When looking at the supply of emerging or growing oil markets, the oil industry will aim to minimise the cost of supply and also try to contain business risk. Ideally this is done through optimisation of existing manufacturing and supply sources in combination with the construction of large (expandable) import terminals to provide for the local market needs.

In order to develop specific parts of the country and create high level employment opportunities, the national governments would often like to see domestic refineries at specific sites even if this would bring about significant cost disadvantages.

Landlocked refineries will normally face residue disposal problems and hence are forced to high conversion and hence high capital intensity. Significant synergy could be obtained from refinery/power plant integration.

In such cases investment allowances, special taxation conditions, price protection via import duties, preferential marketing rights are ways to match the interests of the country and the Oil Industry. 0 Refinery Product quality 0 Faster demand growth lags constraints construction 0 I I 1 I I t


Due to the globalization of the oil refining business, oil refining margins are under continuous pressure and require special profit enhancing factors in order to achieve a reasonable rate of return on refinery investment. As shown in Fig. 1 significant volatility in the margin is caused by upward and downward forces. Looking into the future, the key forces are: demand growth, inter regional arbitrage, competition/excess capacity, technological progress, tariffs and trade barriers and product quality constraints.

Apart from flat margins there are many aspects making the oil markets less profitable, such as tougher environmental legislation and deregulation in many areas. These factors make new refineries very difficult to justify, especially in regions with significant cost disadvantages (inland facilities and developing non-populous areas). Hence the objective Fig. 1. Upward and downward forces on complex refining margins.

Proceedings of the 15th World Petroleum Congress 0 1998 The Executive Board of the World Petroleum Congress Published by John Wiley & Sons 145 146 SUPPLY AND DEMAND c2111 of meeting a reasonable level of return on capital for the new greenfield site becomes almost unattainable.

The steadily growing demand for oil products in several geographic areas, particularly in developing countries with significant GDP growth, can create the opportunity for a partnership

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