Oil refinery

While the debate about how to meet the requirements of the IMO’s global sulphur cap continues, a new influence factor for future fuel availability has appeared in a recent report by independent think tank Carbon Tracker.

A quarter of global refining capacity could become unviable and be forced to close by 2035 as a swelling tide of climate regulations and rapid advances in clean technologies cut oil demand, finds a report launched in November 2017 by Carbon Tracker.

In this report, they look at how a scenario for oil demand that is compliant with limiting the rise in global warming by 2035 to 2°C (a “2D” scenario) might affect the oil industry’s refining assets. Under a 2D scenario, global oil demand could decline by 23% over a 15 year period.

As the past has shown, falling or weak demand has often come along with poor refining margins. To put it concisely: lower oil volume means less refining capacity means smaller margins. As a result many industry players might be forced to exit the market.

Furthermore diesel, gasoline and jet fuel products bring the highest margins across the product mix for refineries and also constitute around 70% of global product yield. The industry may not be prepared for the rate of technological change in road transport with the result that demand for these fuels could erode faster than expected. As road diesel competes with lighter marine fuels, a weak demand could either support more availability for shipping or the completely opposite, if refiners decide to close their refineries.

The shipping industry could be affected as follows: As a lack of investment in refineries could result in a lack of desulphurisation, the capacity for compliant fuel in 2020 may get even tighter.

How should refineries react to the changing conditions?

Read the report here or the press release here