Thursday, July 9, 2009

Refiners Face Shakeout in Coming Years - Deloitte

By Erwin Seba
Jul 9, 2009

U.S. refiners face a shakeout due to pending environmental regulations in the coming years that could shrink national refining capacity by up to 2 million barrels per day (bpd), according to a study issued on Thursday by financial consultant Deloitte.

"As the impact of the new regulations is realized over the next several years, up to 2 million bpd of crude processing capacity in this country may be eliminated," according to the study.

The Deloitte study follows similar research issued throughout the year that temporary reductions in U.S. refining capacity because of the recession would likely become permanent in the next 10 years as new vehicle efficiency standards and requirements for renewable fuels cut the need for motor fuels made from crude oil.

Refiners have temporarily shuttered refineries and individual processing units throughout the year as the economic downturn crushed demand for motor fuels.

Valero Energy Corp (VLO.N: Quote, Profile, Research, Stock Buzz) said on Thursday it had turned off the first units in a sequential plantwide shutdown that could last up to three months at its 235,000-bpd Aruba refinery, which supplies the U.S. market.

On Wednesday, the U.S. Energy Information Administration said U.S. refinery utilization was running at 86.8 percent of national capacity of 17.67 million bpd. [EIA/S]

Refiners that have invested heavily in the past decade to shift their plants to run cheaper heavy, sour crude oil grades will likely face new hurdles in rules to limit carbon emissions expected to take effect within 10 years.

"The added processing needed to turn this more challenging feedstock into clean fuels consumes more energy than refining light, sweet crude," the study said. "With the advent of caps on carbon emissions, what once looked like a cheap feedstock may now mean a costly carbon footprint."

Some refiners are already adapting to the new challenges their industry will face, according to the study.

"Valero and Sunoco Inc (SUN.N: Quote, Profile, Research, Stock Buzz) have recently announced significant acquisitions of ethanol manufacturing plants from distressed sellers," the study said.

Refiners are also seeking ways to produce biofuels in addition to adding ethanol facilities.

"The future of a refinery will depend on whether it is a low-cost operator, the sort of competition it faces, and whether its profits justify the cost to comply with regulatory changes," according to the study.

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