IRPC ’14: Refinery closures needed to keep global operating rates healthy

VERONA, Italy -- Further refinery closures are needed if the global refining sector hopes to keep its utilization rates above 80%, according to the CEO and president of Kuwait Petroleum International.

Bakheet Al-Rashidi, who delivered Thursday's keynote address at the International Refining and Petrochemical Conference (IRPC), says that based on current capacity and planned expansions, global utilization rates are set to fall to about 79% by 2015.

"To bring utilization rates back up to a healthy 82% will require closure of around 7 million bpd of capacity by 2015," Al-Rashidi said. Of that 7 million bpd of needed closures, about 2 million bpd is already confirmed, he said.

Global operating rates were as high as 87% in the mid-2000s. But when the global economic downturn hit in 2008, rates plunged as low as 80% in 2009 before moving up incrementally in recent years. But without further refining closures, the downward trend could resume in 2015.

"This may not be feasible on a sustainable basis," said Al-Rashidi, speaking of the current capacity scenario.

The Kuwait Petroleum executive says he expects an additional 3.8 million bpd of refinery closures by mid-2015, mainly in Europe, parts of Asia and Australia due to weaker margins, aging facilities, new environmental regulations and high labor costs.

Looking beyond the next year, he says the future focus of the sector will be on clean fuels production. In terms of capacity expansions, China should lead the way with an additional 7.5 million bpd of production by 2020, while the Middle East is likely to raise its capacity to 11.4 million bpd from 7.9 million bpd at present.

Those expansions, of course, could put even more pressure on less-competitive refiners to close.

"Smaller and uneconomical refineries are having to shut down," Al-Rashidi said.

Al-Rashidi called on European refiners to study several options for staying in business. Those include investing to increase utilization, improve yields and reduce costs; improving operational excellence, optimization and integration; divesting unprofitable assets to maximize return on investment and reduce risks; and closing unprofitable assets and converting them to other uses, such as a terminal.

IRPC 2014 runs through Thursday. For more details, visit the HPInformer blog or the event website.

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