Energy Industry Trends Review

European crude refining runs estimates
are largely unchanged at 12.2 million
b/d for the fourth quarter of 2011 (down
from 12.4 million b/d in the third quarter).
Regional runs rose 165,000 b/d in August
to 12.6 million b/d, 325,000 b/d below a
year earlier. Refinery stoppages continue to
be heavier than in 2010 so far this year, in
part due to economic and some unforeseen
shutdowns. While the loss of Libyan supplies
since February has prompted several
refiners to undertake turnarounds earlier
than planned, several plants are currently
reducing runs or shutting altogether due
to poor margins. In terms of scheduled
maintenance, the main contributors are
the Netherlands, with both Shell’s Pernis
and BP’s Rotterdam undertaking work in
October. In Germany, Gelsenkirchen was
down for most of October and in Greece,
Petrolas Elefsis was also undertaking work.
Also notable is the 49-day partial shutdown
of Statoil’s 120,000 b/d Kalundborg refinery
in Denmark from late September. European
refining margins were depressed by weakening
gasoline crack spreads in September,
but also a widening fuel oil discount
contributed, pressuring margins at simple
refineries in particular. Toward the end of
the quarter, crack spreads improved both
due to weaker crude prices and the fire at
the Pulau Bukom refinery in Singapore. In
addition, the Urals oil price weakened relative
to Brent giving extra support to Urals
margins. 60
US crude runs were lower in September,
falling some 300,000 b/d from a month
earlier, mostly due to lower Gulf Coast
runs. September runs were nevertheless
stronger than expected, and were in part
supported by the lack of any hurricanerelated
shutdowns on the Gulf Coast. By
the end of September, however, refining
margins decreased both on the Gulf and
West Coasts following a sharp deterioration
in gasoline cracks and this, combined with
an increase in maintenance shutdowns,
will further reduce runs over the balance
of the year (however overall runs are
forecast to remain above 2010 levels on
an annual basis). 61
12
The IEA has revised non-OECD refinery
throughputs lower for both the third quarter
and fourth quarters of 2011 following
weaker-than-expected runs in China in
August and disruptions to refinery operations
in other parts of Asia (primarily due
to the fire and closure of Shell’s refinery
in Singapore). Total non-OECD runs are
expected to increase to 39 million b/d for
the fourth quarter of 2011 (an increase of
675,000 b/d year on year) with China also
showing higher runs toward the end of 2011
due to the restart of PetroChina’s Dalian
refinery in early September, as well as the
start up of new capacity. In Asia, Singapore
refining margins fell even though product
cracks improved toward month-end due to
the fire at the Singapore refinery. Weak fuel
oil product cracks at the beginning of the
month depressed margins as did relatively
stronger Tapis crude prices. 62
Observation
This quarter, any boost in refining throughputs
and margins were due to short-term
outages and maintenance rather than any
endemic changes in the industry outlook for
refining. There is still significant rationalization
underway globally in the industry
focused on OECD markets. ConocoPhillips
announced at the end of September it had
idled its Trainer refinery on the US East
Coast and that the refinery would permanently
shut if no buyer is found within six
months. The announcement comes only
weeks after Sunoco said it would also
sell or shut its two East Coast plants. In
Europe, Eni idled its Venice refinery on poor
margins, while LyondellBasel announced
the French Berre l’Etang refinery will close
permanently. Finally, in Japan, Showa Shell
completed the shutdown of the Oghimachi
factory, in line with previously announced
plans.
OPEC has announced in its 2011 World Oil
Outlook that the global refining surplus
might reach 10 million b/d by 2015 unless
some refining capacity is closed and such
overcapacity will continue to depress refining
margins. OPEC estimates that around
6.8 million b/d of new crude distillation
capacity is expected to be added globally
in 2011-2015, half of which will be in the
Asia-Pacific region, mainly in China and
India. 63
Refiners are also struggling to cope with
developments underway in key markets,
which will affect their operations and
margins. On the negative side, in the United
States, the decision by Enbridge to reverse
the flow in the Seaway pipeline starting
next year will begin to end the advantaged
feedstock position that Midwest refiners
have been enjoying in that market. The glut
of crude in the market, which could not
find an outlet to the US Gulf Coast refiners,
has depressed prices for WTI crude and
helped create a record spread between the
price of WTI crude and Brent Crude. It will
mean that Midwest refining margins are
likely to decline, along with the profits of
some refiners in that region. 64
On a more positive note, changes to fuel
taxation in the European Union is likely to
have a positive effect on refining margins
here, according to analysis by OPEC’s 2011
World Oil Outlook, by increasing diesel
demand. An EU proposal to remove diesel
tax advantages and put the fuel on par
with gasoline would mean that diesel taxes
would have to rise in more than half of
the European Union’s 27 member states,
helping redress the balance of refined
product needs in the region by encouraging
more use of gasoline, stimulating European
output. “The (current directive) has led to a
situation in which the open market diesel
price is higher than that for gasoline due to
greater diesel demand, but retail prices for
final consumers are reversed at the pump
because of lower taxation rates—this creates
even more demand for diesel, despite
EU shortages. This proposal could also be
viewed as a signal to EU member states
to reverse unwarranted tax advantages to
diesel and to steer toward a more balanced
future demand pattern which is sustainable
for the refining industry.” OPEC expects that
diesel’s tax could go up to 0.41 euros per
liter from 0.33 euros per liter while gasoline
would stay roughly unchanged at 0.36
euros per liter. 65