Oil refineries may be located either near their raw materials, or near their markets, or at some intermediate point. Because much of the world’s, oil is produced by countries which have little internal demand for oil, a large proportion of the total must be traded. Oil is the largest single commodity in world trade. Most of the major refineries are therefore situated on the coast, whether they are in producing or consuming countries.
If we examine the location factors of the petrochemicals industries associated with petroleum refining the pattern is somewhat different, for although petrochemicals industries are attracted to refineries they must also be near their major markets.
Thus market-based refineries in North America, Europe and Japan have more associated petrochemical plants than field-based refineries where there is no large local market.
The main advantages and disadvantages of the various refinery locations:
1. Field-Based Refineries:
Many oil refineries are located on the oil fields themselves. Where the oil fields occur in such countries as the U.S.A., the U.S.S.R. and European countries, refineries based on the fields have the added advantage of being near major markets. In the case of many countries, however, such as Venezuela, the Middle East states, Algeria, Libya, or South-East Asia, the local market for oil and oil products is relatively small.
For refineries based on fields in such countries the greatest advantage is the proximity of the crude oil. Transport costs are saved and refining can begin as soon as the oil is brought to the surface. Examples of field based refineries include Temblador in Venezuela and the refineries in western China at Dushanzi (Tushantze) and Yumen.
The chief disadvantages of such locations are- refineries will be useless when the field is exhausted; they are distant from petroleum products markets; constructing and running refineries in areas which are often sparsely populated and inhospitable in terms of relief or climate is often very difficult.
Many of these disadvantages are lessened if the oilfield is situated on the coast or not far from it, for then, even if there is no local market, transport costs to consuming countries are lower, and equipment, labour and other essentials can be easily brought in. Many of the Middle Eastern countries, though sparsely peopled and with a hostile desert environment, are fortunate in that their oilfields are coastal.
Field- based refineries thus share the advantages of easy oil supply and easy export facilities. Refineries in such locations include Basra, Abadan, Mina al Ahmadi, Mina Abdullah, Mina Saud, Ras Tanura, Bahrein and Umm Said (Qatar). In Venezuela there are coastal refineries at Lake Maracaibo, the Paraguana peninsula, Puerto la Cruz and Caripito, all on or near fields. Marsa el Brega in Libya and Port Harcourt in Nigeria have similar advantages.
Apart from purely economic considerations, other factors also affect field-based refineries. Oil companies may be reluctant to build refineries in politically unstable countries where unrest might lead to damage of the plants, or in countries where nationalist governments might take over the oil industry at any moment.
On the other hand the underdeveloped countries with large oil reserves have much to gain by insisting that their oil be refined locally. It may form the basis of local industrial development, supply fuel requirements, and provide some employment. If oil products rather than crude oil are exported this will enhance the value of the exports and increase revenue.
As a result most oil producing countries, e.g. Venezuela and the Middle Eastern states, insist that at least some of their oil is locally refined, despite the relatively small local markets. As yet most field-based refineries in non-industrial countries are smaller or less complex than their counterparts in market locations.
2. Intermediate Locations:
In some cases coastal fields, though possessing many advantages of accessibility have certain handicaps. For instance, the coastal waters may be shallow, which is a great disadvantage nowadays when most oil tankers are very large. Thus the oilfield, even though coastal, will not be an ideal location for refineries.
In Venezuela, for example, the waters of Lake Maracaibo are shallow and the entrance to the lake is both shallow and narrow. This makes it difficult for tankers to reach the lakeside oil plants. To overcome this difficulty the nearby islands of Aruba and Curacao, more easily accessible to a wide range of shipping, and not far from the Venezuelan oilfields, became the sites of major refineries.
In the Middle East, although many of the oilfields are on the coast of or even under the Persian Gulf, the distance by sea around the Cape of Good Hope and the closure for many years of the Suez Canal meant that, though coastal, the oilfields and refineries in the area were far from their major markets in Europe.
Under these circumstances pipelines were built linking the Saudi Arabian fields and also the inland Iraqi fields at Kirkuk which have no coastal advantages, to the Mediterranean coast. Crude oil sent by pipeline across the desert is refined at Banias and Saida (Sidon) before being shipped to Western Europe.
