World Oil Outlook - Opec

198
As detailed in Box 6.2, viewed from a global perspective, selected refineries in
the US and Canada could be additional candidates for closure over the medium-term,
albeit on a limited scale.
Another region where some capacity closure might happen is the FSU. Refineries
in the Ukraine and Caspian regions, especially, are either run at very low utilization
rates or are currently idled. As mentioned previously, three refineries in Ukraine
(Odessa, Kherson and Lisichansk) remain shut and it is unlikely that all of them will
be restarted at full capacity. Moreover, some capacity is at risk in Russia as well. Several
simple refineries in Russia survived the past few years because of favourable export duties
that allowed healthy margins on fuel oil exports. Those duties were introduced to
enable upgrading projects, but the net effect was surging exports of fuel oil and little
investment for upgrades. To reverse this trend, the government modified the export
duties in October 2011 to reduce the profitability of fuel oil exports. And, with further
reforms planned to go into effect as of 2015, the instruction to hydro-skimming refineries
in Russia seems to be: invest or close. In other words, refineries that fail to upgrade
their processes in order to produce higher value products might be forced to shut.
Finally, closures might occasionally take place in other regions as well (for example,
the shutdown of the Clyde refinery in Australia, but it is unlikely that this will
happen on a large scale in any of these regions. On a cumulative basis, however, they
could potentially shave off part of the surplus capacity.
All in all, this medium-term outlook is not good news for refining utilizations
and economics. It reinforces the expectation of a challenging and likely turbulent period
continuing, with low refinery utilizations and weak margins.
Conversion and desulphurization capacity additions
In addition to crude distillation capacity, it is equally important to assess the expansion
of secondary process units before any conclusions can be drawn on the adequacy/
inadequacy of new projects. Sufficient distillation capacity is a necessary precondition
for the adequate functioning of the refining sector; but it is supporting conversion
and product quality related capacity that plays the more vital role in processing raw
crude fractions into increasingly advanced finished products – and in delivering the
majority of a refinery’s ‘value added’. The importance of these secondary processes
has been increasing with a general trend toward lighter products and more stringent
quality specifications.
A significant proportion of additions to secondary refining processes materializes
through smaller upgrading projects in existing facilities. These projects are less