MARKET TRENDS :IMPACT ON REFINING STRUCTURES AND REGIONAL CAPACITY BALANCES WORLD PETROLEUM MARKET TRENDS: IMPACT ON REFINING STRUCTURES AND REGIONAL CAPACITY BALANCES Charles Prévot, Senior Executive Vice-President, ISIS, 4 Avenue de Bois-Préau, 92500 Rueil-Malmaison, France Michel Valais, Group Energy Advisor, Total Fina Elf, 2 Place de la Coupole, 92078 Paris-La Défense, France marginal for the refineries and did not accelerate in the past year. 1. REVIEW OF RECENT DEVELOPMENTS Before the recent oil crisis, worldwide refining capacity grew at an annual rate close to 1.1. After the crisis, a return to steady 2%, barely lower than the growth in demand, and growth in world oil demand this generated little improvement in load factors (about 85% worldwide), especially in North After having grown at a rate close to America, Europe and Asia (Figure 1). The slower 4%/year from 1994 to 1997, the world economy growth of capacity in 1998 and 1999 is witnessed two years of a sharp downturn significant, but demand has settled into a primarily due to the crises experienced by Asia, trajectory sharply lower than what was anticipated Latin America and the former Soviet Union. As before the crisis, particularly in Asia and Latin of 1999, however, the recovery took off, earlier America. Hence an aggravation of surplus and stronger than anticipated, with world growth refining capacity was experienced worldwide. close to 3%, compared with barely 2% in 1998, and an era of renewed growth is emerging. 1.3. Refining margins and costs: a Similarly, world oil demand grew slightly difficult decade terminating in a critical under 1% in 1998, but already about 1.5% in year 1999, compared with an annual growth rate of about 2.5% in 1996-1997 before the crisis. The With the globalization of the oil markets, accelerated recovery of the world economy the expansion of international trade in refined strongly suggests a return to steady growth in products, the liberalization of domestic markets, worldwide oil consumption starting this year. the emergence of new players - in international trading as well as local marketing (hypermarkets) 1.2. But a larger surplus in world refining - and with the proliferation of operations and capacity financial tools in trading activity, refining entered an increasingly competitive era during the 1990s. The drop in oil prices in the recent crisis Pressure intensified on finished product prices substantially depressed oil industry investments in and refining margins. exploration-production, and consequently, due to With the Gulf war in 1990-1991, due to the natural decline of the production of oil fields, the supply problems prevailing at the time, the a downward revision of production capacity refining industry managed to earn exceptional development in the coming years. Hence the drop margins. Conversely, the 1990s terminated in a in prices itself generated a significant mechanism truly catastrophic 1999 for the margins. The of readjustment

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