Refiners face prolonged period of poor profitability - consultant

02 March 2011 15:16  [Source: ICIS news]

BRUSSELS (ICIS)--The refining industry is facing a prolonged period of poor profitability as margins weaken and capacity permanently closes, a consultant said on Wednesday.

Matthew Chadwick, managing consultant of Wood MacKenzie, said refinery margins had become depressed following the onset of the global economic crisis and the resulting drop in oil demand had coincided with new capacity coming onstream.

As a result of the surplus supply and profitability dip, there has been portfolio rationalisation and restructuring of the industry, as well as numerous refinery projects being cancelled or subject to delays, he said at the 6th ICIS World Olefins Conference.

At least 1.3m bbl/day of crude distillation capacity can be expected to permanently close. Most of these cuts are in the more mature markets of western Europe, North America and Japan. Utilisation rates have also seen significant cuts and have not yet recovered.

“The golden age for refining is gone and is not coming back for some time,” said Chadwick. “The refining industry is feeling the pain.”

However, Chadwick suggested that economies were starting to show signs of improvement and 2010 saw robust growth for global oil demand almost equal to the peak in 2007 – mainly in the developing markets, including Asia and the Middle East.

He added that the decline of conventional natural gas production in North America would see it account for only 26% of the total by 2020 from current levels of 40%.

Shale gas, however, will see its production share rise from 17% to exceed 30%. It will continue to see increased uptake and investment – particularly in North America – and “could have a wide-reaching impact”, he said.

Steam crackers in the region may therefore see a glut of cheap ethane feedstock in the years ahead. Although this will benefit the ethylene market, propylene and butadiene will see availability tighten considerably.

“Shale gas could have huge impact on the US steam cracker feedstock diet and really change the competitive environment but the uncertainties are enormous and varied,” said Chadwick.

Click here to find out more on the European margin reports

By: Andy Brice
+44 20 8652 3214

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