Future Refining & Storage 2014

The global refining sector is experiencing a period of major uncertainty with significant change in the balance between supply and demand. Leading analysts forecast that escalating demand growth for heavy crude oil in Asia could tip the balance, and global demand could potentially outstrip supply. However, surpluses in Africa, Latin America and the Middle East could fill the Asian deficit. 

Moreover, rising Canadian heavy crude production and Mexico’s energy reforms are set to boost output and impact producer netbacks from different refining regions. Indeed, Canada will have to diversify access to multiple markets rather than rely on the US. The US shale boom is impacting refiners at home and abroad, with serious implications if the US ban on crude exports is lifted. 

In the European arena, refinery utilisation remains depressed and is trending lower, with annual refinery utilisation averaging 75% in 2013 compared with about 80% from 2010 to 2012. Faced by high costs and surplus capacity, EU refiners are also dogged by growing competition from India, Russia and the US. Imports mainly comprise low sulphur diesel, so Europe is running long on gasoline but short on diesel. 

Some hard pressed European refineries face shutdown or need debottlenecking and revamp to optimise operations to compete effectively in a rapidly changing market. Industry association FuelsEurope also calls for a more balanced playing field in terms of Europe’s climate and energy policy for high energy users like the refining sector. 

According to the famous Chinese saying, refiners appear to be living in ‘interesting times’. 

Those same trends are affecting others in the global liquids supply chain, with increasing product flows presenting challenges to operators of storage terminal capacity. In Europe, refinery closures open up opportunities to utilise existing tankage for handling imports, while in the US the massive expansion in domestic crude oil and NGL production is presenting midstream operators with new business. 

Indeed, so dramatic have the changes in fuel supply patterns been that some governments in Europe are taking a serious look at how they can best ensure continued supply. In the UK, industry has been engaged in a dialogue with government agencies and other stakeholders to establish a framework for managing the situation, while new EU provisions regarding compulsory stocks of crude oil and refined products are forcing a review of how and where such stocks need to be kept. 

Meanwhile, terminal operators around the world are facing up to increasing regulation on their activities, designed to reduce the risk of major accidents and to improve protection of the environment. This is bringing inevitable costs in terms of additional management needs and re-equipment. But terminals’ ability to generate comparatively stable cash flows continues to attract investment funds looking for a safe bet in what is an increasingly turbulent energy market.  

That turbulence looks set to continue for some time; there are a number of political factors that could tip the market either way – instability in the Middle East, the Russia/ Ukraine issue, the possibility of the US opening up crude oil exports, what response the EU might make to ongoing economic problems. And those are only some of the known unknowns. 

Interesting times indeed. 

Brian Davis 
Deputy Editor, Petroleum Review