BP and Shell may convert refineries to meet diesel surge

Dec 15, 2003 01:00 AM

BP and Shell, Europe's biggest oil companies, may spend billions of dollars to convert refineries on the continent to diesel production as motorists drive up demand for the fuel by 4.5 % a year. The companies may buy hydrocrackers, which use high-pressure hydrogen to turn crude oil into fuel, said Jean-Luc Rouby of Shell and BP spokesman Robert Wine. Twelve will probably be installed across Europe in the next decade, Foster Wheeler said, citing a survey of refiners.
"That won't be enough," Graham Phillips, a spokesman in Reading, England, for US-based Foster Wheeler, said. "It'll only meet one-third of demand, and we're expecting it to grow even more over the next 20 years."

By 2010, more than half of the cars sold in Western Europe may run on diesel, according to Volkswagen, Europe's largest carmaker. Diesel vehicles, once seen as smoky, noisy and slow, are quieter and cleaner than before, and get better mileage than gasoline counterparts, said Wolfgang Steiger, Volkswagen's director for energy conversion.
Foster Wheeler, one of the world's biggest refinery builders, estimates conversion costs at $ 250 mm for each plant. Refiners may be willing spend that much after diesel demand jumped 57 % in the past 15 years, compared with gasoline's 1.7 % decline, according to figures from John Waterlow, oil analyst at Wood Mackenzie Consultants.
"We're seeing the ‘dieselisation' of Europe," Rouby, who advises on refining processes for Shell consulting arm Shell Global Solutions, said on the sidelines of an oil conference in London. "The problem is that we have the wrong kind of refining technology, so we need to address that structural imbalance."

Shell, which processes about 1.46 mm bpd of oil in Europe, has seven of its 10 wholly owned refineries on the continent configured to make gasoline. They can turn no more than 30 % of a barrel of oil into diesel. Hydrocrackers can extract twice as much diesel, Shell spokesman Don Hunter said.
BP also may add hydrocrackers to the four installed at its 13 refineries in Europe. The price of European diesel for immediate delivery has climbed 17 % in the past year to $ 293.50 a ton, according to Bloomberg data, outpacing gasoline's 12 % gain to $ 288.
"Hydrocrackers are something we are looking at, although you can do clever things with importing and exporting," BP's Wine said in London.

Total is Europe's largest refiner, processing 2 mm bpd of oil, followed by ExxonMobil, Shell and BP. For now, Shell is buying heavier varieties of crude oil that yield more diesel when processed, said Julian Evison, Shell's manufacturing and distribution manager in Europe, on the sidelines of the European Refining Technology Conference.
Europe gets most of its diesel from Russia and the Middle East, said Chris Brown, energy consultant at Wood Mackenzie. Russia's diesel exports totalled 49 mm tons in 2000, with 17.5 mm tons going to Europe, he said.

Saudi Aramco, the world's largest oil company, said 6.7 % of its refined products went to Western Europe lastyear. That's increased 2 percentage points from five years ago, said a company official who declined to be identified.
"Becoming more dependent on other countries for diesel is not wise," Brown said. "We need to tackle this head on and change our refining technology."

Source: Bloomberg
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