Here is update on Motiva Pt Arthur (indicates 95 MBD coker) from Europe point view. If they think the Shell decision & expansion is unexpected, they must have been in a coma, especially Beutel because there are “others” following suit (about 25-35 in US / 65-70 worldwide) on the expansions.
But the focus is good & one I have been pointing to for some time now on expansion updates. <Motiva is just one of 3-4 world-scale US refineries on-track to double capacity into the +600 MBD range and move into title as US largest refinery ……. only problem is that increase might give them the title in todays operations but not in 2-3 years when these monsters start coming online.> All the Global refinery expansions seem to count on exporting Gasoline or gasoline components to supply short US market – primarily because the rest of the world is diesel economy and if it cannot place all the gasoline product then these refineries must run at reduced crude capacity that matches the diesel consumption (or what portion of that demand that matches their domestic ability to place the naphtha & gasoline components into other products like petrochemical feedstocks). The 90’s had Japan & Africa at 60% capacity, Europe at 75-85% and Russia at 70% capacity from this impact (ie US was balanced / slightly short on gasoline production). So the combination of all US expansions to run more heavy Canadian crude combined with big push to significantly increase the Ethanol 10-25% range is going to push out the most expensive element of supply = imports. <Also most other countries are paying $3-5/gallon for fuel products (largely due higher rate of taxes) so they cannot just decrease the price until it moves (especially at $65-85/Bbl for crude).
Kuwait is already feeling a Naphtha glut this year from the backup coming from reduced China demand. China is growing its gasoline vehicle fleet rapidly (enough so to take it out as future exporter of gasoline/blend stocks) but it is still very limited on global basis. If you check the investment description on lot of the global expansions a significant portion are counting on exporting large volumes of gasoline components into the US which will become a shrinking market – even if environmentalist are allowed to continue to block new Greenfield refineries like Arizona or S Dakota’s attempts (one reasons existing refinery (Brownfield) expansions are more likely to go forward than their global counterparts.
Another area this articles experts have wrong is that not only will the US expansions lower domestic product prices (i.e. stop market undersupply & shift it to balanced, eliminate most costly segment of supply = imports, but it will shave some of gasoline peak price spikes when key refineries fall down = will be more capacity to take up slack). But additionally it WILL reduce the world & US demand for crude as well (article has opposite view but its from financial & trader types who have reason to hype that view & no real understanding of market).
The reason it will reduce demand is that countries competing for crude supply with US also have to export the gasoline to the US. So you waste crude in the form of ship bunkers to drag crude into these countries (often with limited logistics/ship size capabilities) and then waste fuel again to drag the gasoline components into the US. And as offset most of the US expansions (guess Shell jury is still out on OPEC vs. Canada Oil Sands) will be using New sourced crude from Canada that will arrive by expanded or new pipelines into US (sorry Chavez your DOA). This reduces not only competition for OPEC crudes (double reduction since gasoline exports will hammer them as well) but the crude comes into the US by Pipeline which uses a mere fraction of the energy that ships &/or trains (case Asia/Russia) or trucks into the refineries – another large crude demand reduction. This is also fortunate because with the reduced resid/heavy fuel oil production due to placement into coker feedstocks the price of bunkers would cripple the vessel freight rates even more than they are currently = significant rise in cost due limits on vessel supply & bunker cost increase from reduction in past oversupply position of this fuel source.