Peak refining will lead to gasoline oversupply

14 November 2007 12:41  [Source: ICIS news]

By Barbara Ortner


Peak refining will lead to gasoline oversupply - ShellANTWERP (ICIS news)--The highest investment in oil refining for 30 years is likely to lead to a global oversupply of gasoline, long aromatics' feedstock markets and price volatility, a senior executive at Shell said on Wednesday.


“We have lived through the perfect storm - great demand growth, which the world wasn’t prepared for [and which] has stretched refineries and crude supply to the limits,” said Paul O’Dwyer, general manager of oil markets analysis at Shell International Petroleum.


Refinery operating rates were currently at 96%, providing record margins for refiners, and a strong incentive for investing in new refinery capacity, he added, speaking at the 6th European Aromatics and Derivatives Conference.


Changes in the refining sector would be one of the key factors impacting on reformate and pygas availability for aromatics production, O'Dwyer said


On the gasoline demand side, transport fuels had been the main source of growth. However, by 2010 excess refining capacity was projected and gasoline would shift to structural oversupply.


Europe would be increasingly long, the US shortfall would reduce, and potential length would emerge in the Middle East and Asia.


The US would become the battleground for sellers of surplus gasoline, and the oversupply had the potential to strongly depress refining margins in the medium term, he said.


Evolving gasoline specifications which required the further removal of aromatics from the gasoline pool could indicate an increased availability of benzene from this source, but O'Dwyer thought this unlikely.


The choices which individual companies in particular regions took in response to oil product imbalances and specification changes would be extremely variable, so the impact on aromatics feedstock supply would be uncertain.


Another important issue in the evolution of the refinery industry would be the shift in demand for refined products from the west to the new markets of the east.


New players would undermine existing market dynamics. The refinery industry would continue to see the strong growth of NOCs (National Oil Companies). IOCs (International Oil Companies) like Shell would respond by forming new partnerships and joint ventures, and shifting their company strategies.


In addition to these changes, the cost of building refineries or petrochemical plant had increased sharply in recent years. Building rigs in Mexico was now four times what it was two years ago.


Price volatility would continue and petrochemical companies would have to learn to deal with it, O'Dwyer concluded.


The 6th European Aromatics and Derivatives Conference, organised by ICIS and International e-Chem, is taking place on 14 and 15 November 2007.

By: Barbara Ortner
+44 20 8652 3214

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