Gas glut in 2010?

HOUSTON -- Gasoline prices could decline by 2010 amid a "potential oversupply" of oil products, even though U.S. refining capacity will be expanded less than previously thought, according to a new report by Edinburgh, Scotland-based consultancy Wood Mackenzie LTD.

Despite lagging refinery expansion and growing demand, the report suggests that new biofuels, natural gas liquids, and liquefied petroleum may replace some conventional fuels, resulting in a potential oversupply that depresses prices at the pump.

The central conclusion -- that a glut of fuel supply from outside the conventional refining system could depress gasoline prices -- differs from the consensus of many energy experts, which holds that the supply impact from biofuels and other sources will be limited between now and the end of the decade.

The report comes amid an industry-wide re-evaluation of refinery expansion projects that were once considered likely to be online by 2010.

"The main reason why the message has changed is that, generally, people are looking at refinery capacity versus demand," said the study's author, Aileen Jamison, downstream research manager for Wood Mackenzie.

The consultancy, whose clients include the major oil companies, had previously warned of a shortfall in transportation fuels.

The study paints a mixed picture on the prospects of expanding conventional refinery capacity. Globally, Wood Mackenzie expects 8.1 million barrels a day of crude capacity to come online by the end of 2010, reflecting the construction of 17 new refineries and expansion of 80 existing refineries.

But the report also noted that more than 550,000 barrels a day of previously announced crude capacity expected onstream in 2010 has been delayed or canceled during the first half of 2007. The report cited sky-rocketing project costs, which have nearly doubled since 2002.

The delays include a massive U.S. project: Motiva's planned expansion of its Port Arthur, Texas, refinery. The 325,000-barrel-a-day expansion, first discussed in 2005, still awaits a final investment decision.

While agreeing with aspects of the Wood Mackenzie analysis, some analysts rejected the notion of a possible gasoline glut in 2010.

Refining "margins will still remain pretty robust compared with history, but will not be at the record levels we've seen in 2006 and 2007," said Alfred Luaces, senior principal consultant with Houston-based Purvin and Gertz.