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Dutch IGCC pioneers chalk up pain and gain Emergency response is behind schedule in the European public sector A new refining industry in Europe's Asian Corridor Commission proposes milestone energy proposal Replace fuel oil with distillate? Cancelled projects will sustain margins “Marine distillate not fuel oil from 2010” Branson's biofuels megastore You heard it here first: refinery CO2 storage a reality in Norway Buncefield 2: Investigation critical Where now for Swedish Class 1 diesel My slow awakening to climate change The luckiest motorist alive Safety row goes on over Europe's largest LNG terminal New WHO guidelines on city air quality put focus on diesel Would LNG really 'evaporate harmlessly' in an accident? Another lesson in the thermobaric bomb Spare a thought for the oil-rich But will the good times keep on rolling? Carbon storage and the zero emissions refinery Everything just changed E85 and high octane gasolines The problem of small-minded young engineers New Permit Regulations Biodiesel newbuilds and a new green superfuel Spilled wine and our split industry Drilling down into the prospects for IGCC The beginning of the start of the end of oil | Refining’s golden age or the economy’s ticking bomb? Analysis: Which of the following two statements is nearest to your view of the historic situation of refining today? 1. Refiners are finally getting rewarded with margins that reflect their contribution to society as the downstream industry enters a Golden Era of demand growth and correctly-balanced supply. 2. Refiners are at the eye of an economic hurricane that threatens to bring world economic growth grinding to an ugly halt from next summer as a capacity crisis simultaneously sends prices soaring and destroys oil demand growth. Here are two comments from senior management and the board room respectively of two European refining companies: “It’s a great time to be a refiner.” “If the numbers are correct… the golden era of refining is here.” And compare: “The risk that high prices could provoke a synchronised US/Chinese economic slowdown is low, but it can’t be ruled out.” The same major oil company analyst that made that statement predicts that utilisation rates will rise next year in three out of four scenarios. Regardless of whether you’re the rose-tinted glasses kind of refiner, or one who peers into a menacing crystal ball, if that analyst is right about utilisation rates then some implications are pretty easy to foresee. High margins will remain and product prices will race. It’s going to be a time to not make mistakes – to avoid extended turnarounds or unexpected shutdowns. Be reliable. Be available. Don’t cut maintenance staff. Consider getting some of those you did let go back. And it’s likely that consumers and politicians are going to get burned. Summer 2004 saw Texans smarting from a sustained gasoline price over $2 per gallon as the US fell 80-100,000 bpd behind demand. They’re not used to that on the Gulf, but as the driving season kicked off, those prices became a national average. Politicians always worry about high gasoline prices wherever their voters live. But both in Europe and the US, political decisions are adding to supply tightness – perhaps most notably where MTBE is out and ethanol is in. The analyst comments: “Folks in the US have gone too far too fast in tightening specifications without looking at the global picture. You can’t have growing demand and at the same time tighten specifications (banning MTBE and reducing sulphur) that result in lower production levels while not allowing refinery expansion,” the analyst continues. “All this happens in an rather uncoordinated way. But markets are highly interlinked.” To those less acquainted with the European fuels market, US gasoline prices may seem like a US issue. But of course nothing could be further from the truth. Nobody has based the bold new diesel projects rising from their newly laid foundations across Europe on record margins, but they do depend at least on a steady gasoline market in which to dispose of the corollary gasoline output. And the price you pay in London for gasoline is intimately connected with the premium that same tankload may fetch in New York harbour. From his base in Houston, Karl Bartholomew, Director of Jacobs Consultancy Inc agrees that thing are going to get tighter and there may be legislative surprises along the way. “We are at a demand driven crunch, but next year and the year after are going to be the real crunch years. We’re going to find that there is going to be some government intervention to relax specifications.” He says the US consumer has gotten very used to gasoline prices in the $1.00 - $1.50 range and he doesn’t doubt that refining capacity will feature in the political debate: “There have already been Senate hearings on capacity,” he says. Bartholomew says not everyone has taken on board the shift in fuel market dynamics. “This is a demand driven market now. Instead of a market where there were artificial constrains on supply.” A point the analyst underlines: “We stand at a very, very unusual point,” he says. “Upstream is at full capacity. Refineries are at capacity both east and west of Suez. Inventories are low. Specs are changing. Everyone is in synch that the economy is going to slow down.” Markets of course balance themselves. High prices destroy demand and that’s already happening. Some of the tightness over the summer has now been attributed anecdotally to one-off stock builds in India and China. But even with that now over, oil demand growth in 2005 and 2006 is still expected to outpace refinery capacity expansion, as it has done for the last two years. So how should people react? Refining engineers are the ones who will be called upon to close the gap between racing markets and capacity creeping too slowly to catch up. “If the numbers are correct, refining capacity is getting tight and the golden era of refining is here because extra capacity doesn’t just appear from nowhere. It takes time,” comments Senior Vice President at Fortum, Harri Turpeinen. With a 1m tonne expansion at his company’s flagship refinery, Turpeinen is one of the early actors. “There are major changes in the US market. The US industry is investing very little and the capacity is not there really,” he says. In absolute terms the growth in US gasoline demand and Chinese gasoline growth are roughly the same. It’s clear that whoever makes a step move needs confidence that these economies can withstand spiralling fuel and power costs. Valero seems to be bold enough. They’ve shown investors their plans for an expansion of the Caribbean Aruba refinery to 800,000 bpd. Kuwait is said to be moving forward with plans for the world’s largest refinery at 1m bpd. Will someone act in the US? Or Eastern Europe? “It’ll be a question of who is going to get together the whole chain,” says Karl Bartholomew. “They need to show they can get the crude for the expansion,” he says. “The Saudis have offered to provide 1m bpd more to the US, but who is going to process it? They’ve even offered finance.” “Personally, I think a grass roots build in North America or the Carribean would be very timely. But of course the real question is will refining margins stay at the levels they have been this year. “The crack spread was up in the $10 range in July. In August it was back at 3-4 dollar range. Now we’re back in the 6-7 dollar range.” The prices may be record prices. The demand-led economics unique. But the quandary for refiners is all too familiar. Around the Atlantic Basin, a ring of refining VPs is looking at the water, looking in the war chest for a billion dollars, and wondering whether to jump in. If they all jump, the margin sinks. If no-one jumps, two economies might slow and pause, with all that implies for the world economy. It would likely hit Asian refiners hardest of all. TLW | |||||||
Download Energy Industry Resumé with work samples Profile: Tim Lloyd Wright MA Here you'll find a brief profile of my work with international energy, transport and associated environmental issues. Energy trends articles You heard it here first: refinery CO2 storage a reality in Norway From the archive... Over-processed fuel leaves oil tankers adrift | ||||||||
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