Case Study of an industry Oil Refining Cheung Yee On 6SS ( 09 )

What is Oil Refining ? - Is an industry which refine crude oil into more useful petroleum products, such as gasoline, diesel fuel, asphalt base, heating oil, kerosene, and liquefied petroleum gas by fractional distillation. - Is a weight gaining industry. *Petroleum refining results in output greater than the input because of changes in the overall density of the refined products relative to that of the input oils. - The major raw materials required is crude oil and water (for cooling).

Ideal location for Oil Refining Industry - Since oil refining is a weight gaining industry, according to Weber Model, the least-cost location should be at the market. - The cost can be reduced when fully utilizing the refinery facility for oil refining, pipes and vessels for large batch distribution and transportation. Therefore oil refining industry should be located nearby. Therefore, oil refineries should located nearby in order to saving cost by economic of scale. - Since oil refineries is a heavy industries, it requires extensive flat land for production, so places with flat land and cheap land costs are favorable.

> <1 World Oil Consumption (millions of barrels per day) World Oil Consumption Source: U.S. Energy Information AdministrationU.S. Energy Information Administration

World Crude Oil Refineries Source:

Oil Refining in North America Data of production,consumption,import and export of petroleum products in North America *ProductionConsumptionExport** Market consume East Coast (PADD 1)1,165,5831,989,29365, Midwest (PADD 2)1,368,1671,599,33813, Gulf Coast (PADD 3)2,699,3301,259,381468, Rocky Mountain (PADD 4)222,977225, West Coast (PADD 5)1,071,0121,015,265100, Source: U.S. Energy Information Administration - Refinery & Blender Net ProductionRefinery & Blender Net Production - Product SuppliedProduct Supplied - ExportsExports *Period-Unit: Annual-Thousand Barrels **Consumption + Export

Source: U.S. Energy Information Administration - StateState Oil Refining locations in North America

Possible reasons: - Most of the oil refineries are located in PADD 3 (Gulf Coast) rather than PADD 1 (East Coast). 2. Agglomeration – Oil refineries which located together can gain from agglomeration. 3. Port – Rather than local market and raw materials sources, there are also overseas market. Along the Gulf Coast, there are largest (in trade volume) port like Port of South Louisiana, Port of Houston, Port of Beaumont etc…Furthermore, by sea transport, the transport cost can be lowered. ↑Texas City,USA 1. The Big Inch – There are petroleum pipelines from Texas (in PADD 3) to New Jersey (in PADD 1), which lower the cost of transport. Source:

Other location factors of Oil Refiners - Oil Refiners are located near the water source as large amount of water is required for oil refining. - Refinery products and crude coal are distributed by sea, rail and road to markets, therefore Oil Refiners are located at places where the accessibility is high. - Although oil refining is a market-oriented industry, it dose not located at the middle of the city. This is because of the high land price. Moscow,Russia ↗ ↗ Houston,USA London, UK→ Source:

Further Examples - Oil refineries in Australia are located near the big city. (Sydney,Melbourne) - In china, most of the oil refineries are located in the Eastern part of china, where the consumption of refining products is larger then the western part. Source: ←China ←Australia ↑Australia - Oil refineries are located in the Northern- east part of Egypt where most cities located rather than the southern and the western part where are desert. ↓Egypt

- The locations of oil refineries meet the Weber Model. - The major locational factor which affect the location of oil refineries is the market, as oil refining is a market-oriented as it is a weight gain industry. Oil refiners are therefore located near the market rather than the raw materials. - When the first factor fulfilled, the oil refineries will then choose to located near the water source rather than far away from it. - Oil refineries will also located at high accessibility places, like near the ports, highways, rail, etc. Furthermore, oil refineries will be located at places where the land is extensive flat and cheap. -Therefore, a city which near a deep coast would be most preferable as it is near the market, with unlimited water supply and the accessibility is high. Conclusion