NPRA Annual Meeting 2004
Closing Points
•Environment may be improving for U.S. capacity expansion
–U.S. needs increasing petroleum fuel volumes for some time
–Product import sources decline in short term – but long term?
–Specification changes reducing refinery capability
–Consequences – Continued higher margins
•Yet keep an eye on the long term; large changes can occur
•
SThis presentation touched on a number of factors that could affect refiners’ capacity decisions,  and attempted to illustrate the challenge the industry faces as we look ahead.  In the short-term, many factors point to the potential for improved potential for return on capacity investment.
–Most forecasts show increasing gasoline and diesel fuel demand growth.  Even if vehicle fuel economy again improves significantly, the impacts will not occur immediately.

–Our primary product import is gasoline, and with tightening U.S. specifications relative to much of the rest of the world, we might need to pay higher prices to attract increasing import volumes – at least for the next few years.

–As refiners direct investment dollars to treatment capacity in order to reduce gasoline and diesel fuel sulfur content, capacity expansion may slow.  In addition, some of the fuel specification change requirements will reduce refinery capability to produce gasoline through yield loss.

–Refinery closures are likely to continue.

–All of this adds up to increased margins in the short term, which should improve the environment for capacity investment.  However, margin improvement may be the result of short-term price swings rather than a smooth steady increase.

SLong-term changes could dramatically affect the shape of the refining business, but such changes are not likely to occur quickly, and should produce signs of change in advance of the impacts, which is an incentive to keep an eye on the long term.