September 2017

Columns

Editorial Comment: Is the refining market oversupplied, or is the capacity needed?

Over the past two years, the editorial comment in our September issue has focused on the topic of overcapacity in the global refining sector.

Nichols, Lee, Hydrocarbon Processing Staff

Over the past two years, the editorial comment in our September issue has focused on the topic of overcapacity in the global refining sector.

As we look to 2020 and beyond, the refining industry still appears to be headed toward that future. Depending on the forecast consulted, global oil demand is expected to increase to 99 MMbpd–101 MMbpd by 2021. Within that same timeframe, global refining capacity should increase by approximately 7 MMbpd, to 104 MMbpd.

The majority of this new capacity is being built in the Asia-Pacific and Middle East regions. The bulk amount will be focused on secondary unit conversions and construction—a trend that will also be seen in Russia. The majority of the new secondary unit capacity will focus on desulfurization to adhere to global requirements for low-sulfur and ultra-low-sulfur transportation fuels.

As the global fuel market is oversupplied at present, the question remains: Will all of the announced new refining capacity be built? The Boxscore Database is tracking nearly 700 refining projects around the world (FIG. 1).

FIG. 1. Total active refining projects by region, August 2017. Source: <i>Hydrocarbon Processing’s</i> Construction Boxscore Database.
FIG. 1. Total active refining projects by region, August 2017. Source: Hydrocarbon Processing’s Construction Boxscore Database.

It is very likely that the majority of the secondary units will be built. With dozens of nations enacting new regulations on emissions and sulfur content in transportation fuels, along with the coming IMO 2020 sulfur cap on marine fuels, additional secondary units will be needed to help meet these new fuel requirements.

With regard to new distillation capacity, it appears likely that the majority will be built, but on a longer timeline than previously announced. A significant volume of new distillation capacity has been announced in the Asia-Pacific region. For example, China accounts for nearly 2 MMbpd of the new refining capacity that is forecast to come online by 2022. However, due to the oversupply situation, many of China’s refinery construction plans have been delayed or abandoned, and it is likely that some of the announced capacity additions may meet the same fate. Other Asian nations are forecast to add approximately 1.5 MMbpd of new distillation capacity, although market behaviors and funding issues may delay the implementation of those plans beyond their original target dates. HP

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