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World Refinery Capacity to Grow Despite Recession

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    HOUSTON (Jan. 9, 2013) – Major refining capacity expansion projects scheduled for completion within three-to-five years, totaling 9 million barrels per day, will add to the global refining distillation capacity surplus according to Hart Energy’s study “Global Crude, Refining & Clean Transportation Fuels Outlook to 2035.” This growth will occur despite recession-related drops in demand for finished fuels in some markets and closure of some existing capacity.
    The capacity surplus narrows when it is defined by refined product finishing capacity (such as diesel production and desulfurization capacity for 10ppm sulfur for gasoline and distillate fuels). This narrow balance of refining finishing capacity is what is keeping global refining margins high.
    Within India, for example, where export capacity soared in recent years, there will be continued capacity growth (to nearly 5 million barrels per day) prior to 2015. Even in low-growth regions of Europe and North America, major projects initiated prior to the more recent pull-back in demand will come online by 2012-2013.
    These highlights are among the findings in the 2012 World Refining and Fuels Study (WRFS) that was released in Dec. 2012. The analysis, which quantifies both gasoline and diesel demand and trade flow by sulfur category, concludes expanding low sulfur diesel demand will challenge refining capability — and be the primary driver behind future refined product markets and margins.
    Speaking to regional trends, Terrence Higgins, Hart Energy’s executive director for refining & special projects, noted, “Growth in demand, led by developing regions in Asia, will outstrip these short-term capacity expansions by 2015-2017.
    “Also, strong growth in Latin American markets, coupled with limited near term refinery projects, will offer market opportunity for surplus U.S. refined products,” Higgins said. “New Brazilian refineries scheduled for later in the decade and/or beyond 2020 eventually will supply a larger portion of the region’s needs.”
    The study further predicts:
     Declining Atlantic Basin gasoline demand will lead to severe competitive pressures in the U.S. East Coast market and rationalization in European refining centers
     Shale oil development and increasing global condensate production will provide near-term improvement in average crude oil quality
    – more –
     Very heavy crude production, particularly crude from Canadian oil sands, will expand requiring continued expansion of bottoms processing capacity.
    by Terrence S. Higgins & Petr Steiner, Ph.D
    Hart Energy

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