{"id":650,"date":"2013-04-04T06:04:34","date_gmt":"2013-04-04T11:04:34","guid":{"rendered":"https:\/\/allenergyconsulting.com\/blog\/?p=650"},"modified":"2014-02-04T16:30:01","modified_gmt":"2014-02-04T22:30:01","slug":"refining-in-the-21st-century-part-2","status":"publish","type":"post","link":"https:\/\/allenergyconsulting.com\/blog\/2013\/04\/04\/refining-in-the-21st-century-part-2\/","title":{"rendered":"Refining in the 21st Century Part 2"},"content":{"rendered":"

Part 2: Where do we go from here\u2026.<\/p>\n

“It is far better to foresee even without certainty than not to foresee at all.” Henri Poincare<\/p>\n

It is very important to ponder the implications discussed in Part 1.\u00a0\u00a0 There is quite a bit of uncertainty but one should not give up the process of predicting.\u00a0\u00a0 The very process of forecasting can gain you immense knowledge even when you fail miserably.\u00a0\u00a0 Forecasting takes time and humility.\u00a0 Very similar to wine if you keep at it \u2013 like I have been \u2013 it will be much better over time.\u00a0\u00a0 And like a good cellar \u2013 having a consultant, like myself, guiding you through the process, your wine will come out better and require less aging.<\/p>\n

Subsidies are being removed in many regions with the intent of going to market based pricing.\u00a0 However monetary policy has not changed and will not likely in the near future.\u00a0\u00a0 I believe we will continue to be priced in the $100\/bbl range plus or minus $20\/bbl.\u00a0\u00a0 There is a chance with economic destabilization, prices may fall somewhat; but I suspect it will be temporary as printing becomes the only acceptable way to avoid pain.<\/p>\n

Given this new elevated pricing of $100\/bbl, we expect to see healthy absolute margin with the return on feedstock falling to around 16-18% rate of return.\u00a0\u00a0 This, coupled with lower requirements of refining complexity, should allow many smaller refiners to prosper.<\/p>\n

There is no doubt that there is a systematic issue with DOE\/EIA models of the petroleum market \u2013 see below graph.\u00a0\u00a0 The model wants to \u00a0revert back to an historical level of absolute margin forgetting the business\/economics side.\u00a0\u00a0 The risk is not commensurate with a 5% return if we use the crack spread as a guide to returns.\u00a0 The AEO 2010 was wrong and I suspect the final AEO 2013 will be wrong.\u00a0\u00a0 Being wrong is inevitable, but the level of error is too large to be acceptable.\u00a0 They have not learned from their errors which is key component in successful forecasting.\u00a0 Question everything!\u00a0 You drive your model not the other way around.\u00a0 Common business understanding would likely lead a model to produce a retirement cycle when returns fell below 10%, and then a rebound in returns as the market responds to loss of refining capability.\u00a0\u00a0\u00a0 Hopefully oil pundits stay away from this type of modeling.<\/p>\n

\"\"<\/a><\/p>\n

As noted in the previous blog, there are some very interesting inter-relationships worth pondering for the future.\u00a0 I have given a general assessment of the future and even though I believe in knowledge sharing, there is a pragmatic side of me that requires me to hold back some information in order to balance my business side.\u00a0 If you were to send me an email with a business email and a description of your business role I will offer an additional write ups with graphs detailing a \u201cbase\u201d case projection.<\/p>\n

It is quite intentional to see that part 2 is much briefer than part 1.\u00a0\u00a0 As a forecaster, one should spend a lot more time understanding the past and the inputs going into your model.\u00a0\u00a0 The forecast stands on the past understanding and is the marginal output of all your work.<\/p>\n

Your Pragmatic Energy Analyst,<\/p>\n

David K. Bellman<\/a><\/p>\n

614-356-0484<\/p>\n","protected":false},"excerpt":{"rendered":"

Part 2: Where do we go from here\u2026. “It is far better to foresee even without certainty than not to foresee at all.” Henri Poincare It is very important to ponder the implications discussed in Part 1.\u00a0\u00a0 There is quite a bit of uncertainty but one should not give up the process of predicting.\u00a0\u00a0 The […]<\/p>\n","protected":false},"author":1,"featured_media":28,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,26],"tags":[90,118,91],"class_list":["post-650","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-insights","category-oil-petroleum-products","tag-refining","tag-refining-economics","tag-refining-margins"],"_links":{"self":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/650","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/comments?post=650"}],"version-history":[{"count":11,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/650\/revisions"}],"predecessor-version":[{"id":654,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/posts\/650\/revisions\/654"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media\/28"}],"wp:attachment":[{"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/media?parent=650"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/categories?post=650"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/allenergyconsulting.com\/blog\/wp-json\/wp\/v2\/tags?post=650"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}