Washington,The US and Europe have been the two regions most impacted by excess supply and stagnant demand within the refining sector. Due to the addition of new refining capacity worldwide that began construction during a period of high growth and strong margins, looming carbon legislation, and the growing penetration of biofuels and other alternatives, the Atlantic Basin refining system is heading for a painful correction. In its most recent multi-client study, Atlantic Basin Refinery Rationalization, PFC Energy examines not only how much capacity is likely to be at risk in the medium term (through 2013), but also which refineries are the most likely to be rationalized. Nathan Schaffer, Director, Downstream and Petrochemicals Group at PFC Energy, states that Assessing the most at-risk assets is critical for players across the value chain given the implications on supply/demand dynamics and the competitive landscape.
Operating conditions in the US and Europe have been the most volatile experienced since the late-1980s, a period which saw a significant number of refinery closures. The recent trend of slowing demand has exposed the region as over-supplied, which has led to a sharp decline in refining margins as well as in utilization rates which have fallen below 80% in early 2010.
Between 2002-2009, demand in the US and OECD Europe fell by 0.8% annually, while rising at an average of 2.4% in the rest of the world. The consensus view is that the recent trend in demand appears to be more structural than cyclical and is unlikely to return to levels of previous growth. The result will be an upset in the standing supply/demand patterns for the region given the strong linkages between these markets and for the competitors involved.
According to PFC Energys estimates, more than 700 mb/d of new refining capacity will come on-line in the US and Europe over the next three years and could push margins even lower. Given the bearish demand outlook and projected increase in refining capacity, PFC Energy estimates that the US and Europe combined will need to eliminate approximately 4.3 million barrels of existing capacity by 2013 to return to historical average utilization rates.
Rationalization is already underway with refiners such as Sunoco, Petroplus and Total having already shuttered facilities while others such as Valero, Chevron and Shell have put refineries up for sale. In all for 2009, permanent and temporary refinery shutdowns totaled over 1.1 mmb/d of capacity. Thus, the most important question is: which remaining assets are the most at risk?
PFC Energy examines these refining assets within the Atlantic Basin Refinery Rationalization Study, evaluating roughly 230 refineries with consideration of individual margin performance as well as an assessment of regional competitive dynamics, refiner financial performance, refinery strategic fit and levels of both upstream and downstream integration. The study identified 58 refineries to be at risk of rationalization, covering a wide range of sizes and configurations, although often sharing many commonalities which are highlighted within the study.
Notes to Editor
About
PFC Energy, a leading strategic energy advisory firm with main offices in Beijing, Houston, Kuala Lumpur, Manama, Paris, and Washington, DC. Clients include all major international oil and gas companies, national oil companies, oilfield service companies, financial institutions and government agencies and ministries involved in energy policy and energy-driven economic development. PFC Energys coverage includes competitor analysis, energy sector strategies, commercial opportunities, oil markets, gas and product market projections, carbon strategy and geopolitical forces affecting energy policy and energy economics.
