Few US Refineries (20-30%) Can Process Cheaper Heavy Oil - WP

[hatrack]

EDIT

Production of heavy oil is increasing worldwide, pushing the price gap between it and the most desirable crude to unusually high levels. But many refineries are unable to take advantage of the lower prices because they lack the equipment needed to turn oil such as Maya (ed. - Maya = Mexican heavy oil grade) into the most desirable, profitable products, such as gasoline or jet fuel. All of this affects consumers at the gas pump. If refineries had more sophisticated equipment to process heavier oil, that would help push gas prices down, analysts said. Regular unleaded gasoline prices, which have set record highs this year, averaged $1.93 a gallon nationally yesterday, according to the AAA motor club.

Producers whose wells generate heavier blends of oil would love to see an expansion of refining capacity because that would drive up the prices they can charge. "That would be my wish list to Santa Claus, basically," said de la Garza, the crude oil commercial director for P.M.I. Comercio Internacional SA in Mexico City, the marketing arm for the Mexican oil company Pemex.

Much of the world's refining capacity is geared toward lighter, lower-sulfur grades of oil rather than blends such as Maya, which has the consistency of mayonnaise. Heavier oils typically yield less of the most profitable products per barrel, but the most sophisticated refineries can squeeze more profit out of each barrel. Only about 20 to 30 percent of the nation's 150 refineries can handle Maya, de la Garza said.

Analysts said that if the gap between the price of heavy crudes and the most desired grade continues to remain wide, more refineries would invest the hundreds of millions of dollars to upgrade their equipment. But they said that doing so is a gamble because upgrading equipment can take several years, and predicting how long the gap in prices will last is difficult. "The spreads that we're seeing in the market would certainly make an investment like that pay off, but it's just a question of how long those spreads are going to last," said Aaron Brady, an analyst for Cambridge Energy Research Associates in Massachusetts. "We're going to see more conversion capacity. But it's not going to happen overnight."

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http://www.washingtonpost.com/wp-dyn/articles/A23631-2004Nov30.html

[htuttle]

1. They won't build the refineries...

...because they don't think there's enough oil left to make it profitable.

Refineries are very expensive, and take many years to pay for themselves. I think they don't believe there are enough years of even heavy oil left to pay for new refineries.

Just my $0.02.

[happyslug]

2. I agree, but also first shot to reduce environmental regs

"WE NEED OIL, WE NEED OIL, WE NEED OIL," will be the refrain, and the song Will be "Reduce environmental restrictions so we can refine Heavy Oil". Not that the oil companies can NOT refine such heavy oil AND stay within the environment regulations, but it will be more profitable if the refineries could just dump that crud into the air, the land and into your local water supply.