NEW YORK -- A surge in investment in new refineries is under way overseas even as U.S. refiners remain leery of adding facilitiesa development that could make America more reliant on imports of refined products like gasoline and heating oil in coming years, said the Wall Street Journal.
About 100 projects representing as much as 12 million barrels per day of added refining capacity, most outside the United States, could be online by the end of the decade, according to the report, citing Wood Mackenzie, a consulting firm based in Edinburgh, Scotland. [image-nocss] The increased interest comes as global demand rises, especially from China and India.
Among those with the most ambitious plans: Saudi Arabia. The Saudis have been whittling down a list of foreign contenders to team up with in a domestic refinery with capacity of some 400,000 bpd for export. The kingdom also is moving to expand and upgrade its 400,000-bpd refinery in Rabigh, on its Red Sea coast. And state oil company Saudi Aramco has signed on to build a huge refinery in China with Exxon Mobil Corp. and China Petroleum & Chemical Corp., or Sinopec, as partners.
European companies such as Repsol YPF SA and ENI SpA also are bullish on refining, the Journal said. We think there has been a structural shift in the refining business, Pedro Fern andez Frial, Repsol's director of downstream business development, told the newspaper. Repsol recently announced a $3.8 billion plan to increase capacity.
Meanwhile, refiners in the United States, by far the world's largest petroleum consumer, continue to hold back on building refineries despite the recent surge in prices for gasoline, heating oil and jet fuel. While several major oil companies and independent refiners are expanding existing facilities, none has plans to build a refinery. And analysts say a refinery planned for Arizona by an independent group remains a long shot, the report said.
No refinery has been built in the United States since 1976, the report said, due to historically low profit margins as well as regulatory barriers and the not-in-my-backyard attitude of communities around the country. Industry executives still describe today's huge refining profits as temporary. We don't expect current margins to last long term, Jim Nokes, executive vice president of refining and marketing for ConocoPhillips, told analysts in November.
U.S. refineries have been running flat out to meet rising demand, said the report. The price of gasoline spiked to a national average above $3 a gallon during the fall, after hurricanes Katrina and Rita took several refineries offline, putting U.S. refiners under political pressure to increase supplies. Imports subsequently helped tame prices as other nations released product from their stockpiles and refiners abroad ramped up production to take advantage of the higher U.S. prices.
ConocoPhillips, among others, is investing several billion dollars in refinery upgrades and increased capacity, said the report. One of the company's main objectives is to reconfigure its plants to handle heavy, sour crude, which is less expensive than sweet crude.
But the lack of U.S. refining investment relative to the rest of the world could add to the growing reliance of the United States on imports, the newspaper said, depending on how fast oil demand grows. Last year, imports made up 9.5% of U.S. demand for refined products, up from 7.4% in 1999.
PFC Energy, a Washington, D.C.-based consulting firm, told the Journal that U.S. demand for products such as gasoline and jet fuel is expected to grow by as much as 200,000 to 400,000 bpd annually for the next several years. Investment in refining, meanwhile, is expected to yield an increase in capacity of only about 100,000 to 300,000 bpd, potentially keeping pressure on gasoline prices.
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