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EIA says Shifting Oil Supply, Demand Redefining US Midstream
Entries for month: February 2012
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But Muted Weather-related Demand Pressures Distillates Use says API
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Myke Feinman
Up to 40% of Europe’s petroleum refineries are in need of upgrades due to shifting demands for oil products, according to Enguerran Ripert, an energy consultant for Frost & Sullivan.
Ripert told Telvent DTN on Friday (2/3) that of Europe’s 104 refineries, at least 25% may end up in the same state as Petroplus, the largest independent European petroleum refiner with a pending bankruptcy. However, Ripert noted the high cost of crude oil, with Brent crude over $100 bbl, is encouraging refurbishment of refining plants that cannot efficiently produce some of the products needed in today’s European market.
“Forty percent of all refineries are in need of refurbishment but they are not all being refurbished,” Ripert said.
He estimated that roughly 8% were being upgraded or refurbished, which is a “higher (percentage) than in a typical year over the past five years.”
Most of Europe’s refineries are past their 20-year original design life, and need to be refurbished due to age or to keep up with the changing needs in the marketplace.
For example, over the road fuel, particularly gasoline, which Europe has a lot of capacity for, is being replaced by diesel and kerosene. Diesel fuel accounts for roughly 65% of the transportation fuels now consumed in Europe, an inversion from 10 to 12 years ago when gasoline accounted for that ratio, Ripert said.
There’s been a push in Europe for greater diesel fuel consumption in place of gasoline, with several European countries having lower taxes on diesel fuel compared with gasoline to incentivize the switch.
“Because the amount of energy per unit volume is higher, diesel makes each vehicle, each car or truck much more efficient,” Ripert said, also noting lower emissions for properly outfitted vehicles.
Much of that diesel fuel is now being imported from Russia, while some is also imported from the United States, he said.
“The ratio of diesel to gas is going to increase to a yet bigger share of diesel,” Ripert said, increasing to 70% or so in the next five years.
The shift in demand means investments in refurbishing existing refineries to produce more diesel fuel or in building new refineries. Ripert notes that the gradual change from a gasoline concentrated market to one that uses more kerosene for jet fuel or diesel however has not sparked enough investment.
Costs are high for such upgrades, with refining a volatile business.
Consider that adding a hydrocracking unit to produce more diesel fuel would cost as much as 20 million to 30 million euro while a European refiner’s annual margin might be 5 million euro.
“That kind of investment is difficult when the margin [return] is only declining slightly each year,” Ripert said. “Incremental declines in revenues do not have a big enough kick” to jolt the refineries into upgrading, lulling the refiners “into a false sense of security.”
This formula has prompted investments to flow to newer refineries that can adapt to market changes, from feedstock to output, more readily.
“The new refineries are incredibly efficient,” Ripert noted. “They are much more flexible.”
Refiners are increasingly tasked with adjusting product output from gasoline to jet fuel within a matter of days for example.
“It mirrors demand in Europe,” Ripert said. “Clients demand higher flexibility in terms of output with shorter contract times.”
As such, older smaller refineries are vulnerable.
“If not owned by big groups, there may be some that are bought or go bankrupt,” Ripert said. “But it doesn’t mean they aren’t new refineries being built.”
Frost & Sullivan is a global consulting firm doing research and best-practice models to drive the generation, evaluation, and implementation of growth strategies
Feb 8
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