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Thu, Sep 14, 2006 - Page 10 News List

Refinery bottleneck to last at least 10 years, say officials

AFP , VIENNA

High oil prices are still being propped up by a shortage of refinery capacity and there is little sign of the bottleneck easing until 2010, industry executives and officials discussing OPEC's future have warned.

That potential respite relies on the unlikely prospect all 66 refineries planned by oil companies and producers being built, as well as a total of about US$300 billion in investment by 2015, they added.

`Downstream capacity'

"The need for downstream capacity is just as important as other issues," said Claude Mandil, executive director of the International Energy Agency at a two-day conference which was continuing yesterday.

"There is a general recognition now that no spare capacity in refining together with no spare capacity in crude production are the key factors we have to manage on high prices," he added.

Mandil said: "If everything goes well, we could witness starting 2010 some spare capacity in refining. I say if -- this is a huge question mark."

The 11 nations in the Organization of Petroleum Exporting Countries are pumping out more than 29 million barrels of crude oil per day, according to recent data.

Strong demand

A quota for 10 of them is set at a 25-year record high, to cope with strong global demand boosted by China's emerging economy in recent years.

Prices have fallen back from a US$78 peak in July in response to fears that global economic growth and therefore demand for energy is about to tail off.

However, they are still high -- hovering around the US$63 mark.

"Current downstream tightness in the form of inadequate refining capacity is putting much pressure on oil prices generally," said Mohammed Barkindo, acting secretary-general for OPEC.

Capacity essential

Although most recently concern has focused on oil output, refinery capacity is essential to transform crude into petrol [gasoline], diesel, or household fuel. A shortage of spare refining capacity adds to overall supply bottlenecks.

"There are 66 refineries being considered for construction, I have some doubts whether all of these will go through," Mandil said.

Barkindo said US$160 billion needed to be ploughed into downstream capacity within 10 years, and another US$150 billion for maintenance and replacement.

"Such amounts of money are not forthcoming: there is an investment gap of something like US$100 billion," he added.

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