Speakers
William Veno Senior Director IHS CERA (Chair)	Jon A. Jacobsen EVP Manufacturing and Marketing Statoil
Bill Klesse Chief Executive Officer, President and Chairman of the Board Valero	Jean-Jacques Mosconi Senior Vice President, Strategy and Business Intelligence TOTAL S.A.

At Tuesday's Downstream Oil Plenary IHS CERA Senior Director William Veno introduced the panel, noting that the refining industry faces formidable challenges.

Bill Klesse, CEO, President, and Chairman of the Board, Valero, elaborated on the challenges facing Valero in the US market. In the United States 11 years of refined products demand growth was wiped out by the Great Recession, leaving a large amount of spare refining capacity and discretionary cuts to refining rates. In fact, operating rates have fallen globally, and Mr. Klesse stated that "clearly there is a trend of rationalization" as 1.5 million barrels per day (mbd) of refining capacity has been shut, idled, or has announced closure since 2007. Yet additional refining capacity is slated to come online in the next few years; he said 1.8 mbd of new capacity will come online this year and 1.4 mbd in 2011. Mr. Klesse expects US oil demand recovery to be slow, but global demand will perform much better. By 2011 world oil demand will exceed its 2007 level, and "by 2020, this is a 95 to 100 mbd business." However, achieving "reasonable margins" means more refining run cuts and additional refinery shutdowns and consolidations to reduce spare capacity; margins will take a few years to recover. As for other challenges, he said, "The industry continues to be attacked, constantly, by regulations as well as by rhetoric." Mr. Klesse mentioned the difficulties in complying with overlapping and conflicting state and federal regulations. To end, Mr. Klesse stated that the refining industry is cyclical; it survived the 1980s and it will survive this as well.

Jean-Jacques Mosconi, Senior Vice President, Strategy and Business Intelligence, Total, also spoke of the difficult times for the refining industry. Although a major European refiner, Total is affected by the US market. Europe's vehicle fleet is largely diesel-fueled, which makes the United States a major export market for European gasoline. European refiners are geared to maximize diesel production and minimize gasoline production, yet there is excess gasoline. However, Mr. Mosconi noted, "What is bad for gasoline is not bad for diesel," because when the economy recovers, so will diesel demand; and reduced refining capacity will lead to a tighter supply and more robust margins for diesel. Mr. Mosconi also noted the potential benefit to refiners from proposed changes to bunker fuel regulations that could compel shippers to switch to low sulfur diesel fuel. He concurs that more refinery closures are needed, particularly in OECD countries, perhaps an additional 1 mbd in the Atlantic Basin. With closures and increased demand, by 2015 the refining industry will be better positioned. Mr. Mosconi also mentioned Total's Jubail refining project with Saudi Aramco, which intends to supply the local Saudi gasoline market while producing no heavy fuel oil; and the company's share in the China WEPEC refinery, although it is taking a cautious approach in this major market.

Jon A. Jacobsen, Executive Vice President, Marketing & Manufacturing, Statoil ASA, began on a positive note by saying that "the future is not cancelled: this industry will come back." Statoil is primarily an upstream company with almost 2 million barrels of oil equivalent per day in oil and gas production last year. Nonetheless, Statoil invests in refining and storage when it supports its upstream operations. He noted a number of uncertainties facing European refiners, including the many and often conflicting regulations. He also noticed an increase in national policies that affect demand. Mr. Jacobsen mentioned as well the potential for increased diesel demand from proposed changes to bunker fuel regulations. He noted that demand has most likely peaked in the "home turf" of the OECD countries and agreed that it is necessary to reduce refining runs and to close or sell refining assets. He listed a number of attributes of a survivor in this environment: access to a niche market, highly complex and energy efficient facilities, low investment needs, and access to feedstocks. Mr. Jacobsen stated that Statoil's strategy is to look very closely at operating and maintenance costs. However, this must be done with an understanding that deterring maintenance is in the long run extremely costly and that maintaining facility safety is paramount.