(EnergyAsia, August 27 2015, Thursday) — Refiners will face an unbalanced global products market as early as 2017 pitching a gasoline surplus with a deficit in middle distillates and fuel oil that could start undermining profitability, said UK consulting firm Wood Mackenzie.
For now, downstream companies are reaping high refining margins as a result of low crude prices, unplanned refinery outages and slower-than-planned ramp-up in new plant start-up around the world.
Wood Mackenzie cautions that refiners, the main beneficiaries of the crude oil price collapse, will have to start preparing for leaner margins as oil demand growth will “eventually slow” thanks to increasing efficiency and the rising supply of alternative fuel sources.
By 2019, margins could fall to “the minimum sustainable level” for some refiners as gasoline cracks bottom out at low levels last seen in 2013.
“A surplus of gasoline is expected to flood the market as early as 2017 – in contrast with what’s happening right now, where refiners are struggling to meet gasoline demand growth of approximately 420,000 b/d,” said Jonathan Leitch, a research director for oil product markets research at Wood Mackenzie.
“Although gasoline cracks have been very strong this year, we could see a complete reversal in the market in just two years. The outlook for 2016 remains similar and in many ways stable, but in 2020 start we start to see a glut of gasoline supply developing – in excess of 30 million tonnes – which doesn’t go away for a decade.”
Based on the company’s latest oil product analysis of 745 operating refineries around the world, Mr Leitch found that gasoline yields will increase by 1% over the next 15 years.
This projected gasoline glut could threaten refining profitability even if no new refineries are built after 2020.
The weak outlook is caused largely by falling demand in the developed markets in North America, Europe and Asia that is offsetting the demand growth in the emerging Asian economies, Latin America, Middle East and Africa.
“Surplus supplies coupled with the continued growth of alternative fuel products from outside the refining system – increasing by 1.8 million b/d between 2014 and 2020 from products such as biofuels and gas and coal to liquid products by 2020 – means that there will be increasing pressure on refinery margins,” said Mr Leitch.
“We expect to see particularly strong growth in liquefied petroleum gas (LPG) supply from natural gas liquids (NGLs) in North America and the Middle East, and by 2019 margins could bottom out at minimum sustainable levels for Europe and Asia.”
“We expect to see gasoline cracks come down and margins weakening again – taking us back to levels where we were last year and in 2013.”
Refiners will continue to invest in refining operations to meet global demand and increasing stringent product specifications to comply with environmental legislation, which could see an additional 5.5 million b/d in net refining capacity by 2020.
Mr Leitch expects the new investment to “put significant pressure” on Europe and Asia for further capacity consolidation and to pressure US refiners to export their products.