THE NEW YORK TIMES: OPEC's Plans Will Bind the West Closer: “OPEC says it is stepping in where big oil firms are reluctant to tread. The likes of Royal Dutch Shell, BP and Exxon Mobil need convincing that returns will be adequate before they spend the billions of dollars needed to build a refinery.”: Posted Wednesday 21 Sept 2005
By REUTERS
Published: September 20, 2005
VIENNA (Reuters) - OPEC says it is coming to oil consumers' aid by building badly needed refineries to turn out gasoline and heating fuel, but the new plants will also increase the West's energy reliance on the volatile Middle East.
OPEC, including top oil exporter Saudi Arabia, announced ambitious plans to add some four million barrels per day of refining capacity at its meeting in Vienna on Tuesday.
If the plans come to fruition, the United States and Europe will increasingly look to the Middle East not only for supplies of crude oil but also for gasoline, jet fuel and heating oil.
That could leave the world's big consumers more vulnerable to the sort of supply shock that sent oil prices soaring after the 1979 Iranian Revolution and the 1973-1974 Arab oil embargo.
``In the downstream we're doing more than is our responsibility. We're doing our homework very well,'' Kuwait Oil Minister and OPEC President Sheikh Ahmad al-Fahd al-Sabah said.
``There are 10 members building new refineries. This is an integrated approach,'' he told reporters.
OPEC says it is stepping in where big oil firms are reluctant to tread. The likes of Royal Dutch Shell, BP and Exxon Mobil need convincing that returns will be adequate before they spend the billions of dollars needed to build a refinery.
HUGE PROBLEM
Claude Mandil, head of energy watchdog the International Energy Agency, said the shortage of refining capacity was a ''huge problem.''
``This is the main concern,'' he told Reuters in London. ''There is a need for companies to be a bit bolder in investing in new capacity.''
Among OPEC plants on the drawing board is 200,000-250,000 bpd Kuwait-backed refinery in the United States and new plants in Qatar and Saudi Arabia.
Sheikh Ahmad urged Western governments to do more to encourage construction of new plants and accused oil majors of banking their sizeable profits rather than reinvesting them.
``I hope independent oil companies will start to build some...The refining margins are small and nobody is speaking about building a refinery.''
``What I'm hearing from the independent oil companies is they're making cash and putting it in the bank.''
At its two-day meeting in Vienna OPEC pledged to pump every last barrel of available crude if necessary to rein in record oil prices, at the same time making clear that in its view a shortage of oil products such as gasoline was the real culprit.
The last refinery in the United States opened three decades ago and the temporary loss of plants on the Gulf coast after Hurricane Katrina last month sent U.S. gasoline soaring above $3 a gallon.
OPEC president Sheikh Ahmad said the cartel would boost its refining capacity to 32.5 million barrels per day by 2010 from 28.3 million bpd at present. In a series of announcements this week, Kuwait, Saudi Arabia, Qatar and Venezuela all said they would open new plants.
Analysts say the move would give OPEC greater access to lucrative markets for gasoline and other high value oil products in the United States and Europe. State of the art refineries are able to extract more of these from crude oil than older plants.
``If it's not rhetoric it's an effort to recapture the share of the oil cut that they gave away to deep conversion refiners,'' said Antoine Halff, director of global energy at Eurasia group.
``If it is rhetoric, it is to balance the perception that that they are responsible for the high prices.''
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