Changing refinery landscape - a boost for tankers

Sep 27 2019


Over the next five years, the global refinery landscape will continue to evolve, which could give a boost to the tanker sector in tonne/mile terms.

The IEA has projected that over 9 mill barrels per day of new capacity will be added, roughly twice the level of refined products demand growth over the same time period, Gibson Shipbrokers said in an analysis.

 

With over two thirds of new capacity being added East of Suez, pressure will grow on older, less complex refineries, many of which are located in Europe.

 

Structural changes in global oil products demand and crude supply will also significantly impact on refining margins and arbitrage, not just in Europe, but globally. In the short term, less complex refineries may lag behind, as new regulations come into play, particularly those that lack the ability to upgrade or desulfurise fuel oil.

 

Some may turn to lower sulfur crudes although price premiums for these grades are likely to rise, impacting upon margins.

 

However, as the refining landscape re-calibrates post 2020, other structural changes will come into play. Gasoline exports have proved a key source of profitability for European refineries. However, demand growth is expected to slow in the Atlantic Basin, whilst the potential start-up of Aliko Dangote’s Lekki refinery also threatens to starve off a key outlet for European gasoline.

 

Ultimately, many of the older and less complex refineries in Europe will come under increased regulatory and competitive pressure over the next five years, having to deal with IMO2020 and then fight off competition from newer, more efficient plants, located either close to major demand centres, or close to key sources of feedstock supply.

 

This of course is a generalisation, Gibson said, as many plants in Europe have invested in cokers, hydrocrackers and solvent de-asphalting units to aid the production of higher quality fuels, whilst there will still be significant exports and regional demand for European products.

 

Nevertheless, newer/more efficient plants in the US, Asia and the Middle East will pressure European refinery runs lower by 2024, with the IEA forecasting a 900,000 barrels per day decline. Even if global oil products demand increases, there is still likely to be excess refining capacity.

 

Changes in the European refining scene will also impact crude trade flows at a time when North Sea crude production is expected to rise. By 2024, Europe is expected to see its crude production increase by 440,000 barrels per day. However, with refinery utilisation projected to fall, crude exports from the region look set to increase. Imports into the region are also expected to ease back, boosting the overall crude surplus in the Atlantic basin.

 

With the majority new refining capacity being added in the East, shipowners stand to gain from stronger tonne/mile demand growth, although shorter and medium haul trading opportunities may well diminish, Gibson concluded.

 



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