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The inventiveness and reactivity of the global refining industry
has been sorely tested by COVID-19. Already in a state of flux from
the January 2020 International Maritime Organization (IMO)
specification change, refiners in all world regions have been
forced to reduce output and reconfigure yields to meet unexpected
demand changes. As markets begin to find a new balance, refiners
will be tasked with not just redesigning production profiles in the
medium term, but weighing investments to selectively future-proof
assets for the longer term in an inhospitable investment
environment.
IHS Markit's forecast for 2020 refined product supply projects a
drop of about 10.8 million barrels per day (Mmb/d), a decline of
approximately 12% compared to 2019. Recovery will be slow, and
existing refineries will be under pressure not just from muted
demand growth, but increasing world capacity. Some 5.7 Mmb/d will
come on line by 2025, even accounting for project delays and
cancellations, estimated at about 1.6 Mmb/d.
Longer term, in a post-Covid environment, opposing forces will
be region-dependent. In regions with clear energy transition goals,
decarbonization will not only usher in peak demand, but heighten
environmental pressures on the refining production process itself.
Other regions, notably parts of Asia and the Middle East, will be
under pressure to find new, cost-effective ways of supplying
naphtha for petrochemical feedstocks at scale - something older
fuels-oriented refineries will struggle to deliver. With an
additional 7.9 Mmb/d in capacity needs still to be determined,
overall capex requirements remain in excess of US$ 350 billion.
REDUCE: Energy transition and COVID-19 act as an
accelerator of inevitable rationalization
The European refining industry is structurally challenged by
imbalances in product yield and demand, high crude-import cost
structures, labor and fixed costs, and high fuel costs relative to
competitors. IHS Markit's post-Covid outlook for European refining
is for some 1.8 Mmb/d in runs reductions through 2025 compared with
2019. This shift equals about half of the total reductions expected
to 2050, similar in magnitude to the losses seen in the five years
following the 2008 financial and economic crisis. The US is seeing
rationalization linked to the shifts in supply costs due to the
lifting of the crude oil export ban. Other shifts are occurring due
to the COVID-19 reduction in demand. And more moderate runs are
expected in export refineries in South Korea, Taiwan, and Singapore
due to competition from newer, lower cash-cost export
refineries.
REPURPOSE: Biofuels and hydrogen pathways present new
opportunities for existing sites
Europe and select US states stand out in their ambition to
reconfigure energy supply and demand toward net-zero carbon
emissions. These policies call for increased fuel efficiency, a
reduction in the carbon content of liquid fuels, and alternatives
to fossil fuel use in the heavily oil-dependent transportation
sector. The refining industry is already seeking ways to adapt to a
low-carbon future by pursuing:
Bio-feedstocks, co-processing of wastes and residues or
agricultural sources
Local renewable electricity and carbon capture use and storage
(CCUS) technologies
Creation of green hydrogen hubs for provision of low-carbon
fuel
Closer integration with local industry, including
petrochemicals
This transitional model began to take shape in the wake of the
2009 financial crisis with a series of refinery conversions, where
existing sites and equipment were repurposed to focus entirely on
biofuels (see Figure 1). Now six US refineries are moving to
renewable diesel or sustainable aviation fuel (SAF), joining many
others now adapting plants for co-processing of biofeedstocks
alongside fossil fuels.
REINVENT: The refinery of the future will prioritize
petrochemicals Companies battling the effects of pandemic
lockdowns on oil demand face increased capex pressures and a far
less certain future investment outlook. IHS Markit expects a "plant
and prune" cycle of activity - preparing for new supply growth
while cutting back the old - to continue through 2050. Rising
demand for petrochemicals will more than double petrochemicals
feedstocks demand by 2050. In response, the refining system must
reconfigure to balance fuels trade with increased petrochemical
feedstock production.
The sheer magnitude of new petrochemicals demand supports the
addition of large-scale production units, but traditional
refinery-plus-steam-cracker configurations are not the answer.
R&D efforts are now focusing on the most efficient path from
crude to chemicals, both in new plants and existing facilities. IHS
Markit's upcoming Refining and Petrochemicals Integration Study
examines how refiners can turn to growing petrochemical demand to
help their businesses survive and thrive using a combination of
strategies:
Debottlenecking and increased naphtha feedstocks production by
adjusting parameters in hydrocrackers and fluid catalytic crackers
to target naphthas over distillates
Shift in existing integrated facilities to favor petrochemical
products over conventional refined fuels
Optimization of yields in new builds to favor petrochemicals to
around 30%, compared to ~10% in older refineries
Development of technology to allow for more direct
crude-to-chemicals paths, either via new builds with reinvented
configurations or new technologies at existing refineries
Feasibility analysis on future refinery investment should also
look closely at the potential benefits of co-investment in
integrated petrochemicals and, in certain markets, biofuels. The
ability to switch between products is critical, and flexibility to
cater to both fuels and chemicals production can provide a
competitive edge. The downstream refining industry has weathered
many storms but has also been shaped by them. The industry will
endure this challenge as well. It must, for oil products will be
needed for a long time, even in the greenest of scenarios. However,
the industry will reduce, repurpose, and reinvent to accommodate
climate goals as well as consumer and feedstock demand.
Figure 2 example of modeled yield shifts to reach naphtha
production required by 2050 to meet petrochemical feedstocks
demand. In this example, current country-level current
petrochemical naphtha yield stands at 8%, or 250,000 b/d of
production. Three pathways are selected to obtain a final yield of
19% (910,000 b/d) in 2050.
Base yield optimization: Assumes increase/decrease in crude
throughputs (typically via debottlenecking), achieving an 8% yield
and additional production of ~10,000 b/d
HCK route: Addition of refinery with hydrocracker-type
(HCK) configuration, with estimated yield of 37% for a total
production increase of ~360,000 b/d
RFCC route: Addition of refinery with residual fluid
catalytic cracker-type (RFCC) configuration, with estimated yield
of 45% and production increase of ~290,000 b/d
Final configuration: Sum of base yield optimization and
addition of units allows for a final naphtha yield of ~19%, with
final production at ~910,000 b/d
Posted 07 September 2020 by Louise Vertz, Executive Director, IHS Markit and
Sandeep Sayal, Vice President, Oil markets and Downstream Refining
