The following article is extracted from Energy & Capital and explores the future of refining in North America, where one in five refineries will be shut down by 2024!
In a world increasingly focused on reducing emissions, is the future of downstream and refineries consistent? Even though in 2020 carbon emissions from the use of fossil fuels and the industry fell by 7% compared to 2019 levels, in 2021 greenhouse gas emissions generated by the transportation sector alone were expected to return to pre-pandemic levels, thus accounting for approximately 29% of total industry emissions in the USA.
The COVID-19 pandemic had negatively affected the market by delaying many refinery projects across the globe and led to more than one million barrels per day reduction of USA and Canadian refining capacity in 2020. However, increasing demand for petroleum products in the coming years is expected to drive further the sector’s growth.
Indeed, the Energy Information Administration expected global consumption of petroleum and liquid fuels to average $97.7 million (approximately £73.9 million) for all of 2021, a 5.4 million barrels/day increase from 2020.
Even though some regions such as North America have advantages in terms of infrastructure and expertise, the refining market is finding several restraints. A lack of funds, delay in commissioning projects and the increasing adoption of electric vehicles in developed nations are expected to significantly affect the market.
Accordingly, several energy agencies wonder what actions leading downstream producers will take to address this situation. The ways are many, including, for instance, closures, changes in the integration of value chains and also transitions towards new, more sustainable products, among other strategies.
This is particularly important considering that, in a forecasted scenario, one in five refineries was expected to shut down over the five years from 2021 onwards. Further, this picture is remarkably notorious for North America and Western Europe, particularly since, by 2030, one in three refineries will need to reassess its operating model. Indeed, calculations expect that about $1 million (approximately £755,500) of North American refining capacity will be shuttered shortly.
When we look at the refining progress in North America, we can identify the high degree of difficulty involved in the industry. We see strong producers being resurgent through the energy revolution and also, despite all the challenges, still striving to maintain their global leadership.
As some experts note, North America, overall, can upgrade and produce lots of highly marketable gasoline and diesel fuel, particularly with very few by-products. Moreover, the region produces almost all types of gasoline, diesel and jet fuel, to meet approximately 60% of demand globally.
Remarkably, North American refiners experienced a sharply different trend compared to refiners in other industrialised countries. For instance, capacity and throughput in the European Union each fell by $1.6 million (approximately £1.2 million) over the same period and Japanese refiners suffered even more significant declines in percentage terms.
Shrinking gasoline demand has significantly impacted refiners within the USA. Moreover, refineries on the North American east coast are vulnerable to declining demand for gasoline and the competition from overcapacity in Europe and coming infrastructure additions in the Asia Pacific, the Middle East and Africa.
Moreover, under a new USA administration, refineries themselves were thought to be likely to face a more challenging policy environment, particularly as emissions of CO2 meet stricter regulation. This trend will add to the significant shutdowns and sales the industry is seeing. For instance, in March 2021, North America’s largest refiner Marathon Petroleum announced its plans to convert and repurpose its Martinez, California, refinery into a renewable fuels manufacturing facility.
Other North American refiners addressing the energy transition and changing market conditions with similar strategies have included Phillips 66, ExxonMobil and Chevron, among others.
In summary, there is only one certainty surrounding the evolving refining market in North America and globally: companies must be adaptive and deliver over-the-top solutions. Although the upscaling in global refining will mainly result in divestment and closure of lagging assets in the region, refiners are well fitted to repurpose or start building facilities to deliver more advanced fuels. As a result, North America can still be a refining leader, following its understanding that things must change to advance.
How does this affect the providers of non-destructive testing (NDT) services? Last month’s article described some of the changes in quality and quantity of the NDT technicians. Expect significant adaptations using advanced technology and replacement of human inspectors by technology. Extensive adaptive new technology will be required by safe application of the new technology.
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