November 2016

Trends and Resources

Business Trends: Global refining overview—Part 3

Hydrocarbon Processing continues its series on the global refining industry. This series provides a detailed outlook on the state of the global refining sector, active and new project developments, and an overview of major refining trends in each region. Part 3 provides an overview of the refining sectors of Canada, Latin America and the US.

Nichols, Lee, Hydrocarbon Processing Staff

Hydrocarbon Processing continues its overview of the global refining sector. Part 1 provided an overview of the global supply and demand of refined fuels, total installed global refining capacity, and an outlook on refining capacity additions and new project developments. Part 2 focused on the refining sector and capacity construction outlook for the Asia-Pacific region. The following is an overview of the refining sectors of North and South America.

Night view of an alkylation unit at Marathon Petroleum’s Galveston Bay refinery in Texas City, Texas. The company is increasing the plant’s distillate production capacity and expanding its export capabilities. Photo courtesy of Marathon Petroleum.
Night view of an alkylation unit at Marathon Petroleum’s Galveston Bay refinery in Texas City, Texas. The company is increasing the plant’s distillate production capacity and expanding its export capabilities. Photo courtesy of Marathon Petroleum.


Nearly 80% of the active Canadian downstream construction projects are located in the refining and gas processing/LNG sectors. The country has 16 operating refineries with a total installed domestic refining capacity of just under 2 MMbpd. According to the Canadian Association of Petroleum Producers (CAPP), Canada processed 1.7 MMbpd of crude oil in 2015, of which 67% was sourced from domestic production. The majority of the country’s refining capacity is located in the eastern provinces. Combined, the eastern provinces of Ontario, Quebec, Nova Scotia, New Brunswick, and Newfoundland and Labrador have eight refineries with over 1.2 MM-bpd of refining capacity.

The country’s refining system is broken down as follows:

  • Ontario: Four refineries with a total capacity of 392 Mbpd
  • Quebec/Atlantic provinces: Four refineries with a total capacity of 782 Mbpd
  • Western Canada: Eight refineries with a total capacity of 681 Mbpd.

Western Canada also contains five operating upgraders with a capacity of more than 1.3 MMbpd. Upgraders, located primarily near oil sands production in Alberta, process heavy oil (bitumen) into high-quality, low-sulfur synthetic crude oil.

Additional refinery project construction is expected to increase demand for domestic heavy crude. These projects include the Moose Jaw refinery expansion project (completed in late 2015), North West Redwater Partnership’s (NWRP’s) Sturgeon refinery, the Kitimat Clean refinery project and the Pacific Energy Future refinery project.

The 80-Mbpd Phase 1 of the 240-Mbpd NWRP refinery is being developed by a 50/50 JV of North West Upgrading and Canadian Natural Resources Ltd. The $8.5-B bitumen refinery will be located in Sturgeon County, 45 km northeast of Edmonton, Alberta. The facility will convert diluted bitumen into ultra-low-sulfur diesel (ULSD) fuel and other high-value products, such as high-quality recycled and manufactured diluents, to replace expensive imports and produce naphtha for high-octane gasoline, low-sulfur vacuum gasoil, and light ends like butane, propane and ethane.

The partnership has secured regulatory approvals for all three phases, completed designs, ordered and received major equipment, awarded contracts and commenced construction of Phase 1. The project’s first phase is scheduled to begin commercial operations in 2H 2017.

Two other projects have the potential to add nearly 600 Mbpd of additional refining capacity in Canada. These two projects include the 400-Mbpd Kitimat Clean refinery and the 200-Mbpd Pacific Future Energy project. These two facilities will process diluted bitumen shipped from oil sands production in neighboring Alberta. The diluted bitumen will be processed and delivered to international markets.

