|SAs we look ahead, 2004 may have encouraged
more refiners to consider adding capacity.
It certainly should not have discouraged capacity investments.
|SU.S. capacity has been expanding for the
past decade, and is likely to continue to expand for 2 reasons. First, improving margins in recent years
have provided both capital and incentive for expansion; and second, the
recent diversion of capital into the low sulfur fuels programs should be
winding down, allowing companies to shift to expansion opportunities.
|SThis is not to say expansion will keep up
with demand growth. Gasoline
imports grew historically because they provided a more economic alternative
than domestic supply. The European
gasoline surplus is expected to grow.
However, changing U.S. production specifications tend both to diminish
the available volume of product imports and to increase the price required to
attract the required quality of product.
|SThus, incentives to expand capacity in the
U.S. could increase as a result of an increasing price needed to attract
imports. In other words, U.S.
capacity expansion decisions are influenced by world markets and associated
world capacity changes.