13 September 2007 20:43 [Source: ICIS news]
SINGAPORE (ICIS news)--The refining industry in ?xml:namespace>
Satvinder Roopra, head of Asia Pacific Downstream Oil for Wood Mackenzie spoke at the Asia Pacific Petroleum Conference (APPEC) in
“Refining margins have been strong globally and this is expected to continue in 2007,” Roopra said. “Rapid capacity expansion is currently underway with significant additions coming onstream in
The increase in capacity may result in a downturn in refining margins but not a crash, he added
“Current market fundamentals are different from the circumstances leading to the Asian refining industry slowdown in the late 1990s” Roopra said.
World demand is now expected to continue to grow, with Asia - particularly
Wood Mackenzie estimates that by 2010, increases in refining capacity will result in
Concerns that new refining projects will result in an over supply of oil products in
One of the main factors delaying or preventing planned refining developments has been rocketing costs.
Roopra estimated that project costs have doubled since 2002, and said that good contractors were hard to find due to a shortage of skilled labour. Costs have increased dramatically for both labour and raw materials such as steel. Meanwhile, risk premiums and profit margins commanded by contractors who are able to chose the most viable projects, also have risen markedly.
Looking at contributing factors to the successful development of refining facilities in
Location was presently the most import factor in refinery profitability. However, in the coming years the complexity of the facilities will increasingly become the overriding issue.
He also noted that with higher benchmark crude prices, there has been a widening price difference between light crude, which yields more gasoline and distillates, and heavy crude which yields more fuel oil. For example, the lighter and more expensive Tapis grade was previously on average around $2-3/bbl more expensive than heavier
At the same time, not all oil products have kept pace with rising crude costs. There is a widening price differential between more expensive clean products (gasoline and distillates) and cheaper dirty products (fuel oil).
As a consequence, complex refiners, with the ability to process cheaper heavier crude, in good locations will increasingly continue to outperform simple hydro-skimming refiners, which process more expensive light crude.
“It is important for refiners to understand their competitive position,” Roopra concluded. “The best performers will survive and thrive”.
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