The goal of these projects is to eliminate proposals to ship bitumen from marine terminals in British Columbia to Asian markets. The idea is that pipeline projects, such as Enbridge’s Northern Gateway and Kinder Morgan’s Trans Mountain expansion, will transport bitumen from Alberta to British Columbia for export. At the time of publication, both pipeline projects are under extreme public opposition. The Trans Mountain project has made headway by obtaining construction approval from Canada’s National Energy Board (NEB)—subject to 157 conditions. If built, the pipeline expansion project would create a twinned pipeline that would increase capacity from 300 Mbpd to 890 Mbpd. Canada’s prime minister is expected to make a decision on the project by the end of 2016.

In lieu of shipping raw bitumen, Kitimat Clean and Pacific Future Energy’s projects aim to process the bitumen first and then ship the refined fuels to market. The Canadian Environmental Assessment Agency was seeking public comment on the Kitimat Clean project in mid-2016, and Pacific Future Energy filed its formal project description with federal and provincial regulators in mid-June. Should these projects be greenlighted, operations would not begin until after 2020.


The country’s fuels market is the world’s largest. Over the past two years, the drop in oil prices has spurred consumption rates in the US, especially for gasoline. Gross inputs to US refineries reached a record level in August 2015, eclipsing 17.2 MMbpd during the summer driving season. This record was a combination of low crude oil prices, high utilization rates, low fuel prices at the pump and strong demand for gasoline, both domestically and internationally.

Low oil prices and booming gasoline demand produced high crack spreads for US refiners. The surge in profits motivated US refiners to delay maintenance and run their units at high utilization rates to satisfy heavy consumption and to produce more gasoline than middle distillates.

By mid-2016, however, US refiners had produced too much domestic supply. Although the US is still seeing high fuel consumption rates, this trend is not equating to higher profits for refiners. The main culprit is inventory stockpiles. The US domestic market is flooded with gasoline. In mid-2016, gasoline stockpiles were at their highest level in a decade. With the US awash in a glut of gasoline, this scenario has led to a dramatic decrease in refining margins. In the near future, refiners will likely need to cut refinery runs to allow gasoline stockpiles to decrease.

If refining run rates are cut, the boom in US domestic consumption should draw down stocks. According to the US EIA, total liquid fuels consumption is forecast to increase from 18.5 MMbpd in 2012 to nearly 20 MMbpd by the early 2020s. In the short term, total US liquids consumption is forecast to increase by 170 Mbpd in 2016 and by an additional 120 Mbpd in 2017. The US EIA’s Short-Term Energy Outlook July 2016 forecasts an increase in gasoline consumption of 130 Mbpd in 2016. The EIA pegs gasoline consumption at nearly 9.3 MMbpd, which would be a gasoline consumption record. The report also anticipates an expansion in middle distillate production of 80 Mbpd in 2017, driven by stronger economic growth and expected colder winter temperatures.

At over 18 MMbpd, the US refining system is the largest and one of the most sophisticated refining networks in the world. The country has 139 refineries in operation, with the majority of the country’s refining capacity located along the US Gulf Coast. The refining network is divided into five Petroleum Administration for Defense Districts, or PADDs. The number of refineries and operable capacity of each PADD are listed in TABLE 1.

Over the past two years, the major trend in new US refining capacity has been processing the wave of lighter crude oils produced from US shale plays. The shale boom has made the US the largest crude oil producer in the world. The huge quantity of shale oil being produced in the US has also led to an overall “lightening” of the crude feedstock slate. Since the use of shale oil in US refineries is increasing, capital expenditures are moving toward more distillation capacity to process lighter crudes, as well as upgrades to meet strict Tier 3 fuel regulations.

As a result of increased production and high refining utilization, US exports of refined petroleum products have increased substantially over the past several years. According to the US EIA, total refined products exports increased from 2.3 MMbpd in 2010 to nearly 4.3 MMbpd in 2015. US refined product exports have more than quadrupled over the past 15 years.

