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Global Refining Trends
The Global Refining Trends Lesson consists of the following topics:
- Global Refining Landscape
- Who Will Expand?
- Global Demand vs. Capacity
- Refining Investment Environment – US
- Refining Investment Environment – Europe
- Refining Investment Environment – Asia Pacific
- Planned Middle East Expansions
- Substitute Fuels
Global Refining Landscape
Global oil refining capacity is expected to expand by more that 10 MMBD in the next 10 years, a 12% growth. A recognized consulting firm estimates the average refinery constructed in the last 10 years is 125-150 MBD. To meet current demand growth the world could need 60-70 new refineries or major expansions. China and India are rapidly expanding refinery capacity to meet their growing demand.
Refining Centers
Refineries tend to be located near the major demand centers because large quantities of crude oil can be transported very easily and refined locally to desired product specifications. However, in the Middle East, large export refineries are planned. They are designed specifically to take local crude production and export products and feedstocks to the rest of the world. Many of these planned Middle East refineries are formed as Joint Ventures (JV’s) with major oil companies.
Historically in Asia-Pacific, Singapore has been a refining hub for supplies to the other countries and its role is expected to continue.
Demand Centers
The US, Europe and Asia-Pacific accounts for over ¾ of world demand. Differing demand slates for refined products throughout the world necessitate different refinery configurations in each region or demand center.
In the US, the demand for gasoline is more than double that required by the rest of the world and fuel oil demand is very small. Therefore, those refineries equipped with cracking units and coking units (deep conversion refineries) are best configured to meet US demand.
Europe has a much greater demand for middle and heavy distillates. Additionally, the demand has shifted significantly away from fuel oil to a greater emphasis on diesel and (in some countries) gasoline. As a result, new refineries or expansions need greater conversion capacity.
In Asia-Pacific, rapid growth in China and India is masking mature or declining demand in some of the other countries. Accurate supply/demand analysis requires a country-by-country understanding of how these demand variations relate to the local refining expansion strategy.
Who Will Expand? UPDATE
The Oil & Gas Journal does a survey every year of the world’s largest refiners. This table shows the ranking of the largest 25 refineries in January 2008. Global crude capacity is about 85 million BCD in 657 refineries; and global demand was about 84 million BCD in 2007 – so very little spare capacity exists in refining.
Based on a review of the table, the historic oil majors do not own most of the global refining capacity.
Note that in 2007, capacity worldwide increased only 129,000 BCD, a very small percentage of the 85 million. This type of increase is called “capacity creep”; in other words there were no major, big investments. More capacity was urged out of existing facilities with better operations and maintenance, better understanding of the units, better process control, etc.
In the future, all of these companies will expand refining capacity – each for a different reason.
The super majors, like BP and ExxonMobil, seem to be the least committed to refinery expansions. They may participate in JV projects in high-growth Asian areas. The super majors feel that downstream markets are cyclical and profitability likely will return to (much) lower levels.
Other integrated companies (e.g., Chevron, ConocoPhillips, and Marathon in the US and Total and ENI in Europe) are investing in refining either directly or in JV’s with National Oil Companies.
In Asia and the Middle East, state-owned companies hold the majority of refining assets. Both of these types of companies have expressed a strong need for new capacity.
- Asian refiners believe that the current tight capacity situation will ensure continued high margins
- The Middle East refiners see they can improve the value received from their heavy crude oil by refining it themselves.
Global Demand Outstripping Supply
As this graph shows, world refining utilization has gone up substantially since the low margin environment of the 80’s and early 90’s.
Historically, the US (and global) refining industry has experienced overcapacity. However, over the last few years, global demand growth has outpaced increases in refining capacity.
The Atlantic Basin (North America and Europe) has a large impact on refined product markets. (US and Europe represent about 43% of world petroleum demand.) The US hit its maximum utilization in 1997, and Europe in 1998. Utilization in these two key markets has not increased in the past few years, but has remained very high with little spare capacity, contributing to the recent price spikes in gasoline and distillate. In the past Asia-Pacific demand growth has been robust and will continue as China and India continue to expand.
Additionally, tightening product specifications have constricted production and reduced the flexibility of obtaining products imports, also decreasing supply.