COLUMN-Global overcapacity to squeeze oil refining margins: Campbell
By Robert Campbell
NEW YORK, April 15 (Reuters) - Too many countries are net exporters of refined oil products and those that are not harbor ambitions to become exporters. Yet too much refining capacity is already being added worldwide and too little is being retired. That spells trouble for refinery profitability until low returns trigger more closures.
The last wave of refining capacity rationalization has largely run its course in the developed world. The United States, Britain, Germany, Canada, Japan and Australia have all seen multiple refineries close.
Yet these shutdowns have failed to keep pace with slipping oil demand in the developed world, or to offset "capacity creep" at other refineries. Indeed, some countries where oil demand has fallen precipitously, such as Italy and France, have resisted refinery closures as a means of preserving employment.
Having more than enough refining capacity to meet domestic demand is not a problem when there are export markets that need the product. Latin America's deficit in refined products, particularly diesel, has proven an important outlet for U.S. plants.
But there is a problem here. Oil refining tends to be fetishized by governments. The thinking goes, "it is bad enough to depend on outsiders for crude oil, so let's at least be able to refine all the fuel we need."
Thus, export markets for refined products are drying up. China, which already has an estimated 12 million barrels per day of refining capacity when so-called teakettle refineries are included, continues to add new facilities.
Refining capacity expansion in China has been enough to turn the country back into a net diesel exporter. China is expected to export 400,000 tonnes of diesel this month amid bloated domestic stocks and insufficient demand to mop up all the supply. Continued...