Back in March, I had the pleasure of attending the 115th American Fuel & Petrochemical Manufacturers (AFPM) Annual Meeting in San Antonio, Texas, US. While it’s safe to say that the global oil and gas industry is currently in a state of flux, the atmosphere at the Annual Meeting was largely optimistic. The Trump administration’s ‘America First Energy Plan’ seems to have filled the US petroleum refining and petrochemical manufacturing industries with a degree of hope for the future. You can get a good sense of this optimism by simply turning to the next page of this magazine. In an exclusive Guest Comment for Hydrocarbon Engineering, the President and CEO of the AFPM, Chet Thompson, offers his insight into the current state of the US market and the AFPM’s expectations for the future under a Republican government.
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Although an air of quiet optimism may be resonating from the US downstream sector at the moment, the industry is fully aware of the challenges that lie ahead. In his Guest Comment, Mr Thompson is quick to mention the proposed Border Adjustment Tax provision, which is continuing to cause concern for refiners, particularly those serving the domestic market.
Compounding these concerns, an analyst with Wood Mackenzie believes that US gasoline demand is nearing its peak, and is set to decline in the long-term due to “stringent fuel efficiency standards and shifting demographics.”1 Speaking at the AFPM Annual Meeting, Andrew Shepard forecast that US gasoline demand would decline by over 1.5 million bpd by 2030, which will move the country closer to a gasoline surplus. Shepard contends that US refiners will need to start looking for new export markets beside Mexico and Latin America, with Asia Pacific offering an attractive option. He believes that US Gulf Coast refiners will be competitive enough to ship into Asia, although exporting into this market could bring down gasoline prices.
However, Wood Mackenzie holds that the situation will be more complicated for refiners in the Midwest and East Coast. As demand declines, PADD II is set to move into a gasoline surplus. Shepard argues that the outlet for this surplus will be key to the fortunes of Midwest refiners: “If PADD II must push into PADD III to clear the surplus, Midwest gasoline pricing would be severely depressed […] To avoid drastic shutdowns, Midwest refiners must gain increased access to the higher-priced PADD I market.” East Coast refineries, which are already at a disadvantage as they have to pay for imports, face an uphill battle. Shepard believes that approximately half of refining capacity on the East Coast will be shut down in the forecast period, as gasoline prices decline across the Atlantic Basin in the wake of new exports from the US Gulf Coast. However, he warns that even more East Coast capacity could be at risk if competition from PADD II is greater than expected or if new capacity is added from PADD III.
In this issue of Hydrocarbon Engineering, Contributing Editor, Gordon Cope, examines the opportunities and challenges for refiners on the US Gulf Coast (p. 14). And in the build up to the AFPM’s Reliability & Maintenance Conference & Exhibition, this issue includes a number of articles looking at the downstream maintenance market, plant upgrades and asset integrity.
- SHEPARD, A., 'What happens to US refineries when demand declines', Wood Mackenzie, presented at the AFPM Annual Meeting, San Antonio, Texas, US (March 2017), https://www.woodmac.com/reports/refining-and-oil-products-what-happens-to-us-refineries-when-demand-declines-46278045