Shifts in Energy Demand and Biofuels Capacity Could Turn the U.S.
into a Net Exporter of Gasoline, Finds New Analysis from Booz & Company
Refiners struggle with demand dislocation between developed and
developing world, biofuels, and the emergence of ultra-efficient vehicles
NEW YORK (Business Wire EON/PRWEB ) August 26, 2008 --
The refining industry is grappling with shifting scenarios for tomorrow’s
energy landscape—including one case in which
the United States could become a net exporter of gasoline by 2010,
concludes a new analysis of the refining industry by global management
consulting firm Booz & Company.
The report, “Refining
Trends: The Golden Age Or the Eye of The Storm? Part IV: Tough Choices,”
explores rising demand for fuel in Asia and the BRIC nations (Brazil,
Russia, India and China), mandates for biofuels, alternative technology
vehicles, and the introduction of $2,500 automobiles. This confluence of
factors is confounding an industry that counts on 20-year predictions to
guide investment decisions made today.
“In the first half of 2008, the refiners went
from exhilaration to desperation,” noted Andrew
Clyde, Partner at Booz & Company. “The
industry has never faced so many contradictory trends, both on the
demand and supply sides.”
The refining industry has been in a golden age since 2002, with margins
maintained at historic highs, and neither demand nor supply pressures
pushing profits below their 2002 levels of $3-$5 per barrel. But while
there’s widespread agreement that global
demand will grow in the decades ahead, changes in the nature of that
growth pose substantial threats to refiner margins and will
significantly impact the industry’s ability
to invest.
On the demand side, the debut of Tata’s
$2,500 car generated global headlines as a signal to the refining
industry that demand for transportation fuels would increase. Economic
growth in developing economies is another key driver of demand. In fact,
Booz & Company calculates that just a one percent annual growth rate
among the BRIC countries would add three million barrels per day (bpd)
of demand for ground transportation fuels by 2025. A potential spoiler
for this growth, however, is a move to non-oil based vehicles in Western
countries. Yearly improvements of five to ten percent in battery
weight-to-power ratios and reductions in battery costs may ultimately
mark the end of the hydrocarbon era as we know it, the report states.
And in the short term, the combination of high gas prices and economic
downturn could translate into a significant drop in transportation fuels
demand.
Debate over biofuels is also clouding the horizon for refineries. This
year, the U.S. government set a mandate for the production of an
additional 600,000 to 700,000 bpd of biofuels by 2012, more than the
expected demand growth of gasoline in the 2007-2012 period. The European
Union also has a mandate calling for 5.75 percent of transportation
fuels to be served by biofuels by 2010, and 10 percent by 2020. Adding
more uncertainty, a worldwide debate on whether crops should be grown
for food or fuel is raising questions on whether these mandates are
achievable. Clearly, the refining industry stands to benefit more from
less biofuel supply.
Taken together, what just a few months ago looked to be an imminent,
albeit modest fuel supply crunch by 2009-2010, has now turned into a
situation of potential oversupply, according to the Booz & Company
report. Such a shift would portend a number of changes worldwide,
including the possibility of the U.S. becoming a net exporter of
gasoline and the destruction of refiner margins in developed countries
due to the costs of transporting the fuel to BRIC nations, where the
demand will be.
“The growth of global fuel demands over the
next two decades will give little comfort to refiners facing the
destruction of their profit margins,” said
Pedro Caruso, Booz & Company Principal. “Refiners
face difficult choices ahead, whether it’s
pulling the plug on projects in developed countries, getting into
biofuels, or expanding into Asia.”
Additional findings of the report include:
-
The pace of capacity addition is picking up, despite high capital
costs; distillation capacity has expanded 3-4 million bpd over the
last four years, and is set to grow by approximately six million bpd
between 2008 and 2012.
-
Strong economic growth, similar to that of the early 2000’s,
will require distillation capacity to grow by 30 million bpd by 2025.
A more moderate global economic growth will reduce this need down to
17 million bpd.
-
Primarily due to growth in Asia, global demand for transportation
fuels will continue to grow through 2025 despite any increase in the
use of alternative vehicle technology.
-
Plug-in hybrids, offering up to 70mpg, are not expected to be
market-ready before 2010.
-
Fuel cell vehicles, promising 95mpg capabilities, will become
available only after 2020.
About Booz & Company
Booz & Company is a leading global management consulting firm, helping
the world’s top businesses, governments, and
organizations.
Our founder, Edwin Booz, defined the profession when he established the
first management consulting firm in 1914.
Today, with more than 3,300 people in 57 offices around the world, we
bring foresight and knowledge, deep functional expertise, and a
practical approach to building capabilities and delivering real impact.
We work closely with our clients to create and deliver essential
advantage.
For our management magazine strategy+business visit www.strategy-business.com.
Visit www.booz.com to learn more about
Booz & Company.
See the original story at: http://eon.businesswire.com/releases/demand/company/prweb1250384.htm
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