Although refinery runs peaked in 2005-07 and have declined recently in the Atlantic Basin—including the Americas, Europe, and Africa—the group expects them to slowly resume growth as increases in the US and South America more than offset declines in Europe. But production, mainly from low-permeability reservoirs and the Canadian oil sands, will rise faster than refinery runs.
“As a result, a sizeable crude surplus will develop within the region, and crude will be forced to seek markets elsewhere, primarily in the rapidly growing countries in Asia,” PIRA said in a research note.
Already, African crudes once destined for the US are moving instead to Asia, where producers in the former Soviet Union, Mexico, and Canada also are seeking buyers.
Price differentials among regions are adjusting to these changes, as crude prices in Asia exceed those in the Atlantic Basin.
PIRA Energy points to recent changes in the Brent-Dubai crude-price spread, a measure of the relative incentive to supply Asian refineries from the Atlantic Basin (mostly African crudes) or from the Middle East. It models a theoretical value for the spread using a West African swing grade and taking account factors such as refining values, freight costs, sulfur premium, and market structure.
“The historically observed spread was wider than the theoretical parity spread by 50¢/bbl on average from 1995 to 2010,” PIRA Energy said. “Then, in 2011, the observed spread grew much wider than parity, mainly because of the loss of Libyan light-sweet crude production. However, since 2012 the spread has been narrower than the theoretical spread.”
Gary Ross, PIRA chief executive officer, said he expects the narrowing trend to continue.
“Similarly, product prices will generally be lower in the Atlantic Basin than in Asia-Pacific,” PIRA said. “This will allow US refiners to capture export opportunities, as well as provide incentives for product exports from newly built Middle Eastern refineries to Asia-Pacific rather than the Atlantic Basin.”