US refiners turn attention to diesel amid boom
After focusing heavily on gasoline for decades, US oil refiners are starting to redirect their attention to hiking diesel production capacity to cash in on a global fuel boom.
“The trend that is important behind the story of the future expansions is the downtrend in gasoline,” said Joanne Shore, analyst for the US Energy Information Administration. “Any investment decisions, I would assume, would be focused on how we are going to boost the distillate yield, relative to the gasoline,” she said.
American refinery infrastructure has been heavily biased in favor of gasoline production for decades, but the motor fuel has lost some of its luster as high costs at the pumps and the rise of biofuels cut into US demand growth.
US legislation mandating an increase in ethanol production and requiring greater fuel efficiency is expected to reduce the demand for gasoline from US refineries by 7% by 2022, according to EIA calculations.
Meanwhile, tight power supply and rising energy demand in countries like China, South Africa, Chile, Argentina and parts of the Middle East have touched off a global boom in demand for distillates for use in electricity generators, adding to robust demand for the fuel from the European auto fleet.
Valero Energy Corp, a leading US refiner based in San Antonio, Texas, has already focused several expansion projects - in Port Arthur, Texas, and St. Charles, Louisiana - on increasing distillate output instead of gasoline.
“We feel that demand for distillates is going to be higher than gasoline for the next several years. And margins right now for distillates are quite a bit higher than gasoline, so it makes more sense to do your investments there than other projects,” Valero spokesman Bill Day said.
While the bias in the United States is shifting toward diesel, energy experts warn that refinery expansions overseas could cut further into domestic plans.
Countries in the Middle East and Asia are seeing a surge in refinery building, with investors attracted to the rapidly growing markets for fuel nearby and a regulatory environment that is friendlier to refineries.
“I suspect, if you look at the (crude oil) distillation numbers, they're really eye-popping,” Sarah Emerson, director of Energy Security Analysis Inc, said about global refining capacity.
India's mammoth 580,000 barrel per day Reliance refinery, for instance, will come online at the end of 2008 and is expected to focus much of its production on exports, some of which are likely to displace gasoline from US refiners.
The stiff competition from refineries abroad has even led some energy experts to predict that some older, less-efficient US and European refiners will be forced to shut down.Rising costs, thinner margins, and competition from overseas have already forced US refiners to cut several high-profile expansion projects in recent years.
EIA's Shore said US refiners will add about 800,000 barrels of crude distillation capacity by 2010, down from earlier estimates after Chevron, Marathon, Sunoco and others canceled or deferred projects. (Reuters)
SUPPORT THE BUDAPEST BUSINESS JOURNAL
Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.