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European Commission Study on Oil Refining and Oil Markets

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European Commission Study on Oil Refining and Oil Markets STUDY ON OIL REFINING AND OIL MARKETS Prepared for: EUROPEAN COMMISSION Prepared by: . Buenos Aires – Calgary – Dubai – Houston London – Los Angeles – Moscow – Singapore January 2008 L2293/mg Table of Contents -- i TABLE OF CONTENTS I. INTRODUCTION..............................................................................................................................1 II EXECUTIVE SUMMARY ..................................................................................................................3 DEMAND OUTLOOK .................................................................................................................3 CRUDE OIL PRODUCTION OUTLOOK .....................................................................................8 REFINING INDUSTRY IN THE STUDY REGION .....................................................................12 BIOFUELS ...............................................................................................................................16 REFINED PRODUCT TRADE FLOWS, AND IMPLICATIONS FOR EUROPE...........................18 CRUDE OIL PRICES................................................................................................................21 REFINING MARGINS...............................................................................................................28 OTHER EU POLICY-RELATED ISSUES ..................................................................................32 III A – HISTORICAL MARKET DEVELOPMENTS.....................................................................................35 A-1 HISTORICAL DEMAND............................................................................................35 A-2 PRODUCT SPECIFICATIONS AND TAXATION POLICIES ......................................53 A-3 WORLD CRUDE OIL PRODUCTION........................................................................72 A-4 EUROPEAN CRUDE OIL TRADE FLOWS................................................................81 A-5 EUROPEAN UNION REFINED PRODUCT TRADE FLOWS .....................................88 A-6 REFINERY DEVELOPMENTS................................................................................101 A-7 REFINERY INVESTMENTS ...................................................................................119 A-8 REFINERY ECONOMICS.......................................................................................125 NORTH AMERICA PRICES AND MARGINS ..........................................................130 NORTH WEST EUROPE........................................................................................131 ASIA ......................................................................................................................133 III B – NEAR-TERM OUTLOOK: 2007-2012 ...........................................................................................149 B-1 WORLD CRUDE OIL SUPPLY ...............................................................................149 NON-OPEC CRUDE OIL PRODUCTION................................................................150 OPEC CRUDE OIL PRODUCTION.........................................................................160 CRUDE OIL PRODUCTION OUTLOOK BY TYPE..................................................163 B-2 REFINED PRODUCT DEMAND .............................................................................169 EUROPE................................................................................................................169 NORTH AFRICA ....................................................................................................176 CHINA ...................................................................................................................177 INDIA.....................................................................................................................182 MIDDLE EAST .......................................................................................................186 RUSSIA .................................................................................................................188 . ii -- Table of Contents UNITED STATES OF AMERICA ............................................................................190 B-3 DEMAND, REFINERY SUPPLY AND TRADE.........................................................213 THE NEAR–TERM CAPACITY AND PRICE RELATIONSHIPS...............................231 IMPACT OF ENVIRONMENTAL CONSTRAINTS ON REFINERY PROJECTS .......234 B-4 CRUDE OIL AND REFINED PRODUCT PRICE OUTLOOKS..................................272 CRUDE OIL PRICE OUTLOOK ..............................................................................272 REFINING ECONOMICS AND PRODUCT PRICES................................................278 III C – LONG-TERM OUTLOOK: 2013-2020...........................................................................................303 C-1 WORLD CRUDE OIL SUPPLY ...............................................................................303 NON-OPEC CRUDE OIL PRODUCTION................................................................304 OPEC CRUDE OIL PRODUCTION.........................................................................308 LONG-TERM CRUDE OIL PRODUCTION OUTLOOK BY TYPE ............................310 C-2 DEMAND, REFINERY SUPPLY AND TRADE 2013-2020 .......................................316 C-3 IMPACT OF BIOFUELS AND OTHER ALTERNATIVE FUELS................................354 GLOSSARY............................................................................................................................................373 . I. Introduction -- 1 I. INTRODUCTION The European Commission has concerns regarding the current high oil price environment, and the EU’s increasing reliance on trade to balance its refined product demand. The history of the refining industry from the mid 1980s is characterised by over capacity and a sustained period of low profitability, such that investment in the industry in Europe and the U.S. has primarily been focussed on making mandatory improvements to product quality and emissions rather than adding new capacity. A combination of demand growth and refinery capacity rationalisation has resulted in a much closer balance between refinery capacity and the demand for refined products. Recent disruptions caused by extreme weather events in the U.S., losses of refinery capacity as a result of operating problems and a period of rapid demand growth have resulted in the current exceptional crude oil prices and refinery margins. The concerns about the future availability of refinery capacity and its potential impact on crude oil prices and the European economy has prompted the Commission, along with OPEC, to seek a study that examines the likely future developments in the oil industry. This study originated from the ongoing Energy Dialogue between the European Commission and OPEC, which in December 2005 recognized the effects of the tightness in the global refining system on world markets and market stability. This report documents the results of this study, which has been prepared in response to the terms of reference issued by the Commission. The study region is defined to include the following countries/areas: The European Union (E.U.): unless otherwise noted, this comprises the current 27- member state Union. Historical data for the EU shall also refer to this definition where the data is available. Where deemed appropriate and so noted, for example for crude oil production, this shall be expanded to “Europe” which includes Norway, Switzerland, Turkey, and other non-EU countries of Europe. North Africa: Algeria, Egypt, Libya, Morocco, Tunisia The Middle East: Bahrain, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates (UAE), Yemen Russia and the Commonwealth of Independent States (CIS) China India United States of America (U.S.) The study report is presented in three main parts. These cover the historical period from 1990 to 2006 and provides a background to the current situation (Section IIIA), an analysis of the near term future in the period 2007 to 2012 (Section IIIB), and the longer term developments in . 2 -- I. Introduction the period 2013 to 2020 (Section IIIC). The subdivision of the future is made to recognise that little impact resulting from uncommitted investment can be made before 2012. Certain topics, notably future refined product demand and refinery economics, are covered in one section as these tend to respond to gradual trends and environmental changes. Section II presents an Executive Summary of the study, which provides an overview of the study and more importantly the main conclusions of the work. Section III is split into the three subsections discussed above. This report has been prepared for the sole benefit of the client and co-sponsors of the study. Neither the report nor any part of the report shall be provided to third parties without the written consent of Purvin & Gertz. Any third party in possession of the report may not rely upon its conclusions without the written consent of Purvin & Gertz. Possession of the report does not carry with it the right of publication. Purvin & Gertz conducted this analysis and prepared this report utilizing reasonable care and skill in applying methods of analysis consistent with normal industry practice. All results are based on information available at the time of review. Changes in factors upon which the review is based could affect the results. Forecasts are inherently uncertain
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