Source of reflection: bittersweet optimism in oil demand for the global refining industry

The petroleum refining industry may struggle to regain its full health over the next two years, as analysts predict recovering demand for oil allows new plants to begin to overtake shutdowns, bringing additional capacity. to the besieged sector.

The downstream sector has changed. In the past 18 months, a collapse in demand triggered by COVID-19 has seen a wave of North Atlantic refiners start to go green or shut down and several refiners in Asia and the Middle East have put plans on hold. . Pressures from low margins and new cleaner energy strategies have accentuated already emerging trends.

The recent shutdown by Limetree Bay of a 200,000 bpd refinery in St. Croix, US Virgin Islands, shortly after it started up, is the latest high-profile casualty.

For its part, TotalEnergies is seeking to transform its Grandpuits plant in France into a bio-refinery, after having converted another – La Mede – a few years ago. And Phillips 66 expects its oil refinery in Rodeo, Calif., To become the largest renewable fuel facility in the world.

But this rationalization may not be enough. Even with forecasts that global oil demand could far exceed 2019 levels by the end of next year.

Middle East-Asia link

Across the Middle East, Asia and even Africa are planning to build additional refining capacity remain on track, although some have been delayed by the adverse effects of the pandemic. These regions are still determined to transform crude into transportation fuels and petrochemicals in a context of continued urbanization.

S&P Global Platts Analytics estimates that nearly 3 million b / d of cumulative refining capacity will return by the end of 2022 (compared to the end of 2019), noting a sharp turnaround after closures overtook additions in 2020.

“Global refinery cycles are increasing towards 2019 levels, but utilization rates will lag as new refinery capacity growth overtakes shutdowns,” added Platts Analytics.

China leads in net additions, which include the second phase of the Zhejiang oil and chemical complex and the expansion of the Zhenhai refinery, as well as the commissioning of the Yulong and Guandong petrochemical and Shenghong petrochemical complexes. China alone could add more than 2 million barrels a day over the next two years, according to some analyst estimates.

Elsewhere, the 400,000 b / d refineries of Jazan, Al-Zour and 230,000 b / d of Duqm in the Middle East and the 650,000 b / d refinery of Dangote in Africa are expected to be commissioned in the next two years.

Usage challenge

“Refiners who have braved the impact of the pandemic so far by slashing execution rates and shutting down parts of their sites will eventually have to decide whether or not they can resume normal operations,” said the IEA in its June Oil Market Report.

With global utilization rates projected to reach “only” 78% of capacity in 2022, there remains a “high probability” of further shutdowns, he said.

Platts Analytics notes that although refinery cycles have increased amid shutdowns, utilization rates are expected to remain low for the foreseeable future, especially in Europe. Indeed, while many stocks of petroleum products have returned to equilibrium, there remains an overabundance of middle distillates because the resumption of transport fuels leads to an uneven recovery marked by a pandemic.

This balancing act will likely continue throughout the decade, with analysts suggesting that more than 7 million barrels per day of refining capacity could be brought into service over the next five years through the Asia-Middle link. Orient, with a particular focus on increasing demand for petrochemicals and putting additional pressure on older and more traditional refineries.

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Felix J. Dixon