Gasoline and diesel imbalances in the Atlantic Basin Part 1: market outlook

The European refining industry is coping with declining domestic demand while the imbalance between product supply and market demand persists, in particular the deficit in diesel supply and the excess in gasoline production

Eric Benazzi, Axens

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Article Summary

This article presents the prospects for the evolution of this situation in the coming years. A second article in a coming issue of PTQ will address refinery technology and solutions to rebalance output.

Current market situation: origin of  the imbalance
The European imbalances are not recent; the European gasoline surplus has existed since the early 2000s, and in 2009 it exceeded 0.75 Mbdoe (million barrels per day of oil equivalent), while the diesel deficit reached about 0.5 Mbdoe (see Figure 1).

On the other side of the Atlantic, the US market presents a recurring gasoline deficit of around 0.7 Mbdoe and, since 2008, diesel has been exported.

What are the main causes of thissituation?
In 2009, 144 refineries were operating in the US with an average crude oil distillation capacity by refinery of just above 120 000 b/d and a Nelson complexity index of 10.2. In Europe (EU-27), 110 refineries were listed with an average capacity of around 127 000 b/d and a Nelson complexity index of 7.3, lower than the US value.

At first glance, US and European refinery production seems to correspond well to demand. US production is around 18 million b/d and is mainly oriented toward gasoline (49% of 
production), while European refinery production is mainly dominated by middle distillates (42%) with a total production of about 14 million b/d.

However, is refinery production sufficiently tailored to demand? The following paragraph will further examine this question.

Figure 2 compares US refinery throughput volume with US demand for fuels. First, it can be seen that there is no fundamental inadequacy between the structure of US production when compared with demand given as a percentage. The main problem stems from the insufficient gasoline throughput, about 7.7 Mbdoe, compared to US demand, which was set at 9.1 Mbdoe in 2009. As a result, the US needs to import gasoline.

The European situation is rather different. The European refineries do not produce enough diesel — their current output is 5.2 Mbdoe whereas 5.8 Mbdoe is required — and they produce too much gasoline — 3 Mbdoe, for a demand that reaches, with difficulty, 2.3 Mbdoe. As a result, it can be said that the European imbalance is structural.

Consequently, Europe is importing diesel and exporting gasoline to the US. How will the situation evolve through 2020? Different parameters could affect the situation. The first is the change in product demand forecast. The potential impact of a change in automobile motorisation should also be taken into account. Other parameters include the effects of the level of biofuels incorporated into the on-road fuels pool and the reduction in refining capacity that could occur in the coming years.

Gasoline and diesel demand forecast: a 2020 outlook
For both Europe and the US, the demand for gasoline is forecast to decrease, whereas demand for on-road diesel should continue to increase between 2009 and 2020 (see Figure 4). Demand for diesel will continue to dominate the European fuels market with more than 30% of the market share.

During that time, the demand for gasoline will continue to represent the principal on-road fuel in the US with nearly 44% of US demand by 2020. Conversely, in Europe, gasoline will only represent 12.4% of the refined product demand including biofuels (see Figure 4).

As previously noted, on-road diesel demand should continue to grow on both sides of the Atlantic. Over the period 2009–2020, the incremental demand should represent about 0.4 Mbdoe for the US and 0.6 Mbdoe for the EU-27. Nevertheless, it is important to note that, in the US, a significant part of the incremental demand for on-road diesel for the next 10 years corresponds to a return to its highest level of 2007.

The second striking feature is that both US and European gasoline demand are expected to decrease, with European demand declining at a faster rate. In addition, if we consider the increasing amount of ethanol that will be incorporated into the US gasoline pool, it is uncertain that excess European gasoline will continue to find an outlet on the US market.

This demand for on-road fuels forecast for the US is based on the fact that US passenger car sales through to 2020 will remain in the majority for gasoline cars, with the implementation of new CAFE programmes aimed at reducing car engine fuel consumption.

For Europe, our demand forecasts are based on a reference scenario for which, by 2020, diesel passenger cars would represent 54% of sales, gasoline passenger cars 36% and hybrid-gasoline 10%. With such a scenario, demand for on-road diesel will continue to increase and will represent just above 70% of on-road fuels consumption in the EU in 2020. At that time, the on-road diesel-to-gasoline ratio will reach a value of 2.5, which can be compared to the current value of 1.7 and to 0.3 for the US.

Could we expect an inversion of the trend in European demand by 2020?
At this point the question is: can this scenario be challenged, especially the European situation and assumptions? For that, it is necessary to examine automobile motorisation further.

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