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Bloomberg: Biofuels, Natural Gas Liquids to Cause Surplus, Mackenzie Says

By Angela Macdonald-Smith

Aug. 1 (Bloomberg) — Increased output of biofuels and natural gas liquids may lead to an oversupply of oil products by 2010, reducing gasoline prices worldwide and lowering operating rates at refineries, Wood Mackenzie Consultants Ltd. said.

Supplies of fuels not produced in oil refineries are expected to increase by more than 80 million metric tons between 2006 and 2010 due to increased output of natural gas liquids and moves to boost the use of biofuels, the Edinburgh-based consulting firm said in a statement yesterday.

U.S. production of ethanol, a biofuel, is forecast to jump 58 percent next year as the government raised the target for the use of renewable fuels. Concern that fuel supply will exceed demand has stalled a project to double the capacity of a Texas refinery operated by Royal Dutch Shell Plc and Saudi Arabian Oil Co. and a possible expansion at a Chevron Corp. plant in Mississippi, the International Energy Agency said last month.

“While rising refinery project costs have led to significant delays and cancellations of a number of key projects post 2010, this reduction in new refinery capacity alone is not enough to counter the oversupply issue,” Aileen Jamieson, downstream research manager at Wood Mackenzie, said in the statement, accompanying the release of a global refining report. Costs have doubled since 2002, she said.

Almost 50 million tons a year of ethanol and about 20 million tons of biodiesel will probably be used worldwide by 2010, Wood Mackenzie forecasts. Brazil and the U.S. will probably account for three-quarters of ethanol consumption, while the European Union accounts for almost two-thirds of biodiesel use, it said.

The increase in natural gas liquids production will lead to a bigger surplus of liquefied petroleum gas, or LPG, at the same time as a “large and growing” deficit of naphtha due to “strong” demand for petrochemicals, the consulting firm said.

“Feedstock flexibility will be key for petrochemicals manufacturers in the Middle East and Asia Pacific, where the greatest LPG/naphtha imbalances occur,” Wood Mackenzie said.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at [email protected] .

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