The top receiving nations for US petroleum products are located in Central and South America. This region has announced major downstream projects to help satisfy growing demand, but lacks the financial strength to pursue refining capacity additions and grassroots installations. In 2015, US refined product exports to Latin America totaled nearly 1.5 MMbpd. This volume represented approximately 35% of total US refined product exports. Other major destinations for US fuels are Canada, China, France, the Netherlands and Singapore.

Latin America

The outlook for the Latin American region is challenging. Central and South America witnessed robust demand over the past decade, but this trend of fast-paced consumption, especially for gasoline and diesel, is decelerating in the region. Multiple forecasts show that the region will see a nominal increase in demand through the rest of the decade. Unfortunately, the region’s refineries have been unable to keep pace with demand and are challenged to produce higher-grade, lower-sulfur transportation fuels. Coupled with those aspects, the drop in oil prices has hammered Latin American countries, especially those that depend heavily on oil export revenues.

This predicament has caused new downstream project announcements to decrease year-over-year. According to Hydrocarbon Processing’s Construction Boxscore Database, new project announcements in Latin America have fallen from nearly 60 in 2014 to under 20 in 2016. The region has announced many new refining projects to help curb imports, but the drop in crude oil prices has left little money to fund capacity additions. In the short term, Latin American nations would rather import refined fuels than invest in major expansions or grassroots facilities. This does not mean the region is void of projects. Latin America is expected to add more than 600 Mbpd of new refining capacity by the end of the decade.

The startup of additional refining capacity, coupled with a forecast slowdown in regional demand over the next few years, will decrease Latin American refined fuel imports. However, many nations in the region will still require refined fuel imports to satisfy domestic demand for transportation fuels.

Brazil cannot keep pace with its consumption rates, which have steadily increased for over a decade, reaching nearly 3.2 MMbpd in 2015. However, this trend is slowing due to a shrinking economy brought on by government corruption scandals. Over the past year, the country’s demand for gasoline and diesel fuels has seen a reversal. Since mid-2015, demand for both fuels has decreased as the country maneuvers through one of the worst recessions it has seen in decades.

Still, the nation is dependent on fuel imports to satisfy consumption. To help reduce gasoline imports, Brazil has increased ethanol blending requirements, and has increased the domestic biodiesel mandate from 5% to 7%. The country still needs additional refining capacity. In April, the country’s petroleum agency, ANP, announced that if additional facilities are not built, Brazil’s fuel shortage could triple to more than 1 MMbpd by 2030. The country’s ambitious refining capacity plan, announced in 2011, was plagued with problems due to cost overruns, downstream revenue losses, massive debt and government scandals. This program included the construction of four major refineries—Comperj, Abreau e Lima, Premium 1 and Premium 2—that would have boosted domestic capacity by nearly 1 MMbpd by 2018. The Comperj and Abreau e Lima Train 2 projects have been delayed, and both Premium refineries have been abandoned. Total new refining capacity is likely to reach less than 300 Mbpd out of the announced 1 MMbpd by the end of the decade.

Even with increased refinery capacity additions, ethanol blending requirements and a deep recession, the country will still lack adequate processing capacity to meet future demand. This gap will ultimately be filled by additional fuel imports, mainly from the US.

In Mexico, domestic production is sufficient to meet consumption, but the country lacks adequate refining capacity to satisfy demand for transportation fuels. The country’s gasoline production has been stagnant over the past few years. According to Pemex statistics, gasoline production averaged 421 Mbpd in 2014, then dropped considerably in 2015, to 381 Mbpd. In 2016, average gasoline production has ticked up slightly, to 382 Mbpd. Domestic diesel production has been in decline since 2013. Mexico has witnessed a fall in diesel production from 313 Mbpd in 2013 to 255 Mbpd in 2016. The decline in refined fuels production comes at a time when the country’s demand for transportation fuels, especially gasoline, is increasing.

