September 2015

Columns

HP Editorial Comment: Is the global refining sector growing toward overcapacity?

The global refining sector has been a bright spot for the oil and gas industry for nearly a year.

Nichols, Lee, Hydrocarbon Processing Staff

The global refining sector has been a bright spot for the oil and gas industry for nearly a year. Refining margins have reached levels not seen in years due to low crude oil prices and rising consumption. Refinery utilization rates have eclipsed 90% for many nations, and new refined product trade flows are emerging.

Total global refining capacity sits at roughly 96 MMbpd. By the end of the decade, an additional 5 MMbpd–6 MMbpd of new refining capacity will begin operations. Hydrocarbon Processing’s Construction Boxscore Database is tracking nearly 800 active refining projects around the world (Fig. 1). This equates to over $550 B in total capital expenditures. When broken down by status, 60% of these projects are in the pre-construction phase (Fig. 2).

 
  Fig. 1. Total active refining
  projects by region. Source:
  Hydrocarbon Processing
 
Construction Boxscore
  Database 

 
  Fig. 2. Breakdown of 2015
  refining projects by activity
  level. Source: Hydrocarbon
  Processing
Construction
  Boxscore Database

The vast majority of this new capacity will go online in non-OECD nations. Of that, countries in non-OECD Asia will account for most of the new refining capacity by 2020. This is followed by the Middle East. The good news is the refining industry is growing. The bad news is refining capacity is growing toward overcapacity.

The IEA has forecast that oil demand is set to increase from approximately 93 MMbpd in 2014 to over 99 MMbpd by 2020. With global refining capacity building toward 102 MMbpd by 2020, the global refining industry may soon be oversupplied with capacity (Fig. 3). This could add pressure to future refining margins, which could ultimately lead to lower utilization rates and new project builds being delayed or put on hold. Regardless, the industry will adjust, just like it has over the past decades.

 
  Fig. 3. Global oil demand vs.
  refinery capacity builds
  (2014–2020). Source: IEA.

The refining sector continues to build to meet demand for refined fuels. New technologies are moving the industry toward cleaner, lower-sulfur fuels for transportation, and the scenario of low oil prices and high demand has boosted refining margins. Light and middle distillate demand will continue to rise through 2020, and the global refining industry is investing hundreds of billions of dollars in new capacity to meet this challenge.

It is a dynamic time in the global refining industry as product markets continue to expand and new regions emerge as refined product exporters. The industry is growing and will see continued growth through the end of the decade. HP

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