World Petroleum Congress - Refinery Growth

TheDude

Just a graph, from this PDF:

May be of interest. The big yellow bar for 2009 is India's Jamnagar II. More details are in the IEA's latest free issue of the full OMR.
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pup55 · Expert Joined: May 26, 2004 Posts: 3853

The economics of refinery additions for some of these nationalized oil-nations is slightly different than it is for a profit-making venture such as the big oil companies.

Their rules are different as far as taxes, cost of capital, and return on investment: namely, they pay all of their income as taxes, their cost of capital is whatever the government says it is, and the return on investment is irrelevant as long as they bring in cash money.

The refineries in Saudi and that region have the added benefit that their raw material costs are essentially what the government says it is. I believe the 2009 "other asia" bump consists of the massive project underway in Saudi and another in India.

It is really dubious whether there will be any more refineries built in the US in the next few years, public announcements notwithstanding, because the economics at the moment are not sufficiently good to justify the investment, and also, more importantly, some of the leading political candidates are coming out every day or so talking about "windfall profits on the oil companies" which could radically screw up the rate of return of any of these projects, with no notice whatsoever.

So what you will inevitably see is that instead of being dependent on foreign crude oil, the US will be dependent (even more so than right now) on imported finished products. How this can be justified from a national security standpoint is beyond me. Also, by importing the higher value-added finished products, our national wealth will be drained out slightly faster than it would by just importing the crude oil.

ROCKMAN

pup,

I'll add another big factor in the decision making process. Between the permit application and construction time it’s a good 5 years minimum before the first runs. I’m doubt the numbers have changed too much from the last time I saw the calculation but it used to take 6 to 8 years of high rate utilization to payout construction costs. And the key there is utilization rate which is completely dependent upon access to crude. What refiner today can count on a sufficient volume of heavy/sour crude starting in 5 years and continueing for the next 10+ years afterwards? The only answer I can see is a producer that owns the refinery or tied to one in some form of a partnership. Being owned by the Vz gov’t I doubt the managers at CITGO loose too much sleep worrying about future supplies. As long as the heavy/sour crude producers have enough market to sell into I don’t see them building their own refineries anytime soon. But if the global refinery market doesn’t continue to provide sufficient capacity it’s easy to see the producing countries adding the refinery capacity themselves.