importation of finished pretroleum products entering the US simply because the cost of production is simly lower. Indian and South Korea have made inrodas already.

The unions at US refineries are driving refinery costs upward without producitivy gains which is self defeating like most unions in Europe and the US.

The gross failure of the refinery industry in the US to combat the misinformation from the Department of Energy allows the curent White House adminsitration to constantly misinformed the American public with outright lies with disoriented anti-business attitudes especially against oil drilling and ignorance about alternative fuels. Electric cars are not the answer.

One has to wonder if the current President and his incompetent lackeys are actually deliberatly trying to desyrtoy the oil and gas industry.

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