Much 2017 oil demand growth to bypass refineries: BP

[BRUSSELS] US shale gas will displace a growing portion of the world's expanding energy demand, cutting into the need for oil products from refineries, BP's head of refining economics said on Friday.

Natural gas liquids (NGLs) from the US shale boom such as ethane, an alternative to naphtha refined from crude, could feed as much as a third of demand growth in 2017, BP's Richard de Caux told the Platts Refining Summit in Brussels.

Refined oil products already in storage will further undercut refinery profits, he said.

"We expect a substantial chunk of the incremental demand growth next year to be met by two sources which don't come from a refinery," Mr de Caux said, citing NGLs and oil products in storage.

This week, the first US ethane cargo arrived at a chemicals plant in Scotland, and de Caux said the vessel was a harbinger of supply to come that would undercut profit support for refineries running crude oil, whose margins boomed over the past two years of cheap crude and stellar demand growth.

"That's coming out of oil demand," Mr de Caux said of petrochemicals coming from ethane, rather than from refined naphtha, in petrochemical units.

BP expects demand growth of 1.2-1.4 million barrels per day (bpd) in 2017, of which 300,000-400,000 bpd could come from natural gas liquids. This is up from around 200,000 bpd from as a larger overall demand growth in recent years, Mr de Caux said.

Other consumption growth would be fed by inventories of oil products, which in the developed world stood nearly 150 million barrels above the five-year average in 2016, "close to full," Mr de Caux said.

This is likely to limit refinery margins and runs, putting pressure to close on the continent's refineries, along with ageing units in Japan and possibly on the US Atlantic Coast - areas where demand growth is stagnating.

"The cheap oil prices did not save Europe from further rationalisations," he said.

REUTERS