Global crude distillation capacity is projected to rise by 1.5 million barrels per day (mb/d) in 2008, said an oil market report by International Energy Agency (IEA).
Global refinery crude throughput increased by 0.2 mb/d in May to 72.7 mb/d and is 0.4 mb/d higher year-onyear. Crude throughput is forecast to increase rapidly to an August peak of 75.2 mb/d, on the back of higher runs in the OECD and the Middle East, the Medium-Term Oil Market Report said.
The report looked at the evolving pressures on the oil market for the next five years.
"Next year should see the start-up of 1.5 mb/d of new crude distillation capacity, almost half of which will be in China. The balance of the growth is well-dispersed, with most regions contributing to the growth, notable exceptions are Europe and the Pacific," the report said.
The Middle East's 250 kb/d growth in distillation capacity relies on the start of Qatar's 146 kb/d condensate splitter and the expansion of Saudi Aramco's Rabigh and Iran's Bandar Abbas refineries.
Upgrading additions are expected to further add to the supply of light products in 2008 and start to tighten the fuel oil pool.
Global oil product demand is expected to rise by a robust 2.5 per cent to 88.2 mb/d in 2008, largely due to a weather-related rebound in the OECD and strong demand in non-OECD countries. This represents an increase of 2.2 mb/d, from the slightly revised (-0.1 mb/d) 2007 level of 86.0 mb/d. Non-Opec supply in 2008 is forecast to reach 51.0 mb/d (+1.0 mb/d), plus 5.5 mb/d of Opec gas liquids (+0.7 mb/d).
Key growth drivers include the FSU, Latin America and global biofuels. OECD Europe and North America continue to see production decline, despite strong growth from the US Gulf of Mexico and Canadian oil sands.
Opec capacity rises by 1 mb/d in 2008 to average 35.4 mb/d, with the implication that spare capacity will post a modest rise.
In reality, the spare capacity comparison will depend to a large extent on Opec production levels both in the second half of 2007 and next year. Jet/kerosene markets are expected to remain tight.
Similarly, only marginal easing of the gasoil/diesel market is expected next year.
Fuel-oil cracks are expected to start to tighten as a result of the commissioning of the upgrading capacity noted above. Overall, the key question is how the market will resolve these shifts in balance between demand and supply potential, particularly ahead of the even bigger changes expected to occur in 2009.
Growth in Other Asia is largely due to the 150 kb/d of Indian crude capacity expansions. These include the second phase of Essar's Vadinar refinery and the expansion of IOC's Koyali refinery in Gujarat, both tied into new upgrading units and desulphurisation. Reports of the phased start-up of Reliance's 580 kb/d Jamnagar refinery over the course of 2008 suggest that its inclusion in the product supply model only for the first quarter of 2009 might be overly cautious.
However, without confirmation of exactly which units will start and when, retain the assumption that the refinery will only reach full capacity at the beginning of 2009.
Coking capacity additions of over 400 kb/d are expected to occur largely in China, North and Latin America.
An equally large tranche of hydrocracking capacity is expected to commence operations during 2008, adding to the supply of low-sulphur middle distillates.
Demand in the region continues to race ahead, driven by low prices, an ongoing economic boom in most countries in the region, and young and growing populations.
A vivid illustration is provided by Saudi Arabia, where year-on-year oil product demand growth averaged almost five per cent in the first four months of this year, largely as a result of buoyant petrol and gasoil sales (approximately 42 per cent of total demand). Total consumption in the Kingdom is expected to reach 2.2 mb/d in 2007 (+4.5 per cent year-on-year) and 2.3 mb/d in 2008 (+5.1 per cent) A similar pattern is expected to prevail in the region. In 2008, total Middle-Eastern demand is forecast to rise by 4.5 per cent to 6.8 mb/d, slightly faster than this year (+4.3 per cent). However, along similar lines as in China, this forecast is contingent on factors presenting a varying degree of risk - stronger than expected economic growth and reduction of retail subsidies.
This latter issue is perhaps the most important one in the region, as attested by riots in Iran as a result of the implementation of a rationing scheme for petrol in June (which followed May's hike).
Biofuel outpu in top gear
Global biofuel production - largely ethanol and biodiesel - is forecast to increase by an impressive 32 per cent in 2008 (+350 kb/d) to reach 1.45 mb/d. This follows similar growth in 2007, albeit from a low absolute base.
Widespread biodiesel growth in OECD Europe accounts for 38 per cent (135 kb/d) of next year's increase, while the United States, Brazil and non-OECD Asia each adds at least 50 kb/d to prevailing supply (predominantly ethanol for the US and Brazil, which is included in total oil supply data).
Nonetheless, despite sharp increases in percentage terms, this outlook mirrors a generally cautious forecast for biofuels in 2006-2012 as contained in the report. Although installed capacity (based on firm projects) potentially reaches nearly 3.0 mb/d in 2012 from 1.0 mb/d in 2006, either substantial amounts of capacity could remain underutilised, or some projects may slip.
Questions continue to surround biofuels' economic viability (given rising feedstock costs), competing claims on land use between energy and food supply, and an apparent lack of specific policy mandates for biofuels uptake within the vehicle fuel pool.
Price up
Oil leapt to a fresh 11-month high above $77 a barrel yesterday, lifted by lingering supply concerns and a rush of speculative money into the commodity.
London Brent, seen as the best indicator of the global market, rose 82 cents to $77.22 a barrel, after earlier reaching a new 11-month high of $77.45. The benchmark is within sight of last August's $78.65 record.
By Emirates Today Staff
© Emirates Today 2007
