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Shifts in Energy Supply/Demand and Biofuels Capacity Challenging Refining Industry; US Could Become a Net Exporter of Gasoline

Refiners face changes in regional supply/demand balances, affecting global trade flows and refining margins. North America will reduce its need for gasoline; Europe will get shorter in diesel;, and Asia will continue to be thirsty for fuels in general. Click to enlarge.

The refining industry is grappling with shifting scenarios for the future energy landscape, including one case in which the United States could become a net exporter of gasoline by 2010, according to a new analysis of the refining industry by global management consulting firm Booz & Company. In 2007, the US imported

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 global introduction of ultra low-cost automobiles such as the $2,500 Tata Nano. This confluence of contradictory factors is confounding an industry that counts on 20-year predictions to guide investment decisions made today, according to the analysis.

In the first half of 2008, the refiners went from exhilaration to desperation. The industry has never faced so many contradictory trends, both on the demand and supply sides.

—Andrew Clyde, Partner at Booz & Company

Since 2002, the refining industry has maintained margins at historic highs, with 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, with a corresponding impact on 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. Booz & Company calculates that 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 5-10% 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.

A combination of lower demand and increased biofuels use could lead the US to become a net exporter of gasoline. Click to enlarge.

For the first seven months of 2008, US oil demand declined to a five-year low compared with the same period in previous years, according to the American Petroleum Institute. Product imports were down steeply in both July and for the first seven months of 2008, compared with 2007.

In 2008, through the week of 15 August, the US imported an average of 1.044 million barrels of gasoline per day, down 8.6% from 1.142 million barrels per day for the same in 2007, according to data from the Energy information Administration.

Debate over biofuels is also clouding the horizon for refineries. This year, the US 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% of transportation fuels to be served by biofuels by 2010, and 10% 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 US 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. Refiners face difficult choices ahead, whether it’s pulling the plug on projects in developed countries, getting into biofuels, or expanding into Asia.

—Pedro Caruso, Booz & Company Principal

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 70 mpg, are not expected to be market-ready before 2010.

  • Fuel cell vehicles will become available only after 2020.




The American political landscape will be changing soon....I am so sick of those ExxonMobil commercials with those arrogant employees that look like they're laughing on the inside and can barely contain it. Or, the one with the scientist who is apparently working on some kind of revolutionary battery film, and it's been the best work of his career. Really? That's the best he can do?


I sure like those ExxonMobil TV ads...

With a McCain administration at least the supply side will be resolved....


The American political landscape changed almost 2 years ago.

Nancy Pelosi is enriching herself with T Boone Pickens at the expense of the American people. She has Congressional control to direct land grabs, water rights and public money to her new business partner. Remember kids, on Jan 1st trillions in alternative energy investment incentives expire all across the land. Pelosi and Pickens doesn't want any competition on alternative development.

Does America really want to just exchange energy tyrants? Or would we rather invest in technology that makes each of us independent with energy?


Americans consume 25 percent of the world's produced oil, but our nation holds less than 3 percent of the world's proven oil reserves. Source: Energy Information Administration, "U.S. Crude Oil, Natural Gas and Natural Gas Liquid Resources, 1999 Annual Report," DOE/EIA-0216 (99) (December 2000)

This is a very simple figure, and shows the notion that more domestic drilling can reduce gas price is pure fantasy, and a convenient lie.

In this particular report, I doubt if the biofuel production can grow that fast. Solutions will come from multiple sources, and not from a single magic bullet.



Don't you think that we (the people) can ounce more make the difference.

We don't have to continously enrich our arrogant Oil compagnies and politicians. We could buy more efficient ICE vehicles, HEVs, PHEVs and BEVs. We could even use public transportation and e-bikes.

Sooner or latter, people will wake up and stop paying $300+ a month for fossil fuel and drive around on less than $50/month of electricity.

Please get on board.


@ Joseph:

With Barack Obama signing everything that comes across his desk passed by a Democrat congress---that will genuinely change the political landscape. Two years ago a bunch of do-nothings were elected who haven't really changed anything.

T. Boone & Nancy aren't as powerful as you think yet....when Barack is pres, their clout will grow tremendously.



How is McCain going to make that happen -- pay big oil to drill? In a recent auction for offshore Gulf oil leases 47 companies bid on 319 tracts out of 3412 that were offered. I am sure you and John The Same think that will make us energy independent. I don't. The reality is that oil drilling in the Gulf is dead in the water, not because of restrictions, but because of economics.


