( $) Oil companies' failure to add new refining capacity to keep up with global demand for petroleum products is exacerbating already tight oil supply conditions and fuelling the rise in oil prices to nominal record highs.(complete article here for free.
Stricter environmental laws in the US, Europe, China and India are compounding the lack of excess refinery capacity as companies invest in new equipment to reduce sulphur content at the expense of adding new capacity...
Western governments have blamed the high prices on the Organisation of the Petroleum Exporting Countries (Opec), which is to hold a meeting in Iran next Wednesday.
Mr Currie pointed out however that the refining problem was outside Opec's control even though some of its members, such as Iran, Iraq and Nigeria, have to import petroleum products because they lack sufficient domestic refining capacity. Mr Currie expects refinery capacity growth to lag behind oil demand for the rest of the decade.
Goldman Sachs estimates a total of 2.575m b/d of refinery capacity added by the end of 2010, but global oil demand growth is expected to average about 1.5m b/d for the rest of the decade.
Most of the new refineries are to be built in Asia, particularly China, but no new ones are planned for the US and western Europe, which have built none for three decades. This has led the US to import an ever increasing volume of oil products, and may force Europe to become a net importer of oil products.
Sat Roopra, analyst at Wood Mackenzie, said the tightness in global refinery capacity followed a period of substantial surplus capacity following a massive expansion by Asian refiners during the mid-1990s. This turned to idle capacity following the region's currency crisis in 1997-8.
Graham Sharp, head of energy trading at Trafigura, the commodities trading group, said the quick swing from massive surplus to thin spare capacity has caught off-guard most of the international oil companies that own a sizeable share of the world's refining capacity.
Despite the attractive margins offered by the industry, listed oil companies are reluctant to spend billions of dollars on a new refinery at a time when investors are more concerned about their replacement of reserves.
NACS Tells Congress to Encourage New Refining Capacity(source:here)
July 16, 2004
WASHINGTON, DC -- "This subcommittee and this Congress must investigate ways to encourage, rather than discourage, the expansion of our nation's domestic capacity to make gasoline and diesel fuel," NACS Vice Chairman Bill Douglass told Congress on July 15.
Douglass, CEO of Douglass Distributing Co., testified before the House Subcommittee on Energy and Air Quality on behalf of NACS and the Society of Independent Gasoline Marketers of America (SIGMA) at a hearing titled, "The Status of the U.S. Refining Industry." At the hearing, he called upon Congress to take action to promote the expansion of domestic-refining capacity and to place a moratorium on the adoption of new boutique fuels.
"You may question why I am testifying today and what message independent motor-fuel marketers have to offer with respect to domestic-refining capacity," Douglass acknowledged. "Collectively, NACS and SIGMA members sell approximately 80 percent of the gasoline and diesel fuel in the United States each year. I feel strongly, as do my colleagues within NACS and SIGMA, that this nation needs additional domestic-refining capacity."
Subcommittee Chairman Ralph Hall (R-TX) called the hearing to learn more about the refining industry's ability to satisfy consumer demand and impediments to capacity expansion. Also called to testify were representatives of the refining industry, consumer-advocacy groups and environmental advocates.
"Our message to this subcommittee today is simple," said Douglass. "Our nation's domestic-refining industry is shrinking at a time when consumer demand continues to rise. Unless we collectively change course, domestic-refining capacity will be unable to keep pace with demand, gasoline and diesel-fuel price spikes will become the norm rather than the exception, and our nation will become more reliant on imports of gasoline and diesel fuel."
It's good to seek more oil, but we need refining capacity to process it.