Fuel demand forecasts are too optimistic says consultant
Time：2014-11-19
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“Given the changes in technology we already see around us and the fact that new technology is continually coming forward, we think it’s time for a reappraisal of the transport fuels demand picture,” says Channoil’s chairman, Charles Daly. “From the work we do in the developing world, we have concluded that the growth from that sector will not be enough to offset the reduction in demand taking place in the OECD.
“At the same time, the growth in the use of gas as a transportation fuel and the take-up of electric/hybrid cars has probably been under estimated, which will in turn contribute to the downward pressure on gasoline and diesel demand.”
The consequences for the downstream oil business are likely to be far-reaching suggests the report. This is because the over-optimistic demand estimates have been used to plan investment in refining and marketing assets. Nowadays there is too much refining capacity in Europe and the industry consensus is that that some eight European refineries will have to be shut in the next few years. Once these closures are completed the system will then be in balance, or so the conventional thinking goes. Channoil, by contrast, predicts that demand for transport fuels will be significantly lower than others in the industry are envisaging and that a greater number of refinery closures will be needed before equilibrium is established – all of this being preceded by a long period of spare capacity and low margins in the refining industry.
In support of its thesis, Channoil’s report cites the over-building of cat cracker capacity in Europe from 1974 onwards, which has led to today’s surpluses of gasoline (at the expense of diesel production, much of which now has to be imported).
The international oil companies, the report argues, have taken insufficient account of the technical innovations and fuel efficiencies the motor industry has achieved in recent years. “If we are right about the take-up of the new technology in cars and ships, we can derive that OECD demand for transport fuels will be halved within the next 15 years,” says Mr Daly.
“The effect of this drop is that some 8-16 mbpd of refining capacity will be surplus to requirements. This is equivalent to the nameplate capacity of the primary distillation units of about 32 refineries in the OECD and if we are right, they would need to close.”
Another important factor, says Channoil, is the gasoline demand from third world countries, many of which import second-hand vehicles from the developed world. The car population in the OECD turns over roughly every 10 years, so the energy efficiency of the third world’s car pool lags behind the developed world only by this relatively short period.
Channoil, which has an extensive client base in the developing world, predicts a lower demand growth from that quarter than in the OECD group, which implies a net reduction in world demand by 2035-40. By contrast, BP is forecasting a13% growth in demand by 2035, while ExxonMobil foresees a 40% increase in demand between 2010 and 2040.