Record volumes of refining capacity have been shut down over the past two years, which will lead to tight global fuel markets that will last at least through the middle of this decade. According to a new report by the International Energy Forum (IEF) and S&P Global, we can expect high volatility in fuel markets and fuel prices.
Between 2020 and the middle of 2022, as much as 3.8 million barrels per day (bpd) of gross atmospheric crude distillation capacity closed - a record high number, the report found.
Lower crude distillation capacity and reduced petroleum product exports from Russia and China drove refinery margins to record levels this summer, to a record $35-50 per barrel compared to the typical $10 a barrel, “underscoring the severe bottlenecks in the sector,” said the report from the Riyadh-based IEF and S&P Global.
Going forward, fuel markets are expected to remain tight for years to come as new capacity scheduled to come online will take time to ramp up. More than 2 million bpd in net capacity is scheduled to come online by the end of 2023, but history shows delays and operational challenges could stall progress, the report noted.
Per EIA estimates from last month, the world’s refining capacity is expected to increase by nearly 3 million bpd by the end of next year, when at least nine refinery projects are expected to start up in the Middle East and Asia.
However, refiners are now reluctant to commit to new investment decisions, the IEF/S&P Global report says.
“In the medium term, investment in new refining capacity is expected to be muted by forecasts that show global petroleum demand plateauing as electric vehicles replace combustion engines,” the report said.
High refining margins, which have spurred investments in new capacity in the past, are not leading to a renewed splurge on new refineries now, according to the IEF and S&P Global.
“The expectation that the energy transition could make refineries stranded assets has deterred investment. The last major greenfield fuel refineries are likely FID’d and will come onstream in the next few years,” the authors of the report wrote.
By Tsvetana Paraskova for Oilprice.com
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