Are we tipping into oversupply?
􀂄 There will be significant excess capacity, despite project cancellations
Our analysis confirms there will be significant excess global capacity from 2009,
despite the threat of project cancellations, which many in the industry believed
would keep the market tight. The majority of sponsors for the projects are stateowned
companies, which we believe reduces the probability of cancellations, and
likely coupled with falling oil demand again in 2009 will loosen the market. We
expect this will create a long-term, structural oversupply of refining capacity.
􀂄 New proprietary supply and demand balance product created
We have comprehensively updated our refining projects database. It contains in
total 338 refining projects in 90 countries around the world. We have also created a
proprietary, global, region-by-region and product-by-product supply and demand
balance database, based on these new projects and our demand forecasts.
􀂄 Negative for complex refiners, and the simplest refiners may have to close
The most striking impact of the new capacity arriving is that it competes away the
excess returns that have hitherto been available to complex refiners. It suggests the
recent collapse in light-heavy differentials may be sustained. To keep supply and
demand balanced, refineries need to close and overall utilisation rates need to fall.
We forecast that overall supply will continue to outstrip demand for the next five
years, leading to a product surplus of 11mbbl/d by 2013.
􀂄 Reiterate our bearish outlook on the refining sector
We have a negative outlook for refining margins, and for many stocks, the market
is not pricing in sustained lower margins. We have cut our European refining
margin forecasts by 27% in 2009 and cut our ratings to Sell on a number of stocks.

Contents page
Executive summary 3
— Sector and company view ....................................................................................3
— Key conclusions ...................................................................................................4
— Implied impact......................................................................................................5
Re-launching the proprietary database 8
— New product supply and demand balance............................................................9
— Key projects .......................................................................................................11
— Where is the capacity coming onstream?...........................................................12
— How have our estimates changed? ....................................................................13
— What is the rationale for the refineries? ..............................................................13
— Project delays ....................................................................................................14
— What is the build time and costs of new refineries? ..............................................15
— What are the economics of a new refinery?........................................................16
— Refinery closures or capacity reductions ............................................................16
— Oil capacity versus refining capacity growth .......................................................17
— What crudes are the refineries going to use? .....................................................18
— Other non-refinery supply...................................................................................20
— Methodology ......................................................................................................22
Supply and demand charts 25
— Global surplus/deficit by product ........................................................................27
— Regional surplus/deficit ......................................................................................30
— Refining crack spreads.......................................................................................42
Project tables 43