Europe to face "substantial" diesel deficit by 2015: Woodmac

 
Singapore (Platts)--11Aug2005
Europe will face a "substantial" deficit of diesel by 2015, which imports from
Russia or Middle East will not be able to satisfy, Edinburgh-based analysts
Wood Mackenzie said Wednesday. "Fundamentally, demand for middle distillates
is forecast to continue to grow rapidly, outpacing any increases in supply
from current, planned investments," Woodmac quoted its Downstream Managing
Consultant Aileen Jamieson as saying. "Where this supply comes from in the
future, and what impact this has on refining margins for Europe, is
fundamental for the industry and investors to understand," Jamieson added. The
conclusions were drawn in Woodmac's latest study, "The Long and Short of It -
European Product Imbalances and their Implications."

Historically, European refining economics have not supported widespread
discretionary upgrading investments and investment over the last five years
has focussed on clean fuel upgrades, Woodmac noted. However, 2004 was a boom
year for refiners across the globe and the downstream environment is expected
to remain positive for the next few years at least, it said. "Strong demand
growth in Asia, in particular China, and high oil prices has lead to strong
refining margins globally," said Jamieson. "This, in turn, is leading to a
significant increase in discretionary refining investments by the industry." A
number of large-scale hydrocracking projects are currently planned in Europe
but results from the study show these will not be sufficient to meet the
growing deficit of diesel in the region. "The diesel deficit widens sharply
post 2010 due to non-road diesel switching to road diesel quality, as proposed
by the European Commission. This is a significant switch in demand from what
is currently heating oil quality to 10 ppm sulfur diesel," said Jamieson.

Woodmac's analysis suggests that Europe is going to become increasingly
dependent on importing diesel from other regions. With this in view, the study
examined future oil product balances in the key refining centers of Russia,
the Middle East, Asia-Pacific and the US. Even taking into account planned
investment in the Russian refining industry and export refineries geared
towards Europe in the Middle East, the additional forecast supply of diesel
oil will not meet requirements, Woodmac concluded. "You have to take into
account that, at the same time, both Asia-Pacific and the US will also be
deficit diesel," Jamieson concluded. "This means we will need to see further
investment in upgrading projects globally, as well as additional refining
capacity in Asia."

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