Opec says in its 2016 World Oil Outlook that refinery output and refined product demand should be in balance until 2018, but sees a production surplus of 2.2mn b/d opening up after that as an excess of refining capacity emerges.
The group’s reference case projection of refinery distillation capacity additions for 2016-21 is up slightly from its view in last year’s report for 2015-20, rising by around 200,000 b/d to 7.3mn b/d, with an additional 1mn b/d of capacity added through debottlenecking. Much of the additional capacity will be in Asia-Pacific, China and the Middle East. Capacity closures are expected to continue in developed economies, particularly in Europe and Asia-Pacific.
Global product demand growth averages just over 1mn b/d in the period 2016-2021, with around 15pc of that met through non-crude streams such as biofuels and NGLs.
A series of project deferrals prompted Opec to revise down its outlook for capacity additions last year from 8.3mn b/d in the prior report. These deferrals are now expected to emerge in 2019-21, and the increased competition could lead to reduced margins and, potentially, further closures. This year’s report acknowledges that further delays or cancellations beyond 2021 could materialise, particularly if the oil market experienced a second substantial dip in prices in the medium term.
Any sharp rise in prices is unlikely to lead to increased capacity additions, with companies wanting to confirm higher prices over a prolonged period before making investment decisions.
But the factors supporting firm refining margins in 2015 and early 2016 are unlikely to be repeated on an annual basis, Opec said. In the longer term, downstream challenges are growing from environmental regulations, declining demand in mature markets and the shift of demand centres towards Asia. The growth of non-crude supply is also eating into demand for refined products, and the increasing adoption of higher fuel standards globally presents further challenges for refiners.
Opec’s report was finalised before the International Maritime Organisation’s (IMO) decision to reduce the marine fuel sulphur emissions cap to 0.5pc from the current 3.5pc from January 2020, but Opec’s model assumes a 2020 date. The report expects gradual rather than instant compliance with the new standards, and sees vessel exhaust scrubber technology to remove sulphur emissions as “relatively successful over the long-term”. Nevertheless, Opec thinks the “need to supply large volumes of compliant fuel could lead to a period of substantial market tightness as the industry adapts“, citing the 2008 diesel premium to fuel oil of over $90/bl as a reference point.
Opec sees global refined products trade declining by around 2mn b/d in the period to 2020, as refining capacity expands closer to growing demand centres, reducing the need for imports. The report sees flat products trade from 2020-25, and growth in the longer term, rising by around 4mn b/d between 2025 and 2040. Europe is likely to become a net importer of below 1mn b/d in the longer term, but will be net balanced around 2020, continuing to export gasoline and importing diesel. Asia-Pacific net imports are expected to more than double from 4mn b/d in 2020 to around 8.5mn b/d in 2040, helping to stimulate products trade. The Middle East and Russia continue to be dominant net exporters, with net exports from the US and Canada growing, while Latin America and Africa remain net product importers in the longer term.
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Source: Argus Media
