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MOSCOW (MRC) -- Slumping fuel
consumption during the pandemic is accelerating the long-term shift of refining
capacity from North America and Europe to Asia, and from older, smaller
refineries to modern, higher-capacity mega-refineries, reported Rueters.
The result is a wave of
closures, often centering on refineries that only narrowly survived the previous
closure wave in the years after the recession in 2008/09.
Fuel
consumption has been stagnant or falling across most of North America, Western
Europe and Japan since 2007 as a result of efficiency improvements.
North
American, European and Japanese refineries have been left battling to protect
their share of a declining market, creating downward pressure on
profitability.
The problem of overcapacity has been masked during periods
of strong economic growth but exposed every time the business cycle turns
down.
In contrast to Western Europe, North America and Japan, fuel
consumption has grown rapidly across the rest of Asia over the last
decade.
The region’s three sub-markets in West Asia (centered on the
Gulf), South Asia (centered on India) and East Asia (China) have been
responsible for more than two-thirds of worldwide oil consumption growth since
2009.
Asia has seen sustained growth in its refining capacity to match
the growth in consumption; refineries are typically built near consumption
centers since it is operationally simpler to transport crude than
products.
Asia and the Middle East account for 43% of worldwide refining
capacity, almost exactly matching their 44% share in global oil consumption,
with both shares up from 33% in 1999.
Asia’s refineries are more
competitive because they are nearer growing markets; process large volumes with
better economies of scale; and are equipped with more modern and sophisticated
equipment.
In the 1960s and 1970s, new refineries were built at a minimum
efficient scale of 100,000-250,000 bpd of crude capacity, but refineries
commissioned in the 2000s and 2010s are generally 300,000-400,000 bpd or
more.
New mega-refineries are often built with integrated petrochemicals
units, enabling them to produce a higher share of higher value-added chemicals
as well as lower-value fuels.
As a result, the new mega-refineries can
squeeze a higher share of valuable products from the same crude at lower cost,
outcompeting rivals in North America and Europe.
Facing a shrinking fuel
market at home, North American and European refiners have found it increasingly
difficult to compensate by growing fuel exports profitably.
And as the
average size and complexity of new oil refineries has increased, the oldest,
smallest and least complex refineries have become uneconomic.
The result
is a wave of refinery closures, with jetties, tank farms and pipelines
repurposed to become import terminals.
Most closures have been in North
America and Europe, but smaller, older and fuel-only refineries in other parts
of the world, including in Australia and the Philippines, have also been
hit.
As MRC
informed before, in early November 2020, Royal Dutch Shell announced it was
closing its refinery in Convent, Louisiana, the largest such US facility and
first on the US Gulf Coast to shut down since the coronavirus pandemic
devastated worldwide demand. The shutdown will occur this month after Shell
failed to find a buyer. The refinery is the ninth in North America targeted for
a shutdown or to be idled since the pandemic, which has dealt a heavy blow to
fuel demand globally.
We
remind that Royal Dutch Shell plc. said earlier this month that its
petrochemical complex of several billion dollars in Western Pennsylvania is
about 70% complete and in the process to enter service in the early 2020s. The
plant's costs are estimated to be USD6-USD10 billion, where ethane will be
transformed into plastic feedstock. The facility is equipped to produce 1.5
million metric tons per year (mmty) of ethylene and 1.6 mmty of polyethylene
(PE), two important constituents of plastics.
Ethylene and propylene are
feedstocks for producing PE and polypropylene (PP).
According to MRC's ScanPlast report,
Russia's estimated PE consumption totalled 1,594,510 tonnes in the first nine
months of 2020, up by 1% year on year. Only high denstiy polyethylene (HDPE)
shipments increased. At the same time, PP shipments to the Russian market
reached 880,130 tonnes in the nine months of 2020 (calculated using the formula:
production minus exports plus imports, exluding producers" inventories as of 1
January, 2020). Supply increased exclusively of PP random copolymer. |
