Thursday, October 20, 2005

Oil producers increasing stake in refining :: China Post

The Persian Gulf emirate's International Petroleum Investment Co., the second-largest shareholder in Vienna-based oil refiner OMV AG, is seeking as much as a US$5 billion stake in Taiwan's Chinese Petroleum Corp. and pressing for OMV to make acquisitions in Greece and Turkey, Mohammed Al Khaily, the company's managing director, said in an interview.

The Organization of Petroleum Exporting Countries, including Abu Dhabi and the rest of the United Arab Emirates, is considering plans to build at least 10 new refineries, seeking to relieve strains on existing plants to meet fuel demand. U.S. Federal Reserve Chairman Alan Greenspan yesterday said world refinery capacity is "worrisome."
. . .
The OPEC refineries, if built, would increase global processing capacity by 2.4 million barrels a day, or 2.8 percent, by 2011. World crude oil prices have doubled in the last two years.
. . .
oil executives and OPEC officials said a lack of refining investment is keeping prices high. U.S. gasoline prices at the pump in the first three weeks of September reached a record US$3 a gallon, on average.

IPIC's portfolio of shareholdings, worth as much as US$8 billion, include 9.5 percent of Compania Espanola de Petroleos SA, Spain's second biggest oil company, a stake worth 1.12 billion euros (US$1.33 billion) on Oct. 18. The emirate company's 18 percent stake in OMV, Central Europe's biggest oil company, was worth 2.3 billion euros on Oct. 18.

"This is a good time to be in the refinery business as margins are high and will remain high for the next three to four years," Khaily, 39, said in Abu Dhabi, the largest member of the United Arab Emirates federation, on Oct. 17.

No new refineries have been built in the U.S. in 29 years, the world's largest market for motor fuels, while the expansion of existing facilities there has failed to keep pace with rising demand. Europe's last new refinery was in 1989.
See also this Seoul Times interview with Suhhail Faris Al Mazroui chairman of Aabar Petroleum Investment Company.

Here are some questions to ponder (no, I don't have the answers.):

1. If others are not investing in refinery expansion the question is why not? Do these reasons not also apply to oil producers?

2. Investing in oil refining will tie the fortunes of the OPEC economies even further to the oil sector. It is often said that the economies of the OPEC producers are not sufficiently diversified. Is that a legitimate concern?



Blogger waterboy said...

1. Environmental regulations. It's very hard to build new refineries in OECD countries because of regulations. Saudi Oil Minister Ali Naimi offered to build two refineries in the United States at a conference last year, and was told he'd be lucky to get local governments to agree to them because of the environmental regulations. The Saudis went off and had a think and decided they had to invest in their own refineries to break the supply chain bottleneck, and that combining the refineries with petrochemical plants would maximise their profits.

2. Petrochemicals plants constitute value-add, are good feedstock for manufacturing industries, and operate on different business cycles to the oil market, so the incorporation of petrochems plants into the refineries is an excellent hedge against oil price volatility and to my mind does count as diversification.

2:31 PM  

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