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China will take the crown of oil refining held by the United States from the 19th century
(Bloomberg) – Earlier this month, Royal Dutch Shell Plc pulled the plug at its Convent refinery in Louisiana. Unlike many oil refineries closed in recent years, Convent was far from outdated – it’s big enough by US standards and sophisticated enough to turn a wide range of crude oil into high-value fuels. Yet Shell, the world’s third largest oil company, wanted to radically reduce refining capacity and could not find a buyer. When Convent’s 700 workers found out they had no jobs, their counterparts on the other side of the Pacific were starting a new unit at Rongsheng Petrochemical’s giant Zhejiang complex in northeast China. It is only one of at least four projects underway in the country, totaling 1.2 million barrels per day of crude oil processing capacity, equivalent to the entire UK fleet.The Covid crisis has accelerated a seismic shift in global refining sector as demand for plastics and fuels is growing in China and the rest of Asia, where economies are rapidly recovering from the pandemic. Conversely, refineries in the US and Europe are grappling with a deeper economic crisis, as the transition from fossil fuels blurs the long-term outlook for oil demand. America has been at the top of the refining group. since the beginning of the oil era in the mid-nineteenth century, but China will dethrone the United States as early as next year, according to the International Energy Agency. In 1967, the year the Convent opened, the United States had a refining capacity 35 times that of China. The rise of the Chinese refining industry, combined with several new large plants in India and the Middle East, reverberates in the global energy system. Oil exporters sell more crude to Asia and less to long-time customers in North America and Europe. As capacity increases, China’s refineries are becoming a growing force in international markets for gasoline, diesel and other fuels. This is also putting pressure on older plants in other parts of Asia: Shell also announced this month that it will cut the capacity of the refinery Singapore.Ci are parallel with the growing world steel industry dominance in the early part of this century when China built a group of massive and modern mills. Designed to meet growing domestic demand, they have also made China a force in the export market, squeezing higher-cost producers in Europe, North America and other parts of Asia and forcing the closure of older, inefficient plants. “China will put another. Millions of barrels a day or more on the table in the next few years,” Steve Sawyer, director of refining at industrial consultant Facts Global Energy, or FGE, said in an interview. “China will overtake the United States probably in the next one or two years.” Asia on the rise But as capacity increases in China, India and the Middle East, oil demand could take years to fully recover from the damage inflicted by the coronavirus. This will push a few more million barrels per day of refining capacity out of business, as well as a record 1.7 million barrels per day of processing capacity already taken out of service this year. According to the IEA, more than half of these closures occurred in the United States and about two-thirds of European refineries are not earning enough money to produce fuel to cover its costs, said Hedi Grateful, head of research on refining Europe- CSI at IHS Segnalo. Europe still has to reduce its daily processing capacity by a further 1.7 million barrels in five years. “There’s more to come,” Sawyer said, anticipating the closure of another 2 million barrels per day of refining capacity through next year. it has nearly tripled since the turn of the millennium, trying to keep up with the rapid growth in diesel and gasoline consumption. According to China National Petroleum Corp.’s Economics & Technology Research Institute, the country’s crude oil processing capacity is expected to rise to 1 billion tons per year, or 20 million barrels per day, from 17.5 million by 2025. of barrels at the end of this year. India is also increasing its processing capacity from over half to 8 million barrels per day by 2025, including a new 1.2 million barrels per day mega project. The Middle Eastern producers are joining the revelry, building new units with at least two projects for a total of over one million barrels per day which should begin operations next anno.Plastic Driven One of the key factors of the new projects is the growing demand for petrochemicals used to make plastics. According to industrial consultant Wood Mackenzie, more than half of the refining capacity that will go into operation from 2019 to 2027 will be added in Asia and 70-80% of this will be centered on plastics. driven by the region’s relatively rapid economic growth rates and the fact that it is still a net importer of raw materials such as naphtha, ethylene and propylene, as well as liquefied petroleum gas, used to make various types of plastics. The United States is one of the main suppliers of oil and LPG in Asia.Questi massive new and integrated systems make life more difficult for their competitors, who do not have their size, flexibility to switch between fuels and ability to treat flocks dirtier and cheaper. they tend to be relatively small, not very sophisticated, and typically built in the 1960s, according to Alan Gelder, Wood Mackenzie’s vice president of refining and oil markets. It sees excess capacity of approximately 3 million barrels per day. “For them to survive, they will have to export more products as their regional demand decreases, but unfortunately they are not very competitive, which means they will likely close.” Demand trap Global oil consumption is on track to drop by 8.8 million barrels per day this year, with an average of 91.3 million per day, according to the IEA, which predicts less than two thirds of this lost demand will recover next year.Some refineries would have been closed even before the pandemic, like a global Crude oil distillation capacity of around 102 million barrels per day has far exceeded 84 million barrels of demand for refined products in 2019, according to the IEA. The destruction of demand due to Covid-19 has pushed several refineries to the brink. “What was expected would be a long and slow adjustment became a sudden shock,” said Rob Smith, director of IHS Markit. The United States has regulations that push for biofuels. This has encouraged some refineries to reuse their plants for biofuel production, and even China may be ahead of itself. The increases in capacity are outpacing the growth in demand. An oversupply of petroleum products in the country could reach 1.4 million barrels per day in 2025, according to CNPC. Even as new refineries are built, China’s demand growth could peak by 2025 and then slow down as the country begins its long transition to carbon neutrality. “In an environment where the world already has sufficient refining capacity, if you create more in one part of the world, you have to close something in another part of the world to keep the balance,” said Sawyer of FGE. . “This is the kind of environment we are in right now and we will probably be there for at least the next 4-5 years.” For more articles like this, visit bloomberg.com. Sign up now to stay abreast of the most trusted business news source. © 2020 Bloomberg LP
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