Even with demand for crude oil surging and prices near record highs, Bernardo de la Garza can unload his oil only at a steep discount.
De la Garza sells a less-desirable grade of heavy Mexican oil called Maya for nearly $16 a barrel less than the $50 price for the most sought-after type, light sweet crude.
Production of heavy oil is increasing worldwide, pushing the price gap between it and the most desirable crude to unusually high levels. But many refineries are unable to take advantage of the lower prices because they lack the equipment needed to turn oil such as Maya into the most desirable, profitable products, such as gasoline or jet fuel.
All of this affects consumers at the gas pump. If refineries had more sophisticated equipment to process heavier oil, that would help push gas prices down, analysts said. Regular unleaded gasoline prices, which have set record highs this year, averaged $1.93 a gallon nationally yesterday, according to the AAA motor club.
Producers whose wells generate heavier blends of oil would love to see an expansion of refining capacity because that would drive up the prices they can charge. “That would be my wish list to Santa Claus, basically,” said de la Garza, the crude oil commercial director for P.M.I. Comercio Internacional SA in Mexico City, the marketing arm for the Mexican oil company Pemex.
Much of the world’s refining capacity is geared toward lighter, lower-sulfur grades of oil rather than blends such as Maya, which has the consistency of mayonnaise. Heavier oils typically yield less of the most profitable products per barrel, but the most sophisticated refineries can squeeze more profit out of each barrel.
Only about 20 to 30 percent of the nation’s 150 refineries can handle Maya, de la Garza said.
Analysts said that if the gap between the price of heavy crudes and the most desired grade continues to remain wide, more refineries would invest the hundreds of millions of dollars to upgrade their equipment. But they said that doing so is a gamble because upgrading equipment can take several years, and predicting how long the gap in prices will last is difficult.
“The spreads that we’re seeing in the market would certainly make an investment like that pay off, but it’s just a question of how long those spreads are going to last,” said Aaron Brady, an analyst for Cambridge Energy Research Associates in Massachusetts. “We’re going to see more conversion capacity. But it’s not going to happen overnight.”
Industry officials said the scarce capacity to refine heavier crudes is part of a larger problem: a lack of overall refining capacity, another factor in higher prices for gasoline and other refined products. No new refineries have been built domestically for many years, which the industry says is largely because of difficulties in obtaining permits and finding a location where neighbors do not object. Many refineries are running near capacity to meet demand, analysts said.
Some countries have stepped up production to feed the world’s growing thirst for crude. Much of that additional oil has been heavier, higher-sulfur grades. Environmental regulations in the United States and Europe require lower-sulfur fuels.
Some refiners that now focus on light, sweet oil said they had no plans to upgrade their equipment, despite the price gap.
“We’re in this for the long haul and we feel that processing the light sweet crude . . . is the appropriate decision for us,” said Gerald Davis, a spokesman for Sunoco Inc., a Philadelphia-based company that operates five refineries. “This is a long-term business that we’re in as opposed to the market today, the market tomorrow.”
Another refiner, Valero Energy Corp. of San Antonio, has benefited from lower prices for heavy oil by operating equipment that can handle it. A company spokeswoman, Mary Rose Brown, said the growing discount for heavy oil has helped boost profit margins. “It really is the way to go for the future,” she said, “because that’s what the world’s reserves are.”
