By OGJ editors
HOUSTON, Aug. 29 -- US refiners expect fuel supplies and prices to remain volatile over the next few years, as refineries work to produce fuels at near-capacity levels in response to rising demand for petroleum products, according to a study released Thursday by Santa Monica, Calif.-based think tank RAND Corp.
"Most refiners expect demand for petroleum products to grow over the next 2 decades at the brisk rates seen in the 1990s and as projected by the federal government's Energy Information Administration," the RAND report said.
The study also found that refiners doubted their ability to match supply to demand. "To this end, many have called for greater regulatory flexibility. But 'a few refiners are contemplating the potential for a significant easing of demand,'" the study said, adding, "perhaps as soon as 2010-12."
US fuel consumption has been on the rise over the last 10 years, RAND said, stimulated by both economic growth and the popularity of sports utility vehicles (SUVs). "But some refinery executives say this projection could change quickly if more high-mileage vehicles appear (such as the hybrid vehicles promised by automakers) or if the federal government takes steps to promote greater fuel efficiency or reduced reliance on imported oil," the study found.
"Some refiners are trying to figure out how they may have to cope with such a changed scenario," RAND reported.
Refiners remain 'optimistic'
RAND researchers D.J. Peterson and Sergej Mahnovski based their in-depth analysis of the U.S. oil refining industry on "wide-ranging discussions with 72 officials from 40 refining industry organizations."
The reportwhich was prepared for the US Department of Energy's National Energy Technology Laboratory to help federal officials understand issues facing US refiners over the next decadeaddressed how federal programs and policies may impact the refining industry.
"The RAND researchers found a generally optimistic business outlook among oil refining executives, a contrast to the generally pessimistic outlook during much of the 1990s when the industry underwent an unprecedented period of corporate restructuring and downsizing," the researchers noted.
"After many years of turmoil within the industry, most refining executives appear to have a very upbeat attitude about their own operations," Peterson said. "Refineries today are leaner operations, and executives feel prepared to respond positively regardless of what direction the market goes in the future. They have a 'can-do' attitude."
As for new environmental regulations, the RAND researchers found that refiners were "generally optimistic" about their ability to meet challenges facing them, such as the upcoming ban on the use of the fuel additive methyl tertiary butyl ether in California and elsewhere as well as federal regulations calling for strict new limits on sulfur in diesel fuel.
"While refiners are prepared to replace MTBE with ethanol, they expressed the view that it is not an economical move for them or for motorists in meeting environmental objectives," the study said. "In addition, (refiners) worry that ethanol may prompt some of the same health and environmental concerns that led regulators to order a phase-out of MTBE."
None of the refiners surveyed said that they planned to quit the diesel fuel business, RAND reported. "However, some suggested that bumps in refineries' transition to the new products (might) cause temporary and localized supply problems."
'Period of greater stability' expected
Despite upcoming regulatory challenges, refining executives told RAND that their industry has entered "a period of greater stability and prosperity after a period of weak economic performance in the 1990s."
RAND reported, "The industry shakeout has left just 58 companies operating refineries, a dramatic consolidation from the 189 refining firms 22 years ago. The remaining plants now operate at 92% of their capacity, up from 78% in 1985."
RAND continued, "The reduction of spare capacity has helped drive up prices at the pump and leaves the market vulnerable to shortages caused by a plant breakdown or other unpredictable events. Industry leaders appear to have accepted the situation, seeing no economic logic in straining for more capacity."