World Oil Outlook - Opec

The situation in Europe is different. Significant spare refining capacity in the region
has built gradually for several reasons. The first one is demand decline in OECD
Europe from a peak level of 16 mb/d in 2006 to an estimated 14 mb/d in 2012.
From a refiner’s perspective, this demand decline has been exacerbated by incentives
supporting the expansion of biofuels, which have further reduced crude runs in the
region. However, the most important factor relates to the structural change in European
demand – namely, the on-going shift from gasoline to diesel in the key transportation
sector. To balance refinery operations in Europe (where many older refineries
were configured for gasoline production), the evolving diesel/gasoil deficit has been
increasingly met by imports, primarily from the FSU, while surplus gasoline has been
exported to various markets, most significantly the US.
However, this rebalancing of European demand away from gasoline toward gasoil/diesel
is getting more and more difficult. Options for Europe’s gasoline exports to
the US are being impacted by declining demand, the fast expansion of ethanol, which
further reduces demand for crude-based gasoline, and more favourable conditions for
US refineries due to increased domestic crude production, price discounts and access
to cheap natural gas. While recent refinery closures along the US East Coast and in the
Caribbean (US Virgin Islands and Aruba) could provide new export opportunities for
Europe’s gasoline for some time, how long this opportunity lasts is an open question.
This is due to the fact that the trend in product imports into the US has been on a
steep decline for the past few years, and mandates for engine efficiency improvements
and for ethanol production will continue to act as drivers in the years ahead.
Increasing competition is also certainly the case for European exports to the Middle
East where new refining projects will not only exceed the regional demand increase, but
also create export potential, especially for neighbouring regions in Africa and Asia. Similar
competition is foreseeable in Latin America, especially given existing refining centres
in the US Gulf. On top of this, the situation in Europe is becoming more complicated
and uncertain, in light of the emerging carbon regime that will add to refining costs
and, thus, reduce margins and competitiveness on international markets. For all these
reasons, Europe is one of the regions where additional closures are likely to take place.
Box 6.2
US and Canada: avoiding major refinery closures?
The situation in the US in respect to closures appears different from that in Europe.
There appears to be a number of reasons why.
Firstly, in marked contrast to Europe where domestic crude oil production is declining,
in the US it is now rising after years of steady decline. One result of this
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