Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
COVID-19 hastens the inevitable energy
transition
2020 was a harsh year for oil markets in general and refiners in
particular. Even during the 2015-19 period, referred to by some as
the "mini-golden age of oil refining", IHS Markit was already
forecasting storm clouds for refiners. US oil demand peaked in 2005
and European demand in 2006, and with oil demand in decline in both
regions another significant round of refinery rationalization was
forecasted.
The COVID-19 pandemic, and associated oil demand crash, even
though most of this is expected to be temporary, has in fact
brought forward this rationalization and accelerated the Energy
Transition.
Oil refiners across the world are facing tough decisions -
whether to Reduce capacity, Repurpose the refinery or Reinvent
themselves.
The future will still be challenging for the refinery sector:
while refined product demand and prices are expected to gradually
recover over the next two years, ongoing refinery capacity
additions East of Suez, and modest product demand growth beyond
2021-22, will depress margins and put further pressure on
refineries, particularly the ones located in regions where oil
demand is already well past its peak.
Figure 1: Global refinery margin outlook
The Great Shakeout has started, more than 2 MMb/d of refinery
capacity closures were announced in 2020, IHS Markit expects around
3.7 MMb/d of total closures between 2020-25, while 5.5 MMb/d of new
refinery capacity is simultaneously being added in other
regions.
Consider a broad portfolio of options in order to
survive and even thrive through Energy Transition
In a context of difficult market conditions for traditional oil
derived fuel markets, refiners are increasingly focusing on energy
transition with the double goal of improving the profitability of
their assets and securing long term operations, looking for
opportunities in new sectors and environmental imperatives.
This challenge is combined and aligned with trying to reduce
greenhouse gas emissions and a move towards carbon neutrality.
Traditional refinery investments are typically aimed at:
1. Enhancement of current refinery operations
2. Increase in biofuel processing and production
3. Include chemical integration
The review of refinery configuration to adapt to the main
drivers of energy transition, encourages the screening of
opportunities to develop chemical production, as chemical demand
continues to grow. Depending on the configuration and size of the
refinery, propylene, C4 streams, aromatic streams as well as
feedstocks such as LPG and naphtha may be available in sufficient
quantity to develop downstream chemical production. The review of
feedstock availability, its current placement and value, as well as
product disposition and pricing, provide the basis for an options
screening evaluation. Fitting into local value chains, by
substituting imports or finding alternative use for relatively
low-value refining streams, can lead to attractive
propositions.
Not all refinery-integrated chemical opportunities are large,
and some do push refiners to venture, for the first time, into a
chemical industry they feel ill at ease with. Hence, higher returns
on investment may be needed as incentives, or collaboration with
partners more familiar with the industry, such as traders to secure
product off-take, or local chemical producers, could help refiners
mitigate their perceived risks of integrating into chemical
production.
In addition, in light of the increasing pressure of energy
transition imperatives and requirements, refiners are looking at
broader options, utilizing their general technical and industrial
skills, their land, utilities and infrastructure to consider:
1. Energy Transition projects, such as CCUS (Carbon Capture
Utilization and Storage), hydrogen, desalination
2. Gas import and supply
3. Plastics recycling
4. Traditional power projects
5. Renewable power including waste to energy
The questions IHS Markit is increasingly being asked by our
clients are:
"What is the best way for my refinery and assets to navigate
the energy transition?"
"How can we increase the petrochemical integration of our
refinery?"
"Do we still want to be in the oil refining business, or do
we want to broaden our horizon?"
For more details on how IHS Markit's consulting teams
are helping our clients solve these downstream Energy Transition
challenges, download our latest case study here:
