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Wednesday, November 21, 2018

World refinery capacity is tight

Current world refinery capacity appears to be tight. According to a presentation given by BP a year ago,  the surplus capacity in 2005 was almost 12 mbd. This is not reflected in the market. Most of the spare capacity may be old refineries that cannot meet the most advanced new product specifications.


This will change from 2010-2012 when new capacity  comes on stream. The Petroleum Economist estimates new refinery firm additions to be 6.75 mbd, expansions to be 2.54 mbd and projects with no set date to be 2.03 mbd, totalling 11.32 mbd. Lehman and others have anticipated 12 mbd-13 mbd by 2012.





The first new refinery to come on stream will be the Jamnagar Refinery, a private sector crude oil refinery owned by Reliance Industries Limited in Jamnagar, India. The refinery was commissioned on 14 July 1999 with an installed capacity of 661,000 barrels per day. It is the largest greenfield refinery in the world and third largest refinery in the world. It is currently undergoing a massive expansion, scheduled for commissioning in 2008, which will double its capacity to 1.2 million barrels per day. This will enable it to meet the local demand and also act as an export refinery. The aim is to make the Jamnagar Refinery the world's largest petrochemicals facility.


Outlets for high sulphur fuel oil are becoming increasingly scarce, with stringent emission norms for sulphur oxide (Sox) and nitrogen oxide (NOx). In most parts of the world, there is evidence of increasing switching from heavy fuel oil to clean combustion natural gas for power generation. The process of displacing high sulphur fuel oil is expected to gather momentum as further switching from fuel gas to natural gas takes place for environmental and availability reasons.


There are several options for the bottom-of-the barrel processing including delayed coking, visbreaking and resid desulfurisation. Reliance has selected delayed coking for upgrading the "bottom of the barrel". Petroleum Intelligence Weekly reports that nearly 1.8 million b/d of new refining capacity is slated to come on line between now and 2012, a 59% increase on India's current processing capacity, which already exceeds domestic demand. Indian refining capacity currently stands at around 3 million barrels per day (mbd). Domestic product demand of 2.24 million b/d is forecast to rise by 2.9%-4.5% over the 2007-2012 period, but with power generators switching away from oil, India's refiners are looking at increasing refined product exports to the Middle East - particularly Iran - the Asia-Pacific region, Europe and Latin America.


Most planned greenfield refineries in India are focused on export markets, and while capacity expansions at existing facilities are essentially aimed at the domestic market, coastal facilities, such as Hindustan's west coast Mumbai plant, may ultimately find themselves increasing exports as well. The Indian government is backing the increase in refining capacity for reasons of energy security and economic flexibility - export earnings from refined products are looked upon as a means of offsetting the country's onerous crude import bill, which amounted to just over USD 48 billion for the 2006/07 financial year. Product exports totalling 32.73 million tons managed to offset the cost of crude imports to the tune of USD 17.81 billion.


The biggest refinery expansion will occur in the U.S. at the Port Arthur, Texas refinery. Bechtel says that it has received approval to proceed with detailed design and construction for the nation’s first new refinery in more than 30 years. Recently the owners of Motiva Enterprises LLC (jointly owned by Saudi Refining, Inc. and Shell Oil Co.) approved the final investment for the project, which will add 325,000 barrels per day to the Port Arthur, Texas refinery. A joint venture of Bechtel Corp. and Jacobs Engineering Group Inc. will serve as the primary contractor for engineering, procurement and construction.


Shell, which operates the Port Arthur refinery, plans to boost refinery capacity from the current 275,000 barrels per day to 600,000 barrels of crude oil per day by 2010.

Shell estimates that this expansion, the biggest in more than 30 years, will cost about USD 7 billion. Its decision to expand the refinery will increase U.S. supplies of gasoline, diesel and jet fuel.


Consultants Purvin & Gertz estimate that slightly more than half of China’s 'teapot' refineries, which have an aggregate capacity of around 1 mbd, are now off line because they cannot afford the feedstock. Demand for naphtha is hard to pin down, but growth seems to be forging ahead in double-digit figures. Analysts point to a doubling of imports to 0.031 mbd, a 26% drop in exports to 0.030 mbd and a 22% rise in ethylene production, which accounts for most of China’s naphtha demand.


The U.S. produces only some 4% of heavy fuel oil. Marathon is investing to reduce this further. A coker and a distillate hydrotreater - which are among new units to be built -will be added at the back of the refinery. The USD 1.9 bn expansion project, construction of which is due to start this year or next, will be finished in 2010 and will boost the refinery's  heavy oil processing capacity to 80,000 barrels per day (bpd) and its total crude oil refining capacity by about 15% to 115,000 bpd.

Contact: Erik Ranheim