September 2017

Trends and Resources

Business Trends: The state of the global refining sector

Over the past few years, the world has witnessed significant downstream capacity growth in all sectors of the hydrocarbon processing industry (HPI).

Nichols, Lee, Hydrocarbon Processing Staff

Over the past few years, the world has witnessed significant downstream capacity growth in all sectors of the hydrocarbon processing industry (HPI). The majority of this growth has taken place in Asia-Pacific, the Middle East and the US. These three regions will continue to invest billions of dollars to increase refined products and petrochemical production capacity into the early 2020s.

Within the refining sector, three major trends have been advancing:

  • The production of higher-quality, lower-sulfur transportation fuels
  • An increase in the integration of refining and petrochemical operations
  • Investments to increase energy efficiency and crude oil processing flexibility.

To adhere to increasing government regulations on emissions and airborne pollutants, refiners around the world have invested, and will continue to invest heavily in the production of low-sulfur transportation fuels. These investments will enable production of high-quality fuels that meet Euro 4, Euro 5 and Euro 6 specifications. These standards promote the reduction of carbon monoxide, nitrogen oxide, hydrocarbons, particulate matter and sulfur in transportation fuels. Some of the major policies governing the mandatory decrease in emissions and the allowable amount of sulfur in fuels include Tier 3 fuel regulations in the US and Canada, National 5 and National 6 in China, Bharat Stage 6 (BS-6) in India, and capital-intensive clean-fuels projects in the Middle East.

The low-sulfur push has moved into the global shipping sector, as well. In October 2016, the International Maritime Organization (IMO) announced that it will implement its Global Sulfur Cap beginning in 2020. The new regulation calls for a decrease of sulfur in marine fuels from 3.5% to 0.5%. This regulation will have a dramatic effect on both the shipping and refining industries.

Whether through expansions or grassroots facilities, many nations are focusing on integrating their refining and petrochemical operations. These multibillion-dollar investments enable each facility to share feedstocks. The majority of this construction will occur in the Asia-Pacific and Middle East regions. Some of the major grassroots refining and petrochemical integration projects include:

  • Dangote Industries Ltd.’s $9-B complex in Nigeria
  • The $10-B Norinco-Saudi Aramco complex, the $25-B Zhejiang Petrochemical complex, the $9-B Sinopec Zhanjiang project and the $24-B Rongsheng Petrochemical complex on Zhoushan Island
  • Indian Oil Corp., Hindustan Petroleum Corp. Ltd. and Bharat Petroleum Corp. Ltd.’s $40-B, 60-MMtpy refining and petrochemical complex on India’s west coast
  • Petronas’ $27-B Refinery and Petrochemical Integrated Development (RAPID) inMalaysia
  • S-Oil’s $4.5-B Residue Upgrading and Olefin Downstream Complex in South Korea
  • The $7.5-B Nghi Son and $5.4-B integrated projects in Vietnam
  • Far East Petrochemical Co.’s $13-B integrated complex in Russia’s far east
  • The $16-B Al-Zour refinery and $8-B Olefins III-Aromatics II project in Kuwait
  • The $6-B Duqm Refinery and Petrochemicals project in Oman.

Many other refinery projects around the world are focused on upgrading crude oil processing flexibility. In regions such as South America, the refining network is not equipped to handle heavy, sour crude oil that is produced domestically. This oil is usually exported to more advanced refining centers, such as the US, for processing. Many refiners around the world have announced upgrade projects to enable their facilities to process lower-grade crude oil. These projects involve the construction of additional secondary units to convert low-value crudes into high-quality transportation fuels.


According to Hydrocarbon Processing’s Construction Boxscore Database, nearly 220 new downstream capital projects have been announced over the past year. Approximately one-third of these projects are within the refining sector (FIG. 1). The majority of these projects are in the Asia-Pacific region. The region is led by capital-intensive refining projects in China and India, as well as by multiple refinery expansions, upgrades and grassroots facilities in countries such as Indonesia, Vietnam, Thailand and Malaysia, among others.

FIG. 1. New refining project announcements vs. new downstream projects (globally),  July 2016–August 2017. Source: <i>Hydrocarbon Processing’s</i> Construction Boxscore Database.
FIG. 1. New refining project announcements vs. new downstream projects (globally), July 2016–August 2017. Source: Hydrocarbon Processing’s Construction Boxscore Database.

The Boxscore Database is tracking nearly 700 active refining projects around the world. When active refining projects are broken down by activity level, approximately 60% are in preconstruction phases. The breakdown of active refining projects by region is:

  • Africa—39
  • Asia-Pacific—215
  • Canada—19
  • Europe—99
  • Latin America—85
  • Middle East—180
  • US—61.

