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Wood Mackenzie predict overcapacity and closures in Atlantic Basin refining

Hydrocarbon Engineering,

Jonathan Leitch, senior oil analyst for Wood Mackenzie, this week forecast a troubled future for Atlantic Basin refining. Speaking at the Energy Institute’s IP Week downstream seminar on February 22, Leitch stated that overcapacity and closures are still on the horizon for the region in the medium to long term.

According to Leitch, the recovery in refining margins during 2010 will not translate into a renewed recovery for Atlantic Basin refiners. Similar margin levels can be expected in 2011, despite the recovery in global oil demand in the wake of the financial crisis. This is due to the fact that much of the increased demand is expected to come from developing economies in Asia, the Middle East, Latin America, Africa and the former Soviet Union. Crucially for refiners in the Atlantic Basin, demand in Europe and the US will continue to decline.

This fall in demand, says Leitch, when coupled with the new global capacity coming onstream in 2011 presages a continued challenging environment for refiners unless refineries are closed down. The presentation also identified a number of factors that are likely to affect refining in the Atlantic Basin, namely: weak economic growth; high oil prices; legislation for biofuels; and carbon legislation which will impact the operating costs of refineries.

Leitch also identified some reasons to be hopeful. There remain some good assets available on the market which will attract new entrants to the region. Furthermore, the Atlantic Basin continues to be a large market with potential for gains for long term players.

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