June 29, 2010Oil and Gas Industryby EconomyWatch

Oil Refinery Industry

Oil Refinery Industry holds immense importance for all the oil producing countries. If we focus on the global trend of this Oil Refinery Industry then we will see that this industry has experienced a lot of ups and downs over the decades.

In the period from 1970s to 1990s considerable amount of investment was made in the Oil Refinery Industry. But because of the oil shocks of 1973-74 and 1979-80 and because of the Asian Financial Crisis, the market demand was quite low. This resulted in surplus refining capacity of global Oil Refinery Industry.
But, the present scenario is different. As the Demand for Refined Petroleum and other Refined Products is increasing, Surplus Refining Capacity of the industry is diminishing very fast. So, in todays world, the Oil Refinery Industry has to concentrate on additional capacity building so that the Growing Market Demand can be met accordingly.
This additional capacity building naturally requires Heavy Investment. This is where the problem lies as the much needed investment in the Oil Refinery Industry is not attaining its required level because of the uncertainty of the investment returns. This is because, returns to the investment in Oil Refinery Industry were very low in the past three decades. But, the good news is that in the recent years the rates of return are improving. At present, the average margin per barrel has reached a level which is enough to cover the Capital Cost.

But many companies are not willing to invest in new oil refinery plants may be because of the factor that any Oil Refinery Plant requires at least five years to be established and this long period increases the risk of investing. The investor companies fear that the future margins may not be enough to cover their total investment cost.
According to a survey, World Crude Oil Refining Capacity was 83.1 million barrels per day. But, to keep pace with rising demand this capacity has to reach the level of 93 million barrels per day by 2010.
This means the global Oil Refinery Industry has to grow at an average Growth Rate of 1.8% per year. This will be possible only if the Oil Refinery Industry becomes successful to attract sufficient volume of investment from different investors.

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