Stormy weather exposes shortcomings of world’s oil refineries

Above, a gas pump is covered with an out of service message as fuel ran out ahead of Hurricane Harvey's arrival near the Texas coastal area, in Houston, Texas. (Reuters)
Updated 22 September 2017
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Stormy weather exposes shortcomings of world’s oil refineries

BRUSSELS/LONDON: Hurricane Harvey’s crippling impact on US oil refinery operations this month and the challenge buyers faced in filling the gap in gasoline supplies has exposed a shortage of spare refining capacity around the globe.
Nearly a quarter of US refining capacity was knocked out by the storm this month, driving US gasoline prices to two-year highs above $2 (SR7.5) a gallon. Many plants are still struggling to resume normal operations, prompting other refineries around the world to crank up output to fill the gap.
Global refining is considered to be running at its maximum when capacity utilization is 85.5 percent, the highest level reached in the modern era, BP’s head of refining economics Richard de Caux said.
Today the utilization level is 83 percent, he told the Platts Refining Summit in Brussels, suggesting a very slim buffer.
“The spare capacity is not really there,” said Dario Scaffardi, general manager of Italian refiner Saras. “In as much as consumption worldwide is growing, refinery capacity is not long at all.”
Spare capacity is needed to meet demand when refineries undergo maintenance or face unexpected outages. Too much in reserve is costly for refiners. But Hurricane Harvey has shown the world may not have enough.
Consultant JBC Energy said refiners could process 83 million bpd of crude by the end of 2017. In 2016, BP data showed processing at roughly 80.6 million bpd.
Energy consultancy FGE estimates spare global refining capacity, based on official or nameplate numbers, stands at 14 million bpd, down from 18 million bpd earlier this decade.
But nameplate figures can be misleading, as they are based on capacity of a refinery when built or refurbished. Many cannot match those levels due to years of underinvestment. So actual spare capacity may only be a fraction of that 14 million bpd.
For example, Venezuela’s four refineries have run at record lows this year as they lack spare parts. Plants in Mexico, Brazil and Nigeria have also suffered poor investment for years.
At the same time, demand for oil and its products is climbing, led by China and India, and more developed economies.
“What we have is good demand growth and, ... whilst there are long lists of refinery projects, not many of them are coming through,” said Steve Sawyer, FGE’s head of refining.
Throw Hurricane Harvey into the mix and the shortage in spare capacity becomes increasingly apparent.
“Are we going to assume Venezuelan refinery utilization rates will suddenly jump?” Energy Aspects said. “Or are we going to rely on Nigeria’s dilapidated refineries to fill the gap? None of this capacity is available to the current market.”
“The only country with truly spare refining capacity is China, where environmental restrictions have capped runs,” the consultancy said in a note.
As a result, Morgan Stanley predicts a “silver age” of profits to the end of the decade for refiners as margins rise.
“Refining cycles are historically short and volatile, but there is more visibility than usual, and we expect this strength to continue,” the bank said in a note.
It forecast oil refining capacity would increase by 700,000 to 800,000 bpd in 2018, but would be outpaced by demand for oil products rising by 1.4 million bpd.
“Refinery crude intake probably needs to increase by (roughly) 1.1 million bpd. Hence, global refining utilization is set to stay high in 2018, which will underpin margins again next year,” the bank said.
It forecast BP’s Refining Marker Margin, a benchmark proxy for profits, would rise from $12.8 a barrel in 2017 to $16 a barrel in 2020.
A move to make shippers to use fuel with less sulfur from 2020 will offer further opportunities for refiners to boost margins by supplying more low-sulfur distillates.
“With product demand and refining margins this strong, the world needs more refining capacity not less,” said Nevyn Nah, oil products analyst at Energy Aspects in Singapore.


Ford gets record fine in Australia for ‘unconscionable’ conduct

Updated 2 min 39 sec ago
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Ford gets record fine in Australia for ‘unconscionable’ conduct

SYDNEY: Car giant Ford is set to pay out A$10 million ($7.6 million) for its “unconscionable” handling of gearbox complaints in Australia after a court on Thursday slugged the auto manufacturer with a record penalty.
The Australian Competition and Consumer Commission (ACCC) began legal action against Ford last year after the car manufacturer failed to properly deal with thousands of complaints about shuddering in PowerShift transmissions fitted to its Fiesta, Focus and EcoSport models.
“Despite knowing that shuddering was a symptom of the quality issues with the vehicles, Ford frequently told customers that shuddering was the result of the customer’s driving style,” ACCC Chairman Rod Sims said in a statement.
“Ford knew that the symptoms of the quality issues with the vehicles were experienced intermittently but required customers to demonstrate them on demand in the presence of a dealer in order for repairs to be undertaken.”
The payout matches the largest-ever handed down under Australian consumer law, the ACCC said, equaling a $10-million penalty against supermarket chain Coles in 2014 for misusing its bargaining powers against suppliers.
“Ford knew that its vehicles had three separate quality issues but dealt with affected customers in a way which the Court has declared to be unconscionable,” Sims said.
About 75,000 cars fitted with the PowerShift transmission have been sold in Australia and over 10,000 people may be eligible for remediation after making complaints between May 2015 and November 2016.
“We were overwhelmed with the volume of complaints and, while it was not intended, over a ten-month period our processes were inadequate and information provided was either inaccurate or incomplete,” President of Ford Motor Company Australia Graeme Whickman said.
“We let our customers down and for that we are sorry,” he said in a statement.