AM-10-134 US Refining – Opportunities in a Challenging Market Environment

Description:

The current global and US market environment for refiners is very challenging, with the industry suffering low utilisations (due to the economic crisis reducing demand) and margin compression (from the surplus capacity and also from weak light/heavy differentials). Our preliminary estimates suggest that one quarter of the North American refining industry was cash negative during 2009. Conventional wisdom would suggest projections of recovering economic growth in 2010 should support an improvement in margins. However, for the US, we expect ethanol to supply the projected recovery and growth in gasoline demand, so there is limited demand for refinery based gasoline. Furthermore, on the supply side, significant refining capacity additions have remained under development, a number of which are highly competitive export oriented assets targeting Atlantic Basin markets. Depending upon refinery configuration, 2010 margins could be weaker than 2009. Longer term, margins are anticipated to recover, making near term survival imperative. The strategies for survival drive future opportunities, with refiners needing to understand the position of their assets in the extended value chain against local and international competitors under various market landscapes, as the future is far from certain with impacts far from uniform across refiners, markets, and assets.