With international refining industries facing a number of challenges in the near future, it seems clear that those who survive will be ones with the ability to turn serious problems into real opportunities. In the U.S. refining industry, challenges such as slow growth in product demand, increasing reliance on imported raw materials, and continued exposure to offshore exporting refineries will have critical effects on the ability of the industry to capitalize on available opportunities. Other challenges include the ability to tolerate continued declines in crude oil quality and the serious monetary questions related to compliance with environmental legislation, including air, soil, and water clean-up. This paper presents the challenges which the U.S. refining industry faces over the coming years, and seeks to address those issues which will impact the success or failure of the industry as a whole. The paper begins with a focus on the demand for U.S. petroleum products, encompassing brief historical data and forecasts of demand for the next few years. Closely related to demand is the subject of U.S. refinery operations, including product import and yield patterns. In this vein, the paper offers forecasts of crude runs to stills, as well as forecasts of capacity changes. Because profitability of U.S. refineries is affected by raw material costs, the paper next probes the possibilities resulting from world crude oil price fluctuations, considering the reemergence of Iraq as a market player. Forecasts of profit margins for U.S. refiners in 1998 are also offered. Turning to crude oil supplies and qualities, the paper examines the downward trend of U.S. crude oil production, providing a forecast of the decline by 1998. An associated trend, that of U.S. crude oil imports, is also evaluated, with a discussion of the origins of these imports included. The paper then presents a brief discussion of the principal recipient of Canadian crude oil exports, the U.S. Midwest (PADD II), encompassing statistics for refinery runs and deliveries of crudes. Volumes of Canadian crude exported to the region are also presented, as well as crude oil qualities in the region. Finally, heavy crude oil prices are examined because of the degradation of average crude oil qualities consumed by U.S. refiners. Spreads between light and heavy crudes are contemplated, with a forecast for the current-dollar WTI/Maya price spread provided.
Can Oil Refiners Adjust to a Greater Supply of Shale Oil?