Gasoline accounts for nearly half of Mexico’s oil demand, and that demand is growing rapidly. According to Mexico’s ministry of energy, gasoline consumption averaged nearly 1.7 MMbpd in the first half of 2016. With gasoline production sitting at approximately 382 Mbpd, imports are imperative to satisfy demand. The majority of gasoline imports come from the US. Mexico plans to increase investments in its refining sector to boost production capacity. These investments would allow the country to mitigate gasoline and diesel imports from the US, as well as meet strict environmental standards for transportation fuels.

The country has six refineries in operation. In late 2015, Pemex announced ambitious plans to invest $23 B in its refining sector. The program’s goals are to increase production, reduce gas emissions by more than 90%, and significantly reduce sulfur concentration in diesel from 500 ppm to 15 ppm. The company is presently seeking private partners, as well as divesting noncore assets, to help fund these ambitious plans. Pemex is in talks with multiple banks to seek help in finding partners for its investment plan; the search is expected to begin in earnest in early 2017. The multibillion-dollar program includes projects at the country’s Tula, Salamanca, Salina Cruz, Minatitlán, Cadereyta and Madero refineries.

Like many nations in Latin America, Argentina does not produce enough refined products to satisfy demand. As a result, the country must rely on imports. However, Argentina has announced plans to become self-sufficient in its energy needs. These include expansions and upgrades to the country’s existing refining network.

In May, Axion Energy Argentina secured financing to expand and upgrade its 87-Mbpd Campaña refinery. The $1.5-B project will increase the capacities of the refinery’s crude, catalytic cracking and hydrotreating units, as well as allow the refinery to meet stringent environmental standards and mitigate refined fuels imports. The Argentinian government has also announced an increase in the amount of ethanol to be blended in domestic fuels. In April, the blend requirement for ethanol in transportation fuels increased from 10% to 12%. The ultimate goal is to increase the ethanol blend requirement in gasoline to 15%.

Chile’s state-owned oil company, Empresa Nacional del Petróleo (ENAP), announced it will invest $800 MM/yr to 2020. The investment plan focuses on mitigating the need for energy imports, doubling revenues and adding nearly 950 MW to the country’s energy grid. Refining investments include possibly modernizing and expanding the country’s Concon and Hualpén refineries.

The drop in oil prices has hammered Venezuela, which relies heavily on oil export revenues. This has left the country with very little money to fund much-needed refinery expansions. The country is also in a deep recession, which has stifled demand. Gasoline is very cheap, thanks to government fuel subsidies, but this costs the Venezuelan government approximately $12.5 B/yr.

The country’s 1.3-MMbpd refining network has been hampered by multiple accidents, outages and equipment failures, resulting in substantially reduced utilization rates. Venezuela’s refineries are also unequipped to process heavy, sour crude from the Orinoco Belt, as well as a lack of financial strength to build heavy oil upgraders. Thus, the majority of unprocessed crude oil is exported to special refining centers in other nations for processing. The country is investing in expanding and upgrading its Puerto la Cruz refinery, but additional refining projects are simply not on the horizon. PDVSA’s refining unit, Citgo, plans to invest $650 MM to reopen the Aruba refinery to process Venezuelan heavy crude. To help with financing, Citgo has asked PDVSA for $100 MM, but no decision has been made on whether Citgo will get the financial help.

To increase the production of low-sulfur refined transportation fuels, Peru is expanding and modernizing its Talara refinery. The $3.5-B project will allow the refinery to meet new sulfur requirements for gasoline and diesel, as well as increase the facility’s flexibility to process heavier crudes. The project’s completion is scheduled for 2018.

Ecuador’s $10-B Refineria del Pacifico project is still in the works. At the time of publication, the project was finalizing engineering, procurement and construction (EPC) contracts to acquire financing. If built, the 200-Mbpd refinery would double the county’s refining capacity, as well as provide an outlet to process heavier crude. The initial completion date was 1Q 2019, but the facility will likely not be completed until after 2020.

Next month

Part 4 of this overview will appear in December. HP

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