ANTWERP Feb 3 Strong residual demand for oil
products and the emergence of only a handful of new refineries
will protect the profits of Europe's long struggling operations
this year, but experts expect the hammer to fall on the weakest
State-of-the art new refineries in Asia and the Middle East
have sharply increased the amount of oil products flowing into
global markets and threaten the existence of Europe's ageing and
less sophisticated units.
However, meteoric fuel demand, driven by low oil prices, has
given many a reprieve over the past two years, protecting
thousands of workers in Mediterranean countries such as France,
Greece and Italy.
A mixture of maintenance in Asia and only a limited amount
of new refineries coming online could give vulnerable refineries
another stay of execution, speakers at the Platts Middle
Distillates conference in Antwerp said.
"We think the market can absorb it," said Adam Ritchie,
founder of AR Oil Consulting and a director at Petro-Logistics,
referring to new capacity coming up in 2017.
He noted that underlying economic growth could give diesel
demand in particular a kick, and would be sufficient to absorb
the refining additions this year -- mostly condensate splitters
in Iran, Oman and Qatar.
Gunvor chief economist David Fyfe said "robust" oil
consumption this year could yield demand growth of as much as
1.4-1.5 million barrels per day (bpd), a level that would
actually limit so-called "spare" refining capacity that produces
above what the world will consume.
But from next year, the picture turns darker for European
refineries, which are run by either the oil majors or smaller
Consultants Baker & O'Brien estimate that there is a further
1.3 million bpd globally of new refining capacity scheduled to
start up in 2018. Energy Aspects put the figure even higher at
1.57 million bpd.
Either level is likely to squeeze oil product margins and
shorten the lifespan of the simplest refineries, particularly
those in areas of limited oil demand growth such as the
"Our view is that this new capacity will outstrip the
underlying demand, nudging refinery utilization back towards
recent historical lows," said Peter Bartlett, a director for
Baker & O'Brien's London office. It would turn up the heat in a
"pressure cooker" environment that could force some units to
shut their doors forever, he added.
(Reporting By Libby George; Editing by Keith Weir)