|SAt $40-$50 per barrel, refiners with
bottoms upgrading capacity are experiencing a more attractive profit margin
than those without. This will cause
other refiners to consider adding such capability.
|SThe United States has the least
opportunities left for adding upgrading capacity without also expanding
distillation, but there still are some opportunities. Generally past expansions were done in
conjunction with heavy crude oil producers. This same approach – teaming
with heavy crude oil producers – may prove to be the favored strategy abroad.
|–The high light-heavy crude oil price
difference affects the heavy crude oil producers as well as refiners.
|–In the past, many producing countries have
participated with refiners in adding bottoms upgrading projects as a means of
assuring that they have an outlet for their lower quality crude oils. Thus, if their heavy crude oil is steeply
discounted in the market, they may benefit from higher refining margins.
|SAsia may be the next major area for
expansion in conversion capacity.
Demand is growing, particularly for the light products, and upgrading
can help to meet that growth without adding distillation capacity. Will more partnerships with Middle Eastern
heavy crude oil producers accompany such changes? Very possibly.
|SEurope may also see some changes, but
demand is not growing much there. In
this case, refinery investments to better match demand might be the driver,
with the need to destroy high sulfur residual fuel oil production as an
important driver. High sulfur residual
fuel oil is becoming more and more difficult to market, and future limits on
sulfur content of bunker fuels will only increase the difficulty.