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“Golden age” of oil refining margins to end

Ikuko Kao, Reuters
LONDON – The global “golden age” of record refining profits is likely to be over by the end of the decade thanks to more capacity from new plants and higher costs due to record crude prices, industry analysts say.

Signs the boom is faltering have already emerged. ConocoPhillips suspended production at its German refinery for a month in August due to low margins, an unusually long shutdown in the peak summer driving season.

Chevron Corp, the second-largest oil major in the United States, said earlier in October it would see its third-quarter net income dropping significantly from the second quarter due to a sharp fall in its refining margins.

Some industry experts say this is the beginning of the end of the refining industry’s “golden age” which began in 2004 when margins started rising due to global demand growth and the shortfall in refining production capacity.
(29 October 2007)
Contributor Jeffrey J. Brown writes:
Pick a wholesale gasoline/diesel price number: $5, $10, $15, $20 . . .

At each of these wholesale price levels, would importing countries be more or less likely to be refining the same amount of oil that they were refining at a wholesale gasoline/diesel price of $2.50 or so?

The key limiting factor on the volume of oil that a refiner will process is whether or not they can sell the product at a profit. This is why I have been expecting to see declining refinery utilization numbers in importing countries, and probably rising utilization numbers in at least some exporting countries.

For more information on the topic:
Declining Net Oil Exports Versus “Near Record High” Crude Oil Inventories: What is going on? (September, 2007)

Why BP is cutting back in Aberdeen as oil prices soar

Selwyn Parker, Sunday Herald (Scotland)
ABOUT THE only place in Scotland where the price of West Texas Intermediate Crude is on everybody’s lips is Aberdeen. But even in oil city there must be some confusion about the relationship between the wholesale cost of the black stuff and BP’s imminent cutbacks there.

The big question is why BP is taking the scalpel to its Aberdeen-headquartered North Sea business when the benchmark price of oil keeps on breaking new records and presumably boosting profits.

By week’s end, for example, crude prices broke the $90 (£44) barrier. That landmark inevitably raised the dreaded prospect of West Texas Intermediate Crude cracking $100 (£49), with mounting consequences for just about every other part of the British economy.

BP’s official reason for restructuring its Aberdeen operations is “to secure a long-term future for the company’s oil and gas business in the UK”. By implication, if it does not, there is no long-term future.

On the agenda, therefore, are cuts throughout 2008. All up, about 350 people out of 2100 will leave. BP says a lot about the new regime led by chief executive Tony Hayward, who replaced Lord Browne earlier this year, that the redundancies will all be office-based rather than front-line oilmen. Hayward has pledged to focus on operational efficiencies.

Deeper reasons lie behind the cutbacks, however, and BP’s economies may just be the first of others by competitors. It is no secret that the North Sea fields are running out.
(27 October 2007)

China Will Build Oil Refinery In Costa Rica

ohn Concepcion, AHN
Mexico City, Mexico – Costa Rica President Oscar Arias announced that China is set to build an oil refinery in his country in order to address its energy needs.
(28 October 2007)
Contributor Greg writes:
Costa Rica gets 80% of its electrical power from hydro. Oil is imported.

New Zealand’s oil rush

Eugene Bingham, New Zealand Herald
Sleepy Thule Bay is as serene as it is picturesque. Thickets of native bush snuggle against each other right to the water’s edge in this quiet Stewart Island inlet. There’s electricity, a smattering of houses and several yachts moored off the small beach, but Thule Bay is as far from the capitals of commerce and industry as imaginable.

Here in late February, tangible signs of New Zealand’s hopes of striking it seriously rich bubbled to the surface. A scientific observer digging onshore discovered seeps of oil. About a week earlier, a 4.8 magnitude earthquake 160km to the west had rattled the island, squeezing the natural crude from the Earth. The discovery was where seeps had been found before, in the early 1980s.

But the timing could not have been better – just as international companies were contemplating bids for oil and gas exploration permits in the vast Great South Basin, a 500,000sq km area extending from the bottom of the South Island to the edge of the Southern Ocean. The basin had been explored before, in the 1970s and 1980s. A moderate-sized gas field was discovered but abandoned, the tough conditions making it uneconomic to continue.

Almost 30 years later, the hunt is on again – improved technology makes explorers confident of beating the weather. And as the seeps in Thule Bay confirm, there’s the lure of not just gas but of oil. With energy prices soaring, this frontier territory is becoming viable.

…[Australian-based Exxon spokeswoman Samantha Potts said:] “It’s a long-term project and this is a game where, certainly at this point, there’s a lot of risk and a lot of money to be spent upfront but, nonetheless, we’re optimistic.”

If ExxonMobil or any of the other companies do strike oil or gas, it could change New Zealand’s fortunes.

Duynhoven has played down the likelihood of anyone producing gas for the domestic market, saying it is more likely that if there is a gas find it will be of such a scale it would be sold as liquefied natural gas on the world market. Greymouth Petroleum, however, has said its aim is to deliver cheap fuel to backbone energy users in the South Island. If there is a major oil strike, energy consultant Graeme Bethune points out that it may never even touch the mainland.

“You could have an offshore development where tankers come in and take the oil away,” says Bethune, “but that would still all contribute to New Zealand in terms of the balance of payments and so on. It would make a real change for New Zealand.” Without getting carried away, Bethune points out that Britain and Norway used to be seen as only moderately endowed with natural resources, just as New Zealand is seen now. And then along came North Sea oil and gas.
(29 October 2007)