The company wants to focus on E&P, but the refining industry may not be as bad off as people think.
In late July, Marathon Oil (NYSE: MRO, Stock Forum) revealed that it was considering splitting the company into two parts: an E&P group and a downstream refining and marketing operation. Who can blame them? E&P profits are way up and refining and marketing profits are way down. A split may be the first step in shedding the up and down refining operation to the first reasonable bidder.
But could Marathon be jumping the gun? Management consultants Booz & Company just released a report on refining that indicates that the industry may not be as bad off as everyone thinks. According to Booz, demand from emerging economies could increase demand for transportation fuel by three million barrels a day by 2025. Even the development of non-petroleum based vehicles in Western countries won't reduce that demand by much. And biofuels are unlikely to replace oil, mainly because food will win out over fuel in the debate over how to use agricultural land.
What could happen, again according to Booz, is that the U.S. would become a net exporter of refined products. That scenario would not be an unmitigated blessing, but it could make refining a more attractive business in the U.S.
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