Heavier Crude, Changing Demand for Petroleum Fuels, Regional Climate Policy, and the Location of Upgrading Capacity: A Preliminary Look

Joint Program Report
Heavier Crude, Changing Demand for Petroleum Fuels, Regional Climate Policy, and the Location of Upgrading Capacity: A Preliminary Look
Reilly, J., S. Paltsev and F. Choumert (2007)
Joint Program Report Series, 6 pages

Report 144 [Download]

Abstract/Summary:

The crude slate is likely to become heavier in the future with greater reliance on bitumens, tar sands, heavy oils, and eventually possibly shale oil. Under standard refining processes these crude oil sources produce a larger fraction of heavy products. At the same time, petroleum product demand growth is likely to disproportionately favor mid-weight products because of the strongly growing demand for transportation fuels including diesel, jet fuel, and gasoline. This will create a significant demand for new upgrading capacity in the refinery sector, and these upgrading facilities are themselves a significant source of carbon emissions. Using a version of the MIT Emissions Prediction and Policy Analysis (EPPA) model that separately considers five petroleum products we examine the need for, and the location of, refinery upgrading capacity under significant carbon policy in developed countries but not in developing countries. The results show that a carbon policy leads to a shift of most of the investment in upgrading capacity to developing countries, where the cost of carbon control is avoided, resulting in significant carbon leakage.

Citation:

Reilly, J., S. Paltsev and F. Choumert (2007): Heavier Crude, Changing Demand for Petroleum Fuels, Regional Climate Policy, and the Location of Upgrading Capacity: A Preliminary Look. Joint Program Report Series Report 144, 6 pages (http://globalchange.mit.edu/publication/14051)
  • Joint Program Report
Heavier Crude, Changing Demand for Petroleum Fuels, Regional Climate Policy, and the Location of Upgrading Capacity: A Preliminary Look

Reilly, J., S. Paltsev and F. Choumert

Report 

144
6 pages
2007

Abstract/Summary: 

The crude slate is likely to become heavier in the future with greater reliance on bitumens, tar sands, heavy oils, and eventually possibly shale oil. Under standard refining processes these crude oil sources produce a larger fraction of heavy products. At the same time, petroleum product demand growth is likely to disproportionately favor mid-weight products because of the strongly growing demand for transportation fuels including diesel, jet fuel, and gasoline. This will create a significant demand for new upgrading capacity in the refinery sector, and these upgrading facilities are themselves a significant source of carbon emissions. Using a version of the MIT Emissions Prediction and Policy Analysis (EPPA) model that separately considers five petroleum products we examine the need for, and the location of, refinery upgrading capacity under significant carbon policy in developed countries but not in developing countries. The results show that a carbon policy leads to a shift of most of the investment in upgrading capacity to developing countries, where the cost of carbon control is avoided, resulting in significant carbon leakage.