The Asia-Pacific region continues to dominate in total refining projects, followed by the Middle East. Asia-Pacific is developing additional refining capacity to meet a forecast rise in refined fuels demand, especially in developing countries. The Middle East is making substantial investments in diversifying its economy away from crude oil exports and developing its downstream product offerings. The Asia-Pacific and Middle East regions will be instrumental in adding 4.5 MMbpd of new refining capacity by the early 2020s.


Over the past decade, Africa’s oil demand has increased by more than 1 MMbpd to 3.93 MMbpd, according to BP’s Statistical Review of World Energy 2017. The region’s oil production is more than double its consumption, but the lack of investment, failing infrastructure and inadequate refining capacity forces the continent to rely on imports to satisfy increasing fuel demand. Most African refineries operate well below capacity, and the majority of new refining investments rarely progress beyond the initial concept stage. As a result, refined products imports have been increasing for years. This trend is likely to continue in the near term.

The increases in refined product demand and new oil discoveries have been catalysts for grassroots refinery project announcements, as well as expansions and upgrades to existing units. However, the continent still struggles to expand its domestic refining capacity. The region is well-positioned to enlarge its refining market, but many African nations would rather import refined fuels than invest in capital-intensive capacity additions.

This trend does not mean that the region is void of refining projects. Multiple nations have directed capital to expand and upgrade processing units, as well as to build grassroots facilities. These projects include Algeria’s rehabilitation program, Egypt’s $8-B refinery modernization program and the completion of the Mostorod refinery, Dangote Industries Ltd.’s $9-B integrated complex in Nigeria and Angola’s Namibe project in Giraul de Baixo.


The region, led by China and India, will add more than 3 MMbpd of new refining capacity by the early 2020s. More than half of the region’s new refining capacity will be in China. However, the country’s demand for fuels is softening, and China now suffers from a supply glut of refined fuels. This trend has been exacerbated by increasing production from the nation’s teapot refineries. With the ability to import more foreign crude supplies, China’s teapots have boosted run rates and are challenging the large, state-owned refiners for domestic market share. The nation is still investing in new refining capacity, as well as upgrades to its existing network to adhere to new clean-fuels regulations (i.e., National 5 and National 6). In total, China is forecast to add 1.7 MMbpd of new refining capacity by the early 2020s.

Due to a growing population, a rising middle class and the country’s “Make in India” program, India’s demand for refined products is forecast to surge in the near term. The country’s refiners are making substantial investments to boost refining capacity from 4.6 MMbpd to 6.2 MMbpd by the early 2020s, as well as upgrade their fuel quality to adhere to BS-6 regulations, which will be enforced in 2020.

Both public and private Indian refiners are planning, or have already commenced, major refinery expansions, upgrades and/or grassroots facilities. Companies such as BPCL, Chennai Petroleum Corp. Ltd., HPCL, IOC and Reliance Industries Ltd. plan to invest more than $40 B in refining projects through the mid-2020s. These investments could be even higher should IOC, HPCL and BPCL build their $40-B refining and petrochemical integrated complex on the country’s west coast.

A portion of India’s refining investments will go toward upgrades to adhere to new fuel regulations. Indian refiners are expected to spend approximately $5 B to upgrade their facilities to produce BS-6 fuels. This type of fuel is comparable to Euro 6-specifications. The move toward clean-burning, ultra-low-sulfur fuels is the country’s initiative to curb air pollution, especially in large cities such as Mumbai and New Delhi.

Other Asia-Pacific nations are investing in additional refining capacity to satisfy domestic demand. These investments include grassroots and expansion/upgrade refining projects in Vietnam, Indonesia, Malaysia, Thailand, Bangladesh and Cambodia.


The country’s oil production is primarily heavy oil produced in the country’s oil sands region. Canada’s domestic refineries are not configured to process this heavy oil. The majority of Canadian heavy crude is sent to the US refining market for processing. However, Canada is adding refining capacity to process domestically produced oil.

The country has three major active refining projects, but only one is under construction. The $8.5-B North West Redwater Partnership’s Sturgeon refinery will be the first refinery built in Canada in nearly 30 yr. The refinery will convert diluted bitumen into ultra-low-sulfur diesel (ULSD) and other high-value products. The project’s first phase will have a capacity of 80 Mbpd and is scheduled to begin commercial operations in 2018.

Two other projects could add 600 Mbpd of new refining capacity. These projects include the $22-B, 400-Mbpd Kitimat Clean and $12-B–$14-B Pacific Future Energy refineries. Both projects are progressing slowly and, if built, are unlikely to begin operations before 2020.


