New York, New York – A new analysis of the refining industry by global management consulting firm Booz & Company suggests that shifting scenarios in energy could possibly result in the U.S. becoming a net exporter of gasoline by 2010. The report, Refining Trends: The Golden Age or the Eye of the Storm?, explores rising demand for fuel in Asia and the BRIC (Brazil, Russia, India and China) nations, mandates for biofuels, alternative technology vehicles, and the introduction of $2,500 automobiles.

These factors are confounding an industry that counts on 20-year predictions to guide current investment decisions, the company said. “In the first half of 2008, the refiners went from exhilaration to desperation,” said Andrew Clyde, partner at Booz & Company. “The industry has never faced so many contradictory trends, both on the demand and supply sides.”

The refining industry has been in a “golden age” since 2002, with margins maintained at historic highs, but while there is widespread agreement that global demand will grow in the coming decades, changes in the nature of that growth pose substantial threats to refiner margins and will significantly affect the industry’s ability to invest. The company calculated that a one per cent annual growth rate among the BRIC countries would add three million barrels per day (bpd) of demand for ground transportation fuels by 2025. A potential spoiler for this growth is a move to non-oil-based vehicles such as electric cars in Western countries, and in the short term, the combination of high gas prices and economic downturn could translate into a significant drop in the demand for fuel.

Debate over biofuels is also an issue, with the U.S. government setting a mandate for the production of an additional 600,000 to 700,000 bpd of biofuels by 2012, more than the expected growth of gasoline in the 2007-2012 period. Taken together, what looked to be a modest fuel supply crunch by 2009-2010 has now turned into a situation of potential oversupply, according to the report, which could portend a number of changes worldwide, including the possibility of the U.S. becoming a net exporter of gasoline, and the destruction of refiner margins in developed countries due to the costs of transporting the fuel to BRIC nations to meet demand.

“The growth of global fuel demands over the next two decades will give little comfort to refiners facing the destruction of their profit margins,” said Pedro Caruso, Booz & Company Principal. “Refiners face difficult choices ahead, whether it’s pulling the plug on projects in developed countries, getting into biofuels, or expanding into Asia.”

The report also suggests that the pace of capacity addition is picking up, despite high capital costs, with distillation capacity set to grow by approximately six million bpd between 2008 and 2012; strong economic growth will require distillation capacity to grow by 30 million bpd by 2025; global demand for transportation fuels will continue to grow through 2025, despite any increase in the use of alternative vehicle technology, due primarily to growth in Asia; plug-in hybrids are not expected to be market-ready before 2010; and fuel cell vehicles will become available only after 2020.


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