Consultancy KBC predicts global refining margins under pressure through 2015
Energy consultancy KBC Advanced Technologies foresees global refining margins continuing under pressure as recovering global demand is met by a wave of new refining capacity construction, keeping global refining utilisation rates at around 85% of nameplate capacity at least through 2015.
In its 2011 Outlook for the World Refining Industry, KBC examines the key pressures that face refiners, including declining demand in mature economies, tightening global standards for marine fuel quality, increased taxation and regulation of carbon dioxide emissions and competition from biofuels, natural gas liquids (NGLs) and from export-oriented refining countries like India, Russia and Brazil.
In the Americas, major investment in a number of Latin American countries, coupled with increased distillate production capability in US Gulf refineries, will lead to a rise in the export of finished products to Europe and Africa. Brazil alone is set to add over 1.2 mn bpd of new refining capacity by 2020 as it aims to process most of its expanding crude oil production domestically and to export the products.
In Asia, KBC sees both China and India continuing to add refining capacity. China is expected to build new capacity in line with its surging domestic demand for transport fuels and petrochemical feedstock, driving global demand for crude oil while still having only a limited impact on product markets. India’s refiners – both public sector and private – continue to advance plans that will keep the country in strong surplus, eagerly eyeing export markets in other Asian countries and further abroad.
Middle Eastern refiners are also expected to add refining capacity above their domestic requirements, with 1.6mn bpd of firm new capacity expected by 2016 in Saudi Arabia and the UAE and more than 1mn further bpd of potential capacity to be built elsewhere on the Arabian Peninsula. Iran and Iraq both continue to plan significant new additions as well, though geopolitical realities suggest no clear timeline for these additions.
Surplus output from Middle Eastern refineries will compete with Asian products for markets in Asia and Europe, making operational efficiency, freight costs and crude oil pricing key parameters in a highly competitive market.
European refiners face rising clean fuels import competition from the Americas, Asia and Russia. KBC anticipates a significant wave of Russian refining upgrading investment driven by recent reforms in Russia’s export tariff structure. These upgrades could see Russia’s exports swing from relatively low quality intermediates like vacuum gasoil and M-100 fuel oil to higher quality finished products that meet European standards.
With declining export markets for surplus gasoline, a functioning carbon market from 2013 and a swing to distillate bunker fuels in the North Sea / Baltic corridor, Europe’s refiners face the greatest pressure in the global scenario. But unlike some more bearish analysts, KBC anticipates only limited future closures, instead anticipating a prolonged period of relatively low utilisation rates.
With over 2mn bpd of refining capacity earmarked for closure and around 8mn bpd announced for sale or sold since 2009, the refining industry faces an anxious period of transition over the next five years, with new entrants attempting to profit where experienced operators have chosen to exit.
KBC sounds a note of caution in this year’s annual refining outlook – undoubtedly the refining market is better now than it was a year ago, but this is not necessarily an upward trend. Refining will remain a tough business over the next few years.
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