WoodMac Sees More Uncertainty for US Refining
March 22, 2011
"Continued tightening regulatory requirements, coupled with excess global capacity and general market uncertainty worldwide, all translate to a challenging and difficult operating environment for U.S. refiners for the foreseeable future," according to Alan Gelder, Head of Downstream Consulting for Wood Mackenzie, speaking Tuesday at NPRA's 2011 Annual Meeting in San Antonio, Texas.
Wood Mackenzie's analysis underscores that the significant uncertainty in the economic, market and political outlook for domestic refiners warrants a renewed and tailored approach to strategy development and value creation for the industry.
This year, according to Wood Mackenzie, the global capacity overhang will continue, as closures are slower than were anticipated at the end of 2009 and domestic demand growth does not keep up with the excess capacity created during the economic crisis.
"Higher demand than forecast in early 2010 aided by deferred new capacity helped stabilize the market last year, but in 2011 those capacity additions deferred from 2010 will loosen market a bit over the year, and demand growth will begin to moderate," explained Gelder. "We expect this global excess capacity to remain at least through 2015."
Gelder said, "Interestingly, while no one gets a free pass from the effects of the current outlook, the impacts of external factors will not be felt uniformly across the business, as different regions and, indeed, different business models are impacted uniquely and require a separate distinct focus to drive success."
Gelder's technical paper outlines the major uncertainties in the market and how they impact six indicative business model strategies, each of which has a unique opportunity set to respond to the consequences in a different manner.
"In the end, it's an uncertain and challenging environment, where no one strategy is guaranteed to win," Gelder noted, "Creating value in the future domestic downstream industry means leveraging strengths and flexibly taking advantage of the discontinuities presented by the uncertainty."
Source: Wood Mackenzie
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