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Bloomberg
China seizes the crown of oil refining held by the United States since the 19th century
(Bloomberg) – Earlier this month, Royal Dutch Shell Plc disconnected its Convent refinery in Louisiana. Unlike many oil refineries shut down in recent years, Convent was far from obsolete: it is large enough by American standards and sophisticated enough to transform a wide range of crude oils into high-value fuels. Yet Shell, the world’s third largest oil group, wanted to drastically reduce its refining capacity and could not find a buyer, with the 700 workers at Convent finding out they were out of work, their counterparts on the other side. of the Pacific were lighting a new unit at the giant Zhejiang complex of Rongsheng Petrochemical in northeastern China. This is just one of at least four projects underway in the country, totaling 1.2 million barrels per day of crude processing capacity, the equivalent of the entire UK fleet. of Covid has accelerated a seismic shift in the global refining industry as demand for plastics and fuels grows in China and the rest of Asia, where economies are rebounding rapidly from the pandemic. In contrast, refineries in the United States and Europe are grappling with a deeper economic crisis as the shift away from fossil fuels darkens the long-term outlook for oil demand. America has led refining ever since. the start of the oil age in the mid-19th century, but China will dethrone the United States as early as next year, according to the International Energy Agency. In 1967, when Convent opened, the United States had 35 times the refining capacity of China.The rise of the refining industry in China, combined with several new large factories in India and the Middle -East, affects the global energy system. Oil exporters sell more crude in Asia and less to long-time customers in North America and Europe. And as they add capacity, Chinese refiners are becoming a growing force in international gasoline, diesel and other fuel markets. It’s even putting pressure on older factories in other parts of Asia: Shell also announced this month that it would halve the capacity of its Singapore refinery. There are parallels to the growing dominance of the China on the global steel industry at the beginning of this century, when China built a clutch of massive and modern mills. Designed to meet booming domestic demand, they have also made China a force in the export market, squeezing high-cost producers in Europe, North America and other parts of Asia and forcing the closure of older and inefficient factories. “China is going to put another million barrels a day or more on the table over the next few years,” said Steve Sawyer, refining director at industry consultant Facts Global Energy, or FGE, in an interview. “China will likely overtake the United States in a year or two.” 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. That will push a few million barrels per day of more refining capacity into bankruptcy, on top of a record 1.7 million barrels per day of processing capacity already put on hold this year. More than half of those closures took place in the United States, according to the IEA. About two-thirds of European refiners are not making enough money in fuel production to cover their costs, said Hedi Grati, head of Europe-CIS refining research at IHS. Note it. Europe still has to reduce its daily processing capacity by an additional 1.7 million barrels in five years. “There is more to come,” Sawyer said, forecasting the shutdown of an additional 2 million barrels per day of refining capacity over the next year. has nearly tripled since the turn of the millennium as it tried to keep pace with the rapid growth in diesel and gasoline consumption. The country’s crude processing capacity is expected to climb to 1 billion tonnes per year, or 20 million barrels per day, by 2025, from 17.5 million barrels at the end of this year, according to the Institute of economic and technological research of China National Petroleum Corp. India is also increasing its processing capacity by more than half to 8 million barrels per day by 2025, including a new megaproject of 1.2 million barrels per day. Producers in the Middle East are adding to the frenzy, building new units with at least two projects totaling more than one million barrels per day expected to start operations next year – a major driver of new projects is the growing demand for petrochemicals used. make plastics. More than half of the refining capacity commissioned from 2019 to 2027 will be added in Asia and 70% to 80% of that capacity will be focused on plastics, according to industry consultant Wood Mackenzie. due to the region’s relatively rapid economic growth rates and the fact that it is still a net importer of raw materials like naphtha, ethylene and propylene as well as liquefied petroleum gas, which is used to manufacture various types of plastic. The United States is a major supplier of naphtha and LPG to Asia. These massive, integrated new factories are making life harder for their smaller rivals, which lack their scale, flexibility to switch between fuels, and ability to process dirtier, cheaper crudes. tend to be relatively small, not very sophisticated, and typically built in the 1960s, according to Alan Gelder, vice president of refining and petroleum markets at Wood Mackenzie. He sees excess capacity of about 3 million barrels per day. “In order to survive they will have to export more products as their regional demand decreases, but unfortunately they are not very competitive, which means they are likely to close.” Demand Trap Global oil consumption is set to collapse in an unprecedented way. 8.8 million barrels per day this year, or an average of 91.3 million barrels per day, according to the IEA, which expects less than two-thirds of that lost demand to recover next year. Some refineries were scheduled to close before the pandemic even struck. The crude distillation capacity of around 102 million barrels per day far exceeded the demand of 84 million barrels of refined products in 2019, according to the IEA. The destruction of demand due to Covid-19 has pushed several refineries to the brink of collapse. “What was supposed to be a long, slow adjustment has turned into a brutal shock,” said Rob Smith, director of IHS Markit. The United States is pushing regulations for biofuels. This has prompted some refiners to reuse their factories to produce biofuels. Even China can get ahead of itself. The capacity additions exceed 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 when new refineries are built, growth in demand from China could peak by 2025 and then slow as the country begins its long transition to carbon neutrality. “In an environment where the world already has sufficient refining capacity, if you build more in one part of the world, you have to shut down something in another part of the world to keep the balance,” Sawyer said of FGE. “This is the kind of environment that we find ourselves in now and that we are likely to be in at least the next 4 to 5 years.” For more articles like this visit our site bloomberg.com Subscribe now to stay ahead with the most trusted company. news source. © 2020 Bloomberg LP
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