A detailed assessment of the mid/long-term operating environment for global refining and the implications for the oil products trade. We forecast products demand and review refinery investments to identify the likely pressures on the refining sector and what this could mean for refining margins in the next 5-10 years.
The refining industry suffered badly during the most virulent stages of the COVID-19 pandemic in 2020 – hit by a double whammy of a slump in demand and too much capacity. Refiners had to react to the low margin environment by cutting their throughput rates to better match supply with demand. However, they were unable to avoid closing some capacity and building product stocks.
While COVID-19 vaccination programmes are slowly, but surely, combating the virus in many parts of the world, product demand recovery is inconsistent across the globe. At the same time, new refining capacity is still being commissioned, putting even more downwards pressure on the downstream sector’s profitability.
Our latest Annual World Refining Outlook looks at how and where product demand will recover from the pandemic and how refiners will react. We expect more capacity to close over the next few years, which will support the recovery in overall refinery margins.
Furthermore, later in the 2020s we expect demand to have recovered sufficiently to support the building of additional refining capacity. It remains to be seen who will build this new capacity, especially given the increased focus on renewable fuels, reducing CO2 emissions and the growing reluctance of investors to invest in fossil fuels, especially as the lifespan of such downstream projects appears limited. The days of building mega-refinery projects focusing on the production of transport fuels are over. Consequently, refiners in future are likely to focus on lower cost, debottlenecking projects with a more varied slate.
The shape of the product barrel is changing, with an increasing focus on producing LPG and naphtha as petrochemical feedstocks. While the potential for gasoline demand growth in the Atlantic Basin is limited, we continue to see strong growth in all other regions. The challenge for refiners will be how to meet this demand while not oversupplying markets with gasoil/diesel.
Our conclusions highlight how changing demand is affecting refinery utilisation, the pressures on refinery throughput and yields and on refinery margins. This analysis is provided alongside accurate data for refinery capacity, estimated refinery margins, and product prices. We review how surplus refining capacity may change in future and forecast the need for further capacity additions in some parts of the world.