Big Investments in Oil Refineries Could Cut Global Fuel Prices

DUBAI, United Arab Emirates – Oil companies and other investors are spending a collective US$100 billion (euro78.14 billion) on new oil refineries that could alleviate the current bottleneck in refining capacity — and eventually translate into a small cut in the price of gasoline, a top project financier said here Sunday.

Will Rathvon, global head of project finance for Standard Chartered Bank, said that more than 30 new or expanded refineries will come on stream over the next decade, adding at least 6.5 million barrels a day of badly needed capacity to global fuel markets.

"Right now refining is maxed out," Rathvon said on the sidelines of a Middle East energy conference. "At this point, the shutdown of a single refinery — even for maintenance — can trigger an increase in gasoline prices."

Refineries in fuel-thirsty Asia are operating at a frantic 95 percent capacity, Rathvon said. In North America and Europe, refineries are also running at over 90 percent capacity, he said.

"Running that tight has put prices up," Rathvon told The Associated Press.

Oil officials such as Saudi Oil Minister Ali al-Naimi have blamed a lack of refining capacity for stubbornly high fuel prices.

New refining capacity of at least 6.5 million barrels per day over the next decade could shave two or three dollars from the price of a barrel of crude oil. Americans might see a five- or ten-cent reduction in the price of a gallon (3.79 liters) of gasoline, Rathvon said.

But most new refineries are being built outside the United States — mainly due to opposition to refinery construction by local communities near proposed sites. That means Americans may pay as much as US$1 (euro.78) per barrel more to import a larger proportion of their fuel as finished gasoline and diesel fuel in coming years, Rathvon said.

Gasoline and diesel fuel must be delivered in smaller, specialized ships that cost more to operate than bulk crude vessels, hence the higher prices. The United States is by far the world's largest consumer of energy.

Around 60 percent of new refinery construction is in Asia and the Middle East, mainly China, India, Saudi Arabia, Vietnam, Indonesia, Kuwait and Japan.

Rathvon said there were firm projects for 6.5 million barrels a day of refining capacity — roughly US$65 billion- (euro50.79 billion-) worth — and speculative plans for another 7 million barrels a day — US$70 billion- (euro54.7 billion-) worth.

Three major refinery deals have been announced in Saudi Arabia this month alone.

They include a US$4.3 billion (euro3.36 billion)refinery and petrochemical complex in Rabigh on Saudi Arabia's Red Sea coast being developed by Japan's Sumitomo Chemical Co. and Saudi Arabian Oil Co.

Also in May, Saudi Arabian Oil and ConocoPhillips signed a US$6 billion (euro4.69 billion) agreement Wednesday to build a 400,000 barrel-a-day oil refinery in the kingdom's Red Sea city of Yanbu.

And state-owned Saudi Aramco and French oil company Total SA agreed to build a 400,000 barrel-a-day refinery in the eastern Saudi city of Jubail on the Persian Gulf.

India's Reliance Petroleum Ltd. will spend US$6 billion (euro4.69 billion) to finance an export-oriented refinery at Jamnagar in western Gujarat state to produce jet fuel, gasoline and diesel.

And a US$5 billion (euro3.91 billion), 320,000 barrel-a-day refinery expansion is planned for China's Fujian province, with investments from Saudi Aramco and ExxonMobil Corp.

Saudi Aramco is one of the biggest investors in the global refining push. The state-run firm has said it plans to spend US$50 billion (euro39.07 billion) over the next five years on refineries in the Kingdom as well as China, Indonesia, South Korea, and the United States.