Global refinery expansion is coming just as product demand struggles, Bank of America Securities (BofA) analysts have warned.
Oil demand this year is likely to fall by around 10 million barrels per day, a note has warned. Several large refineries were due to start up in 2020 but the pandemic has pushed these back.
Refining capacity will increase by 2.1 million bpd in 2021 with nearly 4.5mn bpd more coming in 2022-23. As a result, the “refined product markets [will] remain cut-throat and force another wave of refinery closures”. This year, capacity grew by only 400,000 bpd.
Most of the plants starting up in the 2021-23 period will be complex. Upgrading capacity is expected to grow more than 3mn bpd in the period.
Asian, largely Chinese, and Middle Eastern plants will drive growth. China will add nearly 500,000 bpd of capacity, while Jizan and Al-Zour will provide another 400,000 bpd and 615,000 bpd respectively.
The start up of the 650,000 bpd Dangote refinery, in Nigeria, will singlehandedly boost African refining capacity at an above average pace over the next three years.
Upgrading capacity will be driven by additions in the Middle East, emerging Asia and Africa, with some “notable expansions” in Eastern Europe.
While gasoline struggled in the depths of the pandemic, BofA was bullish on 2021’s outlook. The shift towards road travel, in particular private vehicles over public, should see demand rise nearly 5mn bpd year on year. This will pose challenges in the summer driving season, when jet fuel will still be struggling.
OPEC+ cuts have also had an impact on refining. The largest cuts came from medium and heavy crude. This has reduced the discount for such oils and removed some of the advantage of complex refiners.
Demand and production shifts have levelled the playing field “for simple and complex refiners and open up the possibility of closing capacity that was previously advantaged. The current situation, where all refineries are hurting, may draw out the capacity rationalisation process.”
A number of refineries are under pressure. Gunvor is working on plans to close its Antwerp facility, for instance, while Neste is rethinking some of its operations in Finland.
Total has set out plans to convert its Grandpuits plant to a “zero crude” facility, focused on biofuels and bioplastics. Grandpuits will stop processing oil in the first quarter of 2021.