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Surging Diesel Demand Poses Challenge To RefinersBy Lananh Nguyen BRUSSELS (Dow Jones)--High global demand for diesel, particularly in Europe, will cause tight middle distillate markets in the coming years as refiners struggle to fill the supply gap, oil industry participants said at Platts' Refining Conference in Brussels. «We're going to remain short diesel, in spite of new conversion capacity…This is driven again by the insatiable demand and the strong economic growth that underpins it,» said Panos Cavoulacos, chief executive of Hellenic Petroleum SA (ELPE.AT) said Monday. He cited the increasing popularity of diesel vehicles in Europe and greater activity in the commercial transport sector as main drivers of the distillate market. Diesel-fueled cars account for 30% of Europe's fleet and represent over 50% of new car sales, Cavoulacos said. Europe's diesel and gasoil shortfall is forecast to widen by around 300,000 barrels a day in 2012 to 1.23 million barrels a day from 958,000 barrels a day this year, said David Martin, senior analyst in the International Energy Agency's oil industry and markets division. The IEA is the energy watchdog for members of the Organization for Economic Cooperation and Development. Demand is also expected to grow in countries outside Europe. Robust Asian economies, such as China and India, will also boost distillate demand, conference participants said. Supplies Crimped By High Costs, Spec Changes The refining sector has struggled to bring new capacity online to produce middle distillates — including diesel, heating oil and jet kerosene — due to industrywide cost inflation and a dearth of skilled labor. Project delays, and in some cases, cancellations, have led to a bottleneck. Martin expected 9 million barrels a day of refinery projects to come online by 2012, with 4 million barrels a day coming from the expansion of existing refineries and 5 million barrels a day from new projects. Tighter fuel specifications implemented by the European Union for environmental reasons will also constrict the diesel supply pool. From Jan. 1 2009, diesel fuel sold in the E.U. will be required to have an ultra-low-sulfur content of no more than 10 parts per million. «Those who are making (10-parts-per-million-sulfur diesel) prior to January 2009 are likely to make significant money,» said John Young, executive vice- president at KBC Process Technology Ltd. Refiners are able to adapt to the changing standards, said Modesto Gonzalo, director of Repsol YPF SA's (REP) Cartagena project. But he warned that there was a tradeoff involved in cutting sulfur content. «If you want to refine and make refined products…every time we blink we make CO2. The only thing we can do is blink efficiently.» But Gonzalo added: «I don't think the CO2 will be constraining refinery output in the short term.» The tightening impact of changing fuel regulations will be exacerbated by changing crude oil qualities. «We have material that requires strong, harsher refining conditions in order to accommodate the product mix,» said Larry Chorn, chief economist at Platts, a division of McGraw-Hill Cos. (MHP). What will meet the shortfall? Industry participants expressed concern about Western Europe's increasing reliance on distillate exports from the Commonwealth of Independent States. «The amount of infrastructure and investment is not sufficient,» in Russia to fill Western Europe's supply deficit, and Russian exports won't meet Western Europe's sulfur requirements, said Young of KBC. Political problems and infrastructure constraints could also cause more disruption to diesel supply and transport routes across Europe, said other participants. Russia has a surplus of around 25 million tons a year, most of which is exported to Europe, said Vasily Demenchouk, OAO Lukoil's (LKOH.RS) head of downstream investment analysis. Purvin & Gertz Inc. forecasts distillate exports from the Commonwealth of Independent States countries to double by 2020, reaching 50 million tons a year. Speakers also warned that burgeoning biodiesel production won't be a panacea for the European diesel crunch. «We remain cautious about biofuels…The economics are looking porous,» said Martin of the IEA. He pointed out that a shift toward ethanol and other biofuels could expose the markets to greater weather risk. «It's not possible to launch biofuels without taking into account all the consequences of biofuels on food users,» said Jean-Jacques Mosconi, Total SA's (TOT)senior vice-president of strategy and development. «In the U.S., a lot of people beginning to be aware that ethanol in corn is causing a lot of rising corn prices.» -By Lananh Nguyen, Dow Jones Newswires; +44 (0)20-7842-9479; lananh.nguyen@dowjones.com [ 23-10-07 1017GMT ]
Date: 23.10.2007 Leave your comment
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