Sorry, forgot the reference on that previous post:


The Bakken Shale Formation, reiently discovered, in Montanna, North Dakota and Canada (The Williston Basin) containes over 400 Billion Barrels of light sweet crude OIL. That's several times the amount of Oil ever known to exist in Saudi Arabia. As wells are drilled, pipelines installed and Refrineries constructed, the supply of gasoline and diesel fuel in the United States will will gradually begin to feed the international market's hunger for those fuels. America will become the Saudi Arabia of the Western World.


Bakken Shale oil are embedded in low permeable rocks. Drilling it will be no easy task.


Do you really think that the demand side is that stupid, that they won't be working hard to get off the fossil fuel destruction train? The way things work in this country between the politician whores and the big money oil companies we'll be lucky if we ever get off oil.


I could explain the details about why the impact of extra drilling is bigger then some think... But realy who ever listens anyway?

It doesnt matter anyway as when the bleep hits the fan all oil sources will be tapped.. the only question is how much damage we will do in the process. I personaly expect it to happen very late and in a rather huge hurry and to do one hell of alot of damage.

Reality Czech
The Bakken Shale Formation, reiently discovered, in Montanna, North Dakota and Canada (The Williston Basin) containes over 400 Billion Barrels of light sweet crude OIL. That's several times the amount of Oil ever known to exist in Saudi Arabia.
As noted above, this is embedded in shale. The USGS estimates that perhaps 1% of this oil is even technically recoverable. The economically recoverable fraction may be much less.
America will become the Saudi Arabia of the Western World.
America WAS the Saudi Arabia of the entire world. America pumped 9.2 million barrels/day in 1970. But the oil resources to support that level of production are GONE.

"An analysis of the major factors required for the U.S. to return to a position of oil supremacy and oil
independence would be enlightening."

Hirsch Report

John Taylor

@ Groy ... I sure like those ExxonMobil TV ads...

With a McCain administration at least the supply side will be resolved....

Will it?
The world oil consumption has doubled each decade since the introduction of oil.
We are now at the point where 1/2 of the worlds oil reserves are gone.

Please do the math and try to understand exponential growth.

The other idea of developing energy from renewable sources is a far more sustainable future. (That would require the election of Obama to achieve)


All you idealists who think that any American President McBama will actually change the world - give too little respect to... the world. Lots more than the 300 million living in the USA.

And all this oil talk is nonsense these days. The reason only 10 percent of the leases sold is simple - who wants to be in the petroleum business for the long term??

The introduction of low cost, low temp electrolysis will speed the transition to grid decoupled residential power units. The grid will downsize and transition to sustainable resources: solar, wind, hydro, and gas-fire. Utility companies will not replace petroleum as centralized energy monopolies will need to compete to survive. Global Energy Independence is coming - big changes, most for the good.

It is funny to think the US becomes net liquid fuel exporter again. Not beyond reason. Especially with Chery and Tata building millions of ICEs.


All the "visionaries" that think they are the only ones smart enough to see the future need to get a clue. NO one can see the future and anyone that goes back in the history on this site and reads a few of the self proclaimed "visionary" quotes will see this.

Henry Gibson

Just imagine, Japan started WWII because the US cut off oil and steel deliveries to Japan because of their many year long invasion of China.

Coal to liquid fuels, and a mandatory minimum price for gasoline to support it, is the fastest way to end the US foreign oil addiction. Tariffs on foreign oil would also suport the price and bring a lot of revenue to the government. This is happening in Europe.

The energy price of oil is ten times the energy cost of coal delivered. The refining of oil and other costs increase its carbon footprint to equal or surpass that of coal electricity at the meter.

If it had been announced by congress ten years ago that the price of gasoline would be increased to $4.00 a gallon and crude oil $125 a barrel by law, then coal to liquid plants would be built all over the country by now. The economy of the country is more important to prolonging lives than is controlling the green house effect. Al Gore could have substantially reduced the US CO2 production by convincing Warren Buffet and Bill Gates to build a few nuclear reactors with their foundation money. Now that Al has got the prize, he might even mention nuclear electricity as a way to reduce CO2; it is accepted as doing that in France. Obama did.

The tariffs could also supply the funds for building coal-to-liquids plants or natural gas to liquids plants. The dollars that have been sent to pay for oil this year could have built and operated uncounted nuclear power plants. They can aid in producing and transporting liquid fuels and eventually produce them at far less cost than imported oil. ..HG..

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