Asian oil exports threaten US refineries

Asia has been importing refined oil products like gasoline and diesel from the West for decades to keep the wheels of its economies rolling. But the tables may be turning as the region's two largest economies, India and China, aggressively pursue capabilities to refine imported crude on their own, not only for local use but also for export.
Some small European refineries have already closed, while many in the United States are struggling to stay afloat. At the end of July it was reported that refineries from Germany to Hawaii, foreseeing 25 % idle capacity in North America and 30 % in Europe within five years, are weighing plans to shut or sell plants. These include big names such as Petroplus Holdings, Royal Dutch Shell -- one in Germany and another in Montreal -- Total and Chevron from the United States.

"In 2008 Asia, led by India and China, exported 750,000 bpd of finished petroleum products to Europe and North America, which is expected to go up to 1 mm bpd by 2010," said Alan Gelder, head of Downstream Oil Americas for Wood Mackenzie, a global energy research firm.
According to the American Petroleum Institute, US petroleum deliveries plummeted nearly 6 % in the first half of 2009 to the lowest level for the January-to-June period in more than a decade, as the sluggish economy continued to stifle oil consumption. Deliveries fell to 18.75 mm bpd, down nearly 10 % from the peak of 20.75 mm bpd reached in the first half of 2005.

The institute projects an even bleaker future for US refiners, saying one out of six will probably close by 2020 as more efficient plants come online in India and China. Refinery capacities in China and India have seen huge growth over the past couple of years, expanding by 1.5 mm bpd since 2008. China alone added about 800,000 bpd. India, with the commissioning of the Reliance Industries refinery, added 580,000 bpd while Petro Vietnam contributed the rest.
Before these refineries came online, both India and China imported much larger quantities of finished petroleum products.

Data gathered by BP revealed that global refining margins dropped to an average of $ 4.98 a barrel in the second quarter of this year compared with $ 8.25 a year earlier. This quarter, margins have tanked to an average of $ 2.17 a barrel.
Reliance's new refinery in the Indian city of Jamnagar in Gujarat state, along with its previous one of 660,000 bpd meant for the domestic market, recently became the largest refinery complex in the world. The refinery's export-oriented unit produces 580,000 bpd, configured to meet stringent US specifications. It just sent its first shipment of more than 600,000 barrels of refined gasoline to the United States in July.

Another factor that is slowing demand for petroleum products in the United States, which in turn is hitting US refineries, is the federal requirement to increase the use of biofuels like ethanol and biodiesel, as well as rules to boost fuel-efficient cars.
The federal government has mandated that a rising proportion of transportation fuel should be an ethanol or other biofuel blend. The quantity ranges from 7 % to 10 % of the total, depending on the state, with the federally mandated goal of reaching 14 % or higher, an estimated 36 bn gallons, by 2020.

Moreover, a US Department of Transportation norm mandates that automakers increase average mileage by 9.3 % to 27.3 miles per gallon between 2010 and 2011.
Another blow to US refiners was the climate bill passed in June. The American Petroleum Institute says this bill unfairly penalizes US refiners with strict provisions, making the United States more reliant on fuel imports from places like India where refiners will not be under the same restrictions.