OPEC calls for greater oil refinery capacity to relieve bottlenecks

May 23, 2005 02:00 AM

The Organisation of the Petroleum Exporting Countries has called for greater investment in oil refinery capacity to relieve bottlenecks, particularly in the US, which it blames for the current high fuel prices.
Sheikh Ahmad al-Fahd al-Sabah, Kuwait's oil minister and the current president of OPEC, said that the oil producing governments could link foreign investment in exploration and production with greater spending on downstream projects.

Oil companies are investing heavily in exploration to replace their dwindling reserves, but have been less keen to spend on refining because of poor returns in the past and the length of time required to build new plants. No new refinery has been built in the US for 30 years.
Speaking at the World Economic Forum in Jordan, Sheikh Ahmad said refinery bottlenecks were a strong factor behind the high oil price, currently just under $ 50 a barrel.
"What's needed now is joint investment in both upstream and downstream operations. To make downstream investment attractive to international oil companies it should be tied in to upstream investment," he said.

His comments echo those made by Ali al-Naimi, the oil minister of Saudi Arabia, which has been increasing the volume of oil it produces to meet growing demand.
"By increasing the stocks [of oil], you can demonstrate that supply is not the problem. It's the wrong sort of crude. The refinery bottlenecks are the problem," he said on a visit to Washington.
Mr Naimi blamed excessive US regulation for some of the bottlenecks, saying that a multitude of fuel standards across the country had made the industry too fragmented and complex.

OPEC nations have said that unless these infrastructure issues are tackled, increasing the volume of oil they produce would not be enough to bring down prices. Oil producing nations are keen to develop their own refinery capacity as a way to add value to their crude, improve domestic fuel supplies and to bring greater diversification to their economies.
Saudi Arabia plans to invest in oil refineries within its borders and in India, while Kuwait is looking for backers to help build the country's fourth oil refinery. Libya is also trying to attract foreign money for its growing oil industry, and will hold a roadshow in London for potential investors. The country aims to double its oil output to 3 mm bpd by the end of the decade.

OPEC is expected to hold its next meeting on June 15.
The organisation has said that if US oil stocks rise above previously agreed levels it might curtail production.

Source: PetroEnergy Information Network
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