Another example of an intermediate location is Singapore. Although it possesses no oil itself, it is surrounded by countries which have oil. Several refineries have therefore been set up in Singapore to refine oil from Indonesia and Brunei and the petroleum products are then either used locally or re-exported.
There are also intermediate locations nearer to the market than to the producers. An example of this type of location is Bantry Bay in Ireland. It is distant from major European industrial centres but has the advantage of a very deep harbour. It can handle ships which are too large to enter Rotterdam or even sail through the English Channel. Its terminal and refineries therefore import oil carried by the largest tankers, and re-export both crude oil and petroleum products by smaller tankers.
Rotterdam also serves as an entrepot in this way but the development of petrochemicals industries in the area has made it a major market for oil as well as an oil transhipment point. More similar to Bantry Bay is the development of the deep-water harbour of Milford Haven in Wales. This terminal and its associated refineries are linked to markets by pipe-line, however, and may be considered market locations.
3. Market Locations:
The main oil-consuming areas are regions of dense population and highly sophisticated industries such as those in the U.S.A., Western Europe and Japan. The establishment of a refinery in an urban and industrial region has several advantages, including the availability of technicians, skilled labour, constructional materials and commercial knowhow.
The high standard of living means that there is also a large and continuous market for the various petroleum products. The wide range of industries based on petrochemicals, such as plastics, synthetic rubber and synthetic fibres also have their main markets in the advanced countries. Refineries in market locations tend to be larger and to produce a wider range of oil products than the smaller, less sophisticated refineries in some oilfield locations.
Almost any refinery in Europe or North America, even though not located in one of the major industrial cities, may be said to be market-orientated. This is because most of the refineries are linked to the main oil users such as the petrochemicals industries as well as to industrial cities where oil is needed for power, by an intricate and extensive system of pipelines.
Thus any suitable site within a consuming country is usually close enough to users to be economic. The use of large tankers means that more remote sites such as Milford Haven in Wales, which has deep water approaches, may become major oil refining as well as importing sites, since they can be linked relatively easily to industrial centres by pipeline.
Coastal locations for European refineries are an advantage as they ease imports, and thus many major refineries serving Europe are clustered together at Rotterdam and Antwerp. Oil is refined here and then distributed by pipeline to Dutch, Belgian or German industrial centres, or by tanker to Britain. In Britain too the main refineries are coastal, e.g. on the Thames, Mersey and Tees estuaries.
Japanese refineries also depend on imported oil and are coastally sited. Even in eastern North America there are coastal refineries using imported oil supplies, although most of the American oil and petrochemicals industries are located on or near the oilfields. Oilfields in America are so widely distributed that they are always relatively near industrial users, and a dense network of oil and oil- product pipelines links refineries all over the country to industrial cities.
Petrochemicals industry locations:
The main locational factor for petrochemicals industries is the presence of an oil refinery or cracking plant which can supply its basic requirements of naphtha or ethylene. Most petrochemical plants derive their raw materials directly from refineries by pipeline and many are sited in close proximity to the refineries.
In Europe the greatest concentration of petrochemicals industries is at Rotterdam/Europoort and Antwerp where plants making various chemicals are closely linked, and where oil and chemical companies from Germany, the Netherlands, Britain, the U.S.A. and even the U.S.S.R. all take advantage of oil imported from abroad.
In the U.S.A. a major concentration of chemicals industries is the Texas oilfield where cities such as Houston and Galveston are major refining and petrochemical centres. In Japan the most logical arrangement of all is found. Major coastal refineries are linked not only with companies producing oil-derived chemicals but also with companies producing end-products such as plastic toys or synthetic fibres. Such final products are usually associated with traditional industrial areas in the U.S.A. and Europe.
Petrochemical plants are not usually set up in the non-industrial producing countries, such as the Middle Eastern states, because though there are refineries they are usually less sophisticated, producing a narrower range of products. Moreover there is no large local market for the end products of the industry.
However, in future it seems possible that the oil producers will insist on more of the refining being done locally, in larger and more versatile plants and may even attract petrochemicals industries in the long term.
Some petrochemicals industries which have an immediate relevance for the underdeveloped countries, such as the production of fertilizers, have already been introduced in Iran and other areas but the world-wide spread of most petrochemicals industries will be limited by the need for large and sophisticated markets.