The global refining industry faces a wave of new capacity additions to 2024 that would greatly exceed demand growth for refined products, and this may result in refinery closures to rebalance the market, the International Energy Agency (IEA) said in its Oil 2019 annual report on Monday.
Refiners around the world are expected to add 9 million bpd of new capacity through 2024, the Paris-based agency said in its report, noting that China is expected to overtake the United States as the world's leader in installed refining capacity.
"Given that these new additions far exceed the increase in demand for refined products, plant closures might be necessary to rebalance the market, though questions remain as to where and when that will happen," the IEA noted.
In its monthly Oil Market Report in January this year, the IEA said refiners face a challenging year in 2019, with processing capacity set to increase by 2.6 million bpd, the biggest growth in four decades, "while margins are already pressured by low gasoline cracks due to oversupply and weak demand."
Apart from a surge in planned refinery capacity, the downstream sector globally is on the cusp of "one of the biggest shakeups ever," the IEA said, referring to the new sulfur content regulations by the International Maritime Organization (IMO) as of January 1, 2020.
The IEA estimates in today's report that demand for high sulfur fuel oil (HSFO), the main vessel fuel since the 1960s, will plunge to 1.4 million bpd from 3.5 million bpd in just one year, and that there will be 4,000 scrubbers installed on large vessels by the end of 2020, consuming 700,000 bpd of fuel oil.
Related: Onboard Hydrogen: Is This The Future Of Zero Emission Vehicles?
The drop in fuel oil demand and the rise of petrochemicals over the next few years will benefit the U.S. oil producers whose typical crude products are lighter, the IEA said.
"[T]he average global product barrel is getting lighter as fuel oil demand falls and petrochemicals grow in importance," according to the IEA.
"As a result, the United States will be in prime position as a supplier of light types of crude oil that are in growing demand. Shale oil will also help meet the new IMO requirements and provide the quantities of naphtha required for the petrochemicals industry," the agency said.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More
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