Upgrading Capacity Expansion Potential
•US upgrading capacity expansion
–Expanded more than in other parts of the world
–Generally done in partnership with heavy crude producers
–Still room for some more
•Asia upgrading capacity expansion
–Perhaps next major expansion area
–Required to meet growing light product demand
–Partnerships with Middle East?
•Europe upgrading capacity expansion
–Demand not growing strongly
–Demand/refinery output mismatch
–Need to destroy residual fuel (demand declining)
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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.