Chapter 16 - Refinery Economics

Abstract

The supply and demand for crude oil and petroleum products are key factor in determining the status of the world economy. Due to the increase in demand of crude oil in southeast Asia, there was an increase in the price of crude oil in 2008. However, as the world economy started to go through a crisis in the latter half of 2008, demand has started to slow down, and supply has surpassed demand. Since the increase in demand is due to increase in demand for petroleum products, the economics of the petroleum refining industry will undergo tremendous change. In general, refining is significantly less profitable than other petroleum industry segments. This chapter examines global refining capacity. It discusses factors affecting the refinery economics, such as costs, products prices, refinery complexity and on-stream factors. The capital investment for a new refinery depends on its throughput, complexity and location. Added to the capital cost is the lengthy time needed for the preliminary study, obtaining the necessary permits (environmental and otherwise), designing building and commissioning. The capital cost involves the cost of the process units, utilities, security and environmental facilities, storage and handling facilities, civil work, buildings and infrastructure. Furthermore, the future outlook of the refining industry depends on the demand for transportation fuel and the global supply of crude oil. It has become clear in recent years that the spare capacity for crude oil production is shrinking and that the increasing price of crude oil is driving the prices of fuels to an all time high.