U.S. refiners must make large investments in the 1990s to meet growing demand for petroleum products.
But they need a clearer definition of the environmental requirements for fuels before beginning major construction campaigns. Excess capacity is not likely to develop before the late 1990s even with aggressive construction programs.
In presenting that outlook for U.S. refining to the annual meeting of the National Petroleum Refiners Association last week in San Antonio, John R. Doscher, vice-president of Pace Consultants Inc., said U.S. demand for refined products will be higher by 1.9 million b/d in 2000 than it was in 1989.
Two trends will highlight the period: development of reformulated gasolines and production of low sulfur diesel.
DEMAND GAINS
Kerosine jet fuel will be the big growth product in the next 10 years in the U.S., Pace predicted. Its growth of 4%/year will exceed national economic growth by half.
Distillate fuel oil demand will grow at about 1.7%/year during the period, mostly for diesel.
Demand for gasoline during the 1990s will grow at only 0.7%/year. Average fuel efficiency will improve slowly and steadily.
Pace's demand outlook is based on an average economic growth of 2.5%/year for the period and a constant price of the average crude at $25/bbl by 2000.
CONSTRUCTION CONSTRAINTS
"Refinery capacity is not likely to be excessive before the latter part of the decade even if the refining industry makes every effort to expand," Doscher told NPRA.
There is little refinery construction in the U.S. at present, even though the industry operated close to capacity in 1988 and 1989.
"Uncertainty with respect to environmental requirements for products has undoubtedly contributed to the low level of construction projects," Doscher said. When this uncertainty is resolved--probably within the next year--"...we expect a large construction effort."
Doscher's expectation that overcapacity will not develop is based in part on the fact that process construction capacity is limited. Construction capability today is only about 55% of that which existed in 1980, Doscher said.
"Our work indicates that the process construction industry will be hard pressed to keep up with demand for new refineries throughout most of the 1990s," Doscher said.
REFORMULATED GASOLINE
Evidence is growing that reformulated gasolines will be the answer to increasing environmental concerns about motor fuel, rather than other alternative fuels suggested earlier by the Bush administration.
Doscher cited these characteristics that are likely to be incorporated in reformulated gasolines by the mid to late 1990s: Reid vapor pressure of 8 psi, benzene content of no more than 0.8 vol %, aromatics content of 25 vol % with xylene not exceeding 5 vol %, olefin content of not more than 5 vol %, oxygen content of 2.7 wt %, no lead, sulfur content of 250 ppm, and additive to prevent and remove deposits.
Doscher said reformulated gasoline will be required for all cars in nonattainment areas, while relatively minor changes will be required for gasoline sold in other areas.
About 25% of U.S. gasoline is now used in nonattainment areas.
Initial estimates show that reformulated gasoline will cost 7-12 cents/gal more to produce than conventional gasoline, Doscher said.
A proposed limit on sulfur in diesel fuel of 0.05 wt % by 1993 likely will be imposed, Doscher said.
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