When thinking about 2013, the death of Nelson Mandela, the US government shutdown and the birth of the Royal baby (hard to avoid if in the UK) spring immediately to mind. Yet, when thinking about the world of oil and gas I think shale and the turbulent situation that has been faced by the European refining industry.
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The European refining industry is being heavily impacted by the shale revolution as the US now has an abundance of cheap fossil fuels and the infrastructure to utilise it, which is leaving Europe to play catch up. And let’s face it the wealth of shale gas is America’s biggest asset at the moment as gas is inevitably going to be cheaper than oil, boosting its downstream industry to incredible heights. The level of liquids demand growth in Europe is also a problem as it is flagging, as developed markets are no longer commanding such high levels and the emerging markets, which still crave liquid fuels, are procuring it from cheap sources such as the US. The overcapacity of European gasoline production is another area that is not helping the European situation, and this is likely to worsen over the next five years unless changes are made. European refineries need to adapt to increase the production of middle distillates, which are currently being demanded at high volumes all over the continent, as well as in areas overseas.
Sadly, Europe is not only competing with the US. Russia and the Middle East are also two strong players in the global refining industry that are giving Europe cause for concern. The level of subsidisation in the Russian refining industry allows for expansion and revamps to boost the country’s distillate production and therefore allow it access to the global market, which is craving these fuels. The subsidisation in the country also ensures that the domestic refining industry does not suffer even if demand drops off, something the European refining industry does not benefit from. When it comes to the Middle East, the explosion of complex refineries is the biggest threat. These facilities, such as Jubail, have high levels of efficiency and complexity that dwarf European counterparts.
While one cannot deny that the shale revolution is one event negatively impacting Europe, it is having many positive impacts that will no doubt continue into this year, and cannot be ignored. The US has now cemented its energy security of supply, something that economies across the world strive for on a daily basis. Also, the country is sharing the benefits with others (so to speak) as due to tight oil, Latin America and West Africa have gained a secure supply of gasoline to feed ever increasing demand at a relatively cheap price. So, yes, unless changes are made to reduce the complexity of European refineries, it is possible that there will be tough times ahead this year in the region, however, there is hope elsewhere as fossil fuel supply continues to be secure and prices continue to be favourable and competitive to many.
Happy New Year from all of us on the Hydrocarbon Engineering team.