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America Shale oil bonanza to cost refiners billions

Steel News - Published on Mon, 23 Jul 2012

The News reported that America’s shale oil boom is great news for US industry, jobs and consumers but it could cost global refiners billions.

Banking on rising demand for transport fuels, oil companies around the world have committed as much as USD 100 billion over the last decade on equipment to turn heavy oil into valuable refined products such as gasoline jet fuel and petrochemicals. But the investment has coincided with the discovery of vast reserves of high quality oil and gas held in tight rock formations beneath Texas, North Dakota and other US states which has changed the market probably forever.

The world’s average crude oil barrel is becoming lighter as new hydraulic fracturing or fracking technology and deep horizontal drilling extracts very high quality hydrocarbons. New US shale provinces are now pumping more than a million barrels per day of some of the lightest oil available that is much sweeter containing less of the contaminant sulphur. And the same technology is soon to be deployed elsewhere in the world producing more and more light oil.

As supplies increase, the value of light crude oil relative to heavy oil is collapsing and profits from equipment to upgrade heavy crude such as expensive fluid catalytic crackers and coking units are falling.

Mr Stephen George principal consultant at KBC Process Technology Limited td in Walton on Thames, England said that “Companies have invested for a world supplied with heavy and sour crude but now they find crude is getting lighter and sweeter. The market is going to be way over supplied with deep upgrading capacity. Many FCC refineries are looking dubious.”

Mr Jonathan Leitch senior energy research analyst at consultancy Wood Mackenzie said that we are talking about margins being a couple of dollars per barrel worse than we could have expected. If the assumption 2 or 3 years ago was for margins of USD 5 to USD 7 per barrel then it would now be more like USD 3 to USD 5. If you had been expecting a margin of perhaps USD 5 you could now be looking at perhaps USD 3.

Typically USD 1.5 billion to USD 3 billion each, the top dozen oil projects commissioned over the last six years cost almost USD 60 billion alone and there are dozens of other smaller projects. China’s Sinopec, Total SA, Chevron, BP and Marathon have all invested billions in the hope of adding extra value to oil. With global oil processing capacity close to 90 million barrel per day and rising by about 1 million barrels per day the loss of even a few cents per barrel in margins hits the oil industry hard. And analysts see no prospect that the trend towards lighter crude oil will be reversed.

Mr Leitch said that “Looking forward, we can see that globally the crude slate is getting lighter for the next four to five years and this is coinciding with much more upgrading capacity coming on line and an increase in demand for heavy crudes.”

Source - The News


Posted By : admin on Mon, 23 Jul 2012
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