Europe diesel supplies won’t meet demand

BRUSSELS (Reuters) – Diesel supplies will become tighter in Europe in the years to come because of stricter environmental regulations, the CEO of Hellenic Petroleum SA said yesterday. Panos E. Cavoulacos said many refinery upgrading projects would lag behind an expected growth in demand for the fuel. Cost increases may also delay some refinery projects, adding to concerns over supply shortage. «Despite numerous conversion capacity plans, Europe’s diesel deficit is expected to widen further,» Cavoulacos told an industry conference. Demand for diesel is set to exceed supply because sales of diesel cars are outpacing that of petrol cars in Europe. Another constraint will come from tighter specifications in the European Union to reduce the sulfur content in gas oil in January 2008 and beyond and similar specification changes in diesel in Britain in December. Cavoulacos also said increasing consumption in Central and Eastern Europe of the fuel would offset declining growth in other, more mature European economies. Industry officials estimate about 8 percent of European demand for diesel and gas oil, both of which are similar petroleum products called middle distillates, are met by imports, most of which come from the former Soviet Union. Global diesel supplies are expected to tighten due mainly to an increase in demand from Asia, Cavoulacos said. Damian Kennaby of energy consultancy Pervin & Gertz estimates diesel demand will increase by 39 percent from now to 300 million tons a year by 2020, while gasoline demand will decline by 2 percent each year. Cavoulacos also said the cost of refinery upgrades have risen significantly over the past years and may result in changes or delays in announcing projects. «The average cost of European upgrading projects estimated by analysts is around $20,000 per barrel. That is significantly higher than its was five years ago.» Most of the cost hike has come from higher prices of raw materials, such as steel and copper, and equipment such as compressors. In Asia, where much of the global demand growth is expected to originate, most projects will go ahead.