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Asia Adds Refining Capacity

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    Oil refining limitations that have sent refined product prices soaring at a time of rising crude oil inventories look set to continue plaguing Asia in 2007. While some Asian refiners are adding more secondary processing units to produce less-polluting, higher-specification gasoline, diesel and jet fuel, less new capacity of this type will be brought on line than happened in 2006, a situation that may keep supply, and prices, at a premium. 
    “Some new capacity is coming on next year but it won’t be as much as in 2006,” said Victor Shum, a Singapore-based analyst at US energy consultancy Purvin & Gertz Inc.
    “My expectation is that utilization of secondary units will remain high, although it’s also true that the current lack of global conversion capacity is beginning to subside.”
    Asia’s shortage of locally-produced crude oil and price spikes that took crude futures to above US$78 a barrel this year have resulted in soaring import bills and higher oil product prices, putting economies across the region under pressure.
    Given supply tightness for easy-to-refine, low-sulfur crude, the industry in Asia has been pushing ahead with efforts to build new processing facilities to cope with heavier, sour grades.
    China, Asia’s runaway demand outlet, will lead the region next year in building facilities aimed at ramping up middle distillate output.
    About 175,000 barrels a day of new hydrocracking capacity is earmarked to be in operation in 2007, nearly all of it in China, shy of this year’s total of around 40,000 b/d, according to industry forecasts.
    China Petroleum & Chemical Corp. (SNP), Asia’s largest refiner by capacity, will invest CNY30 billion in the coming years to enable its plants to produce gasoline and diesel with lower sulfur content, according to the Xinhua News Agency.
    Among the key projects elsewhere to look out for is a fluid catalytic cracker to be commissioned by India’s privately held Essar Oil (500134.BY) in Vadinar, which will be able to process more than 70,000 b/d.
    The slower pace of capacity building partly reflects the long lead time between an investment decision and putting a facility into commercial operation; oil prices were still below US$40 at the start of 2004.
    “Although Asian conversion capacity additions are expected to be limited in 2007, the next big wave of projects should come on stream in 2008,” Shum said.

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