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Can switching from gasoline to aromatics mitigate the price risk of refineries?

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  • Quintino, António
  • Catalão-Lopes, Margarida
  • Lourenço, João Carlos

Abstract

Oil prices wide fluctuations have been a constant in energy economics, influencing heavily the profits of oil companies. Even small oil prices changes imply wide variations in the refining margins, the main economic drivers of the profits of oil companies with relevant refining assets. The future will bring an even more volatile environment as the level of implementation of low-carbon policies increases, implying a declining demand for refined products for internal combustion engine vehicles. One of the possible paths to mitigate the refining margin volatility and the decreasing demand for refined products is to switch gasoline production to aromatics products, through new aromatics plants. In this paper we apply the copula-GARCH model with Monte Carlo simulation to evaluate the economic impacts of this production switching, supporting a European oil company's decision. The results show that the product switch success depends on gasoline prices and on how the aromatics plant is built, if in stand-alone mode or integrated with the refinery. It is also shown that the desired reduction of the integrated refining margin volatility is not achieved with the product switching.

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  • Quintino, António & Catalão-Lopes, Margarida & Lourenço, João Carlos, 2019. "Can switching from gasoline to aromatics mitigate the price risk of refineries?," Energy Policy, Elsevier, vol. 134(C).
    • Handle: RePEc:eee:enepol:v:134:y:2019:i:c:s0301421519305506
    DOI: 10.1016/j.enpol.2019.110963
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    Cited by:

    1. Li, Junjie & Zhang, Yueling & Yang, Yanli & Zhang, Xiaomei & Zheng, Yonghong & Qian, Qi & Tian, Yajun & Xie, Kechang, 2022. "Comparative resource-environment-economy assessment of coal- and oil-based aromatics production," Resources Policy, Elsevier, vol. 77(C).
    2. Fernandes, Mário Correia & Dias, José Carlos & Nunes, João Pedro Vidal, 2021. "Modeling energy prices under energy transition: A novel stochastic-copula approach," Economic Modelling, Elsevier, vol. 105(C).
    3. Nunes, Inês Carrilho & Catalão-Lopes, Margarida, 2020. "The impact of oil shocks on innovation for alternative sources of energy: Is there an asymmetric response when oil prices go up or down?," Journal of Commodity Markets, Elsevier, vol. 19(C).

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