Oil refiners investment in complex plants backfires

LONDON (Reuters) – Oil firms that invested in complex refineries to process the most difficult crude and in theory generate big profits have inadvertently forced up the cost of feedstock, wrecking the economics of their plans, especially in Europe.

An increase in the cost of high quality lighter crude, which began about seven years ago, first inspired investment either in complex new plants or in adding cokers and residual hydrocrackers to existing refineries so they can process heavier oil.

What the refiners did not predict was the extent to which heavy crude costs would be driven higher by increased demand from more complex refineries and the plunge in refined products that followed the end of the oil market rally last year.

As profit margins have diminished, some new projects, particularly in Europe, are likely to be shelved, raising the prospect of supply tightness when demand recovers and as heavy crude supplies are expected to outstrip availability of lighter oil.

Reuters