September 14, 2006 at 1:21 am #4137
September 13, 2006
VIENNA (AFP) – High oil prices are still being propped up by a shortage of refinery capacity and there is little sign of the bottleneck easing until 2010, industry executives and officials discussing OPEC’s future have warned.
That potential respite relies on the unlikely prospect all 66 refineries planned by oil companies and producers being built, as well as a total of about 300 billion dollars in investment by 2015, they added “The need for downstream capacity is just as important as other issues,” said Claude Mandil, executive director of the International Energy Agency at a two-day conference continuing today. “There is a general recognition now that no spare capacity in refining together with no spare capacity in crude production are the key factors we have to manage on high prices,” he added.
Mandil said: “If everything goes well, we could witness starting 2010 some spare capacity in refining. I say if — this is a huge question mark.” The 11 nations in the Organisation of Petroleum Exporting Countries are pumping out more than 29 mln barrels of crude oil per day, according to recent data. A quota for 10 of them is set at a 25 year record high, to cope with strong global demand boosted by China’s emerging economy in recent years.
Prices have fallen back from a 78 usd peak in July in response to fears that global economic growth and therefore demand for energy is about to tail off. However, they are still high — around the 63 usd mark. “Current downstream tightness in the form of inadequate refining capacity is putting much pressure on oil prices generally,” said Mohamed Barkindo, acting secretary general for OPEC.
Although most recently concern has focused on oil output, refinery capacity is essential to transform crude into petrol (gasoline), diesel, or household fuel. A shortage of spare refining capacity adds to overall supply bottlenecks.
“There are 66 refineries being considered for construction, I have some doubts whether all of these will go through,” Mandil said. Barkindo said 160 bln usd needed to be ploughed into downstream capacity within 10 years, and another 150 bln usd for maintenance and replacement.
“Such amounts are not forthcoming: there is an investment gap of something like 100 billion dollars,” he added.
September 14, 2006 at 1:23 am #7538
Some recent comments by IEA director on shortage of refinery capacity and the 66 new refineries planned – he is doubtful overall that all the 66 refineries will make it in by 2015 and sees tight capacity until 2010. IEA is usually a good touch stone on what the Oil industry “herd” is thinking (or not) and seldom creative in their outlooks but this article makes several good points.
One of the connection’s (indirectly) is that not just the US but globally the refining industry is short of capacity which will allow downstream tightness to put continued pressure on prices that will flow back into crude prices. (Saudi Models calculate how much crude is worth from downstream prices also). Although there is no shortage in crude compared to peak demand shortfalls in products at times, there is no spare capacity (spare refining capacity has shrunk from 19MM BPD 1980’s down to 7MMBPD in 2002, to currently only 3MMBPD worldwide) in either production or refining – so any major impact to either disrupts the balance and prices.
Another connection is the fact that these high energy prices are starting to produce fears that global economic growth to slow and demand to fall off – I think there are signs that this is already in progress.
One of the things missing from the O&GJ article on 66 refineries and over 500 projects in the refining sector – is of course the impact the ~140 refinery capacity expansions (some 70 crude expansions ) at existing refineries – along with the other ~180 enviromental or fuel compliance projects, will contribute to easing capacity & eventual regional surplus capacity at the end of 2015. Nor does it mention that almost all of the 66 greenfield refineries and lot of the expansions economics depend on exporting gasoline to the US (one of the only major gasoline importer in the world), who has a large number of Brownfield expansions & additions of its own. For example about 40% of 50+ new coker additons that not only enable sizeable crude capacity increase but allow the switch to much cheaper, heavier and more available crudes than the traditional light marker crudes like WTI/Brent/Saudi Light.
As a comparison of the capacity addition the OGJ said the 66 new refineries would add ~12 MMBPD capacity, and the 70 refinery crude expansions would add 18 MMBPD compared to a 15.7 MMBPD demand increase over the 10 years.
So although there is some tunnel vision on the focus there are a lot of key connections as well.
You must be logged in to reply to this topic.