Global refining margins to fall from next year

London: Global refining margins may narrow from next year as new capacity comes onstream and ethanol takes a more prominent role in the gasoline mix, a Wood Mackenzie consultant said.

New refineries including Reliance Industries' Jamnagar plant and the increased use of ethanol in gasoline could cause refining margins to decline through 2012, Alan Gelder, a consultant for downstream oil at Edinburgh-based Wood Mackenzie, said on Wednesday at a refining conference in Barcelona.

Increased ethanol use in North America means less oil-based gasoline is required, which will lower demand and cut profits for refiners, Gelder said. Slowing economic growth will also lead to less consumption of gasoline, he said.

Refining margins, or the profit from turning a barrel of oil into fuels, in the first quarter this year averaged 86 cents a barrel, according to data compiled by Bloomberg. Refiners using Brent crude in their facilities in northwest Europe may have earned $1.10 a barrel so far this year.

Investments in petrochemical production using naphtha crackers should stop because there is ample spare capacity and margins will be weak up to 2010 and beyond, Gelder said. Petrochemicals include ethylene, building blocks for consumer goods like plastics.

Reliance will produce propylene, another building block for plastics, using a fluid catalytic cracker, or FCC, at its second refinery in Jamnagar. FCC's are normally used in the production of gasoline.