Feeling the squeeze

The full version of this article can be read in the April 2012 issue of Hydrocarbon Engineering. Subscribe here to read the full article. Existing subscribers can login here to read the April 2012 issue.

One major trend emerging in the refinery industry is a clear shift of capacity to the east. Over the next 20 years, OPEC forecasts a 9.1 million bpd growth in refining capacity in Asia Pacific, over half of which is expected to come from China. This increase is fuelled by a huge growth in the number of passenger cars and commercial vehicles resulting from strong economic expansion in the region.

This is in sharp contrast to North America and Europe, where a strong focus on fuel economy and a transition to renewable fuels is slowing the growth in demand for fossil fuels, meaning limited new refining capacity is expected in the coming years.

In North America, gasoline demand is plateauing due to the increase in bioethanol use, tougher corporate average fuel economy (CAFE) standards and the use of hybrid engine technology. The refining climate is tough, since investment is needed to treat heavier crudes, including oil sourced from the Canadian oilsands. Increased costs, reduced outputs, declining refinery margins and excess coking capacity are forcing some refineries to take drastic action.

In Europe, there is generally an overcapacity. In the long term, there is expected to be strong demand for distillate fuels but a decline in demand for gasoline and heavy fuel oils. Furthermore, the falling demand for gasoline in the US could threaten gasoline exports from the region.

The current economic climate makes it hard for refineries to make any significant investments in hydrotreating and hydrocracking. As CO₂ emissions regulations tighten and the pressure to use biofuels increases, refineries are finding it more and more difficult to make good returns.

Asia is the fastest growing region, with the majority of anticipated refinery expansions in China deemed necessary simply to meet burgeoning local demand. The region mostly relies on Middle Eastern crudes, which require significant processing. Future investments in hydrocracking and desulfurisation will be required as the focus moves towards meeting tighter fuel specifications in line with international standards.

New Indian refineries are making an impact on the global markets as fuel exports grow, and future expansion is anticipated. However, the regulated retail fuel prices in many countries, including China and India, complicate the inevitable investment decisions.

Fuel demand patterns are certainly changing. The demand for heavy fuel oil has been declining for some years, owing to emissions regulations, and is being replaced by alternative fuels such as natural gas. Kerosene growth may be impacted by the anticipated use of biojet as the European aviation industry joins the EU Emissions Trading Scheme (ETS) in 2013.

The demand for gasoline is levelling out, while the demand for middle distillate fuels is growing in all regions: most rapidly in Asia Pacific. There is a continuing and increasing trend of diesel export, which is required to maintain regional supply/demand balances. It is important that refineries and fuel marketers understand and meet the diesel fuel quality requirements of the final destination.

The full version of this article can be read in the April 2012 issue of Hydrocarbon Engineering. Subscribe here to read the full article. Existing subscribers can login here to read the April 2012 issue.

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