Most of the interest so far in the International Energy Agency's medium-term global energy outlook has been on its suggestion that the US could surpass Saudi Arabia as the world's leading crude oil producer by 2017.
But IEA's forecast also includes refining predictions that could be significant too. These emerged during a presentation Nov. 19 by Antoine Halff, who heads IEA's Oil Industry and Markets Division, at the Center for Strategic and International Studies.
Halff said growth in global refining capacity could run ahead of demand, dominated by China and India, which commissioned significant expansion projects during 2011's second half and 2012.
"There's a strong likelihood that China overshot its refinery growth needs and will have more capacity than demand," Halff said. "That could make it a regional product exporter, but only in the short term. Some of the expansion could be slowed down, but China historically has moved ahead on such projects once they are announced."
A refining consolidation within the Organization for Economic Cooperation and Development, meanwhile, may lead to more robust margins in the world's industrialized nations initially, he continued.
From 2013 onward, however, expansions there also could outpace demand, tightening margins again, Halff warned. Refiners may find themselves challenged further by crude production moving away from heavier, sour grades (for which many plants are configured) and toward lighter, sweeter grades, he said.
"In the past, we've seen disruptions in light, sweet supplies challenge the market," Halff said. "Now, we have the opposite problem."
More challenges
He also said middle distillates could remain a challenge for some refiners as demand increases, and North American light product imports could virtually disappear. "Residual fuel oil demand recently has shown surprising strength, mostly from power generation projects in the Middle East," he said.
Finally, Halff suggested that the US could begin exporting petroleum—but as products, not crude.
"We see this as a way it could exports some of its new production absent a broader crude export policy," he explained. "There also have been market decisions abroad to rely on crude exports in the US, such as in Brazil, which plans to increase its refining capacity with that very thing in mind."
IEA does not expect US crude exports to increase, although product exports might, he continued. "Although European consumption is declining, refinery closures are increasing," Halff said.
"There's some concern among policymakers there that they might have overshot their environmental measures, and some refineries there could go on life support," he said. "Refineries in the US and Middle East are much more economical and conceivably could be better equipped to meet Europe's needs."
