Reduced US demand will bring refinery casualties - analyst

09 December 2009 18:02  [Source: ICIS news]

THE WOODLANDS, Texas (ICIS news)--The down slope in US petroleum products demand since its pinnacle two years ago will eliminate vulnerable, independent refiners in the coming years, a refining analyst said on Wednesday.

Ann Kohler, energy and refining analyst with the US-based investment bank Caris and Company, said 1.0m-1.2m bbl/day needs to be removed from the market.

“We believe that gasoline and product demand in the US peaked in 2007,” Kohler said. “As a result, for the industry to rebalance itself we estimate that between 1-1.2m bbl of refining capacity needs to be permanently shuttered in the US.”

US climate change legislation, the global recession over the past year, narrowed price differential between light, sweet crude and sour crude as well as increased ethanol blending initiatives and more fuel efficient cars on US roads have created a new competitive refining environment following what Kohler called the “golden age of refining” from 2003-2007.

Progress on refinery closures has been slow, Kohler said, alluding to the only formal announcements from Valero to permanently close its 112,000 bbl/day refinery in Delaware City, Delaware and Western Refining to permanently idle 17,000 bbl/day output in Bloomfield, New Mexico.

Economics would contribute to refiner attrition, Kohler told the Deloitte Oil & Gas Conference in The Woodlands, Texas, with smaller, independent refiners that typically process 75,000 bbl/day or less of crude more susceptible to closure in higher cost environments caused by a cyclical downturn.

Kohler estimated that there are about a dozen US refineries on the selling block with little buying interest. However, that leaves the door open for foreign players such as Chinese oil giant PetroChina, integrated Indian petroleum and petrochemical producer Reliance and Russian major Lukoil to purchase US assets and possibly change market dynamics.

The cost of refined products effects petrochemical commodity pricing from a feedstock cost perspective, especially in the aromatics chain.

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By: Ryan Hickman
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