Asia’s Planned Refinery Projects Pose Threat to Disadvantaged European Refiners

Major refineries planned to come online over the next four years, primarily new facilities in Asia, could lead to overcapacity pressures on the global refining industry and accelerate deterioration of the European refining sector, says research and consulting firm GlobalData.

According to the company’s latest report*, the slate of planned refining capacity expansions globally would bring the total Crude Distillation Unit (CDU) capacity to 100 million barrels per day (mmbd) by 2016, reaching nearly 115 mmbd by 2019. Refinery construction is particularly booming in Asia, with the region boasting 35 of the 91 currently-planned facilities.

China underpins this growth in the region, with almost $30 billion in capital expenditure alone between Sinopec and PetroChina for three new refineries, adding over 1 mmbd of CDU capacity.

Matthew Jurecky, GlobalData’s Head of Oil & Gas Research and Consulting, says: “China is planning infrastructure to support anticipated product demand into the new decade. There is a repositioning of global refinery capacity around Asia, which will pull away as the global leader in refining.”

If all planned projects are completed, Jurecky states that Asia would represent 35% of the world’s CDU capacity by the end of the decade with 40.2 mmbd of capacity, up from 29.6 mmbd in 2010.

GlobalData’s report adds that less efficient refineries will make way for newer facilities, while more speculative projects are likely to be scaled back in capacity, with delays or cancellations possible.

Jurecky says: “While projects will undoubtedly stall or be cancelled, the refining industry will still struggle, with new capacity mounting pressure on disadvantaged refineries, many of which are in Europe. Closures and capacity reductions at unprofitable refineries will ultimately occur to rebalance the market.

“European refiners have been strategic in extending operations for as long as possible. However, many of the planned refineries are backed by large national oil companies interested in playing a bigger role in the downstream sector, and market share will ultimately have to be ceded by the least profitable operations.”