The overwhelming majority of the region’s CAPEX will be invested in Eastern Europe, Russia and the Commonwealth of Independent States (CIS). These investments stems from Russia’s $55-B modernization program, and upgrades and grassroots projects in countries such as Azerbaijan (e.g., the $1-B Heydar Aliyev refinery project), Kazakhstan (e.g., the $6-B refining expansion/upgrade program) and Uzbekistan (e.g., the $2.2-B Jizzakh grassroots facility).

As sulfur restrictions in transportation fuels increased globally, Russia found that its refining network lacked the advanced facilities to produce higher-quality fuels. This predicament spurred the launch of the nation’s modernization program in 2011. Since the country is self-sufficient in refined fuels, Russia’s modernization program focuses on upgrading and conversion capacity, as opposed to expanding crude distillation capacity. The country is near the end of its modernization program, but multiple projects are ongoing. These projects are located at the Afipsky, Moscow, Taneko, Novokuibyshev, Tuapse and Omsk refineries.

In Western Europe, most refining investments focus on the installation or expansion of secondary units to adhere to EU fuel quality requirements or coming IMO sulfur regulations.

Latin America

Although the region’s crude oil consumption has declined since 2014, Latin America’s crude oil demand is forecast to increase through the end of the decade. However, the drop in crude oil prices severely affected many of the nation’s refiners. The region needs additional refining capacity to satisfy refined products demand, but Latin American refiners lack the finances to fund much-needed capacity additions. Most forecasts show that the region will be short on gasoline and diesel production through the rest of the decade. In the near term, most nations in the region will import refined fuels rather than invest in capital-intensive capacity expansions and/or grassroots facilities.

Despite the lack of funds to make sizable refining additions, the region is not void of capital-intensive projects. Brazil, with financing help from China National Petroleum Corp., will try to complete the Comperj refinery project; Jamaica’s Petrojam will invest $1 B to upgrade its Kingston refinery; Mexico is seeking partners on its $23-B domestic refining upgrade program; and Venezuela is investing nearly $9 B to modernize its Puerto la Cruz refinery.

Middle East

The Boxscore Database is tracking nearly 400 active downstream projects in the region. Approximately 51% of the region’s downstream projects are in the refining sector. Saudi Arabia and Kuwait will be the leaders in refining capacity additions through the end of the decade. Since 2014, Saudi Arabia has started operations on 800 Mbpd of new refining capacity. The nation will add 400 Mbpd after the $7-B Jazan refinery goes online in 2018. Saudi Arabia is also making substantial investments in its clean fuels program.

With the completion of the $17-B Clean Fuels Project and the $16-B Al-Zour refinery, Kuwait will add nearly 680 Mbpd of refining capacity by 2020. These two projects will propel the country to the forefront of the region’s clean fuels production.

Other nations are investing heavily in refining capacity, as well. Some of the region’s capital-intensive projects include:

  • Bahrain—Bahrain Petroleum Co. is progressing with its $5-B Sitra refinery expansion.
  • Iran—Iran is investing heavily to boost refining capacity from 1.9 MMbpd in 2016 to 3.2 MMbpd by 2020. This ambitious goal is being accomplished by the construction of multiple facilities (Table 1).
    In total, this refinery buildout will cost more than $20 B. The country is also seeking approximately $14 B in investments to upgrade its refining network to produce high-quality, lower-sulfur fuels. This program focuses on upgrading the Esfahan, Tabriz, Tehran, Bandar Abbas and Abadan refineries.
  • Oman—The $6-B Duqm complex will consist of a 230-Mbpd refinery and petrochemicals facility.
  • United Arab Emirates—Abu Dhabi National Oil Co. is investing $1 B to expand its Jebel Ali refinery.
  • Pakistan—The Pak-Arab Oil Refinery is investing $5 B to build the 250-Mbpd Khalifa Coastal Oil refinery. Grace Refinery Ltd. plans to invest $5 B in a 220-Mbpd refinery in Pakistan’s Punjab province.
  • Turkey—SOCAR Turkey will begin operations at its $6-B, 10-MMtpy SOCAR Turkey Aegean Refinery in 1Q 2018.


The major trends in new US refining capacity include processing the wave of lighter crudes produced from US shale plays, as well as adhering to Tier 3 fuel regulations. In total, the US is expected to add between 450 Mbpd and 600 Mbpd of new refining capacity by the early 2020s.

These capacity additions will require the investment of billions of dollars. The investments include new grassroots facilities, expansions and upgrades, and the construction and expansion of new secondary units. HP

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