September 2016

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Editorial Comment: Refining overcapacity—will the trend continue?

In September 2015, the Editorial Comment centered on the theme of overcapacity.

Nichols, Lee, Hydrocarbon Processing Staff

In September 2015, the Editorial Comment centered on the theme of overcapacity. At the time, the refining industry was building toward a surplus of refining capacity. Global refining capacity was roughly 96 MMbpd, with forecasts showing an additional 5 MMbpd–6 MMbpd of new refining capacity due to start operations by the end of the decade. In 2015, the IEA forecast oil demand to increase to more than 99 MMbpd by 2020. With global refining capacity forecast to reach 102 MMbpd by 2020, the global refining industry was headed toward overcapacity.

Fast-forward one year later, and we are seeing many of the same trends. According to the IEA, global oil demand is forecast to increase to 95.6 MMbpd in 2016. This demand forecast represents a year-over-year increase of more than 1 MM­bpd. In 2017, global oil demand is forecast to increase by an additional 1.3 MMbpd. This increase is primarily due to the drop in oil prices, which has spurred consumption rates around the globe.

At present, global refining capacity sits at just over 97 MMbpd, and capacity is expected to increase substantially over the next 5–6 years. Hydrocarbon Processing’s Construction Boxscore Database is tracking nearly 770 active refining projects around the world. When broken down by status, over 60% of these projects are in the pre-construction phase (FIG. 1). The Asia-Pacific region is still the leader in total active refining projects, followed by the Middle East. These two regions represent half of all active refining projects globally (FIG. 2). In total, the world could add 8 MMbpd by the early 2020s. The majority of this capacity will go online in non-OECD Asia, primarily in China and India, and the Middle East.

FIG. 1. Breakdown of 2016 refining projects by activity level. Source: <i>Hydrocarbon Processing’s</i> Construction Boxscore Database.
FIG. 1. Breakdown of 2016 refining projects by activity level. Source: Hydrocarbon Processing’s Construction Boxscore Database.
FIG. 2. Total active refining projects by region, September 2016. Source: <i>Hydrocarbon Processing’s</i> Construction Boxscore Database.
FIG. 2. Total active refining projects by region, September 2016. Source: Hydrocarbon Processing’s Construction Boxscore Database.

However, the industry’s surge in refining capacity has started to taper off. Since September of last year, new refining project announcements are down by more than 20%. This retraction is due to the refining industry reacting to an oversupplied market. Numerous refining projects have been delayed or canceled, especially for grassroots installations. HP

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