Contents

Introduction

Business News Americas' previous Intelligence Series report on the refining industry, in May 2013, presented a scenario of strong refinery growth in Asia (especially China), the Middle East and the United States. Europe was projected to continue losing capacity as operations shut down, while Latin America was set to add a small amount of capacity. In general terms, the outlook today is similar.

The International Energy Agency's (IEA) 2014 Medium Term Market Report anticipates some 8 million barrels per day (Mbpd) of additional global crude distillation capacity over the next five years, with 95% of this capacity coming from non-OECD nations. China is expected to account for around 30% of this total, followed by the Middle East with 26%. The rest of projected additional capacity is distributed among other-Asia with 19%, Latin America 11% and the United States 5%.

Global refinery expansion plans have in fact been scaled back by some 2 Mbpd in the last year due to fears of rising over-capacity. China has led this trend, though some Latin American countries have also seen slow development.

The impact of the US hydrocarbons boom is just beginning to be felt, and its potential effects cannot be underestimated. Not only is the North American country the only OECD member that will add refining capacity in the short term, with the IEA estimating additions of just over 750,000 barrels per day (Kbpd) through 2017, but its ability to take advantage of cheap natural gas supplies, and a glut of crude, to fuel the industry has allowed its refineries to make some of the highest margins in the world. As a result, refiners in the US have run at close to 100% over the last decade.

Meanwhile, global refinery utilization rates have suffered. While the rest of the OECD (not including the US) has shed some 4.5 Mbpd in refining capacity since 2008, the IEA estimates that another 4.8 Mbpd needs to be cut in one way or another, either through closures, cancellations or other forms of delay, for utilization rates to return to 2006-2008 levels, when it believes global margins were healthy. Today, global utilization rates are just under 80%.

Figure: China Leads in New Capacity
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