Sustainability shift Oil's future in the energy transition - S&P Global
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Sustainability shift
Oil’s future in the energy transition
February 2020
Refining in transition
Industry adapting to meet future demand
Rules of the road
Governments push for cleaner, greener fuels
Biofuels blending
Sustainability to benefit non-crop feedstocks
CEO interviews
Nayara Energy, Renewable Energy Group
spglobal.com/platts
Contents
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February 2020 Executive summary.............................................................................................................4
Feeling the heat...................................................................................................................6
Chief Editor Global energy demand continues to rise as public pressure mounts on governments
Meghan Gordon and companies to adopt stronger environmental and social policies
Infographic: The future of fuels..........................................................................................10
Copy Editors Time to turnaround............................................................................................................12
Valarie Jackson, Keiron Greenhalgh, Refiners are having to adapt to meet future fuel demand as gasoline and
Chris Newkumet diesel growth slows, while aviation and petrochemical sectors become more significant
Infographic: Global refiners plan for changing demand.....................................................18
Contributors
A refiner’s view..................................................................................................................20
Kevin Allen, Jeff Berman, B. Anand, CEO of Indian refiner Nayara Energy, speaks with Sambit Mohanty
Claudio Galimberti, Paul Hickin, about what the future oil refining sector might look like in a decarbonized world
Jack Jordan, Roman Kramarchuk,
Lightening the load............................................................................................................22
Solomon Lanitis, Jim Magill,
Rising supply of US light sweet crude oil is helping less complex refiners in Europe
Janet McGurty, Chris Midgley,
and Asia remain competitive as they work to meet tighter limits on sulfur in gasoline
Sambit Mohanty, Robert Perkins,
Joshua Pedrick, Mark Tan Rules of the road................................................................................................................24
Road fuels are evolving across the world as countries target air pollution by setting tougher
sulfur standards for gasoline and looking to blend in more renewable fuels
Design and Production
Melenie Yuen, Martina Klančišar Expanding markets............................................................................................................28
CJ Warner, CEO of Renewable Energy Group, North America’s top biodiesel producer,
speaks with Meghan Gordon about the role of advanced biofuels in a future energy transition
Cartography
Ginny Mason Finding a better blend........................................................................................................30
Non-crop feedstocks stand to benefit from governments’ shift towards carbon-intensity
targets, while traditional crop-based biofuels are expected to continue to play a role
Digital Content Leader
Mark Pengelly Get the balance right.........................................................................................................34
The emergence of new fuel sources will depend on the right market conditions, as well
as having the right technology – as the slow adoption of gas-to-liquids technology shows
Platts
An all-in-one digital platform delivers Content Project Manager
Carrie Bharucha Not all biofuels are created equal......................................................................................36
S&P Global Platts independent price Biofuels should be differentiated by more than just carbon intensity, with the type
of crop, location and farming practices all playing a role in environmental impact
benchmarks, news, fundamentals data, S&P Global Platts
Platform
Brace for turbulence..........................................................................................................40
20 Canada Square, 9th Floor
forecasts and supply chain dynamics London, E14 5LH
Aviation will be one of the toughest sectors to decarbonize, as weight, distance
and safety concerns limit the alternative fuel options compared with other types of transport
in real time, anywhere you are. The fight for feedstock.......................................................................................................44
President A shift to cleaner fuels will increase demand for aromatics as an octane enhancer
Markets are changing. Martin Fraenkel and result in more competition between gasoline and petrochemicals
So are we. We invite you to join our early adopter community. Beyond IMO 2020...............................................................................................................46
Head of Pricing & Market Insight After the marine fuel sulfur cap, an even more protracted battle will emerge over which cleaner
For desktop access, contact your S&P Global Dave Ernsberger fuels can help to reduce the shipping sector’s emissions by 40% by 2030
Platts Sales representative to get started.
On Mobile iOS
Search Platts Platform in the Apple Store
© 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved.
Executive summary
Energy markets are awakening to Future of refining India will move to BS VI specifications in
climate risks. The debate around the April to limit sulfur to 10 ppm. China is
energy transition has shifted from Oil refiners will see slower demand implementing Euro 6-equivalent fuel
whether one will occur to when it will growth for gasoline and diesel as a standards and blending more ethanol
happen and what it will look like. result of changing consumer habits, and biodiesel.
electric vehicle adoption, increased
Sustainability risks have come under biofuel blending and other factors. But The global shift to cleaner fuels will lead
heavy investor scrutiny. “In the near oil will be challenging to displace in to stronger demand for aromatics
future — and sooner than most aviation and shipping. as an octane booster and result in
anticipate — there will be a significant increased competition between gasoline
reallocation of capital,” Larry Fink, CEO As investor concern builds around and petrochemicals.
of BlackRock, the world’s largest asset future decarbonization of
manager, said in January. transportation fuels and stranded asset In the biofuels sector, governments are
risk from standalone oil refineries, adopting carbon-intensity targets and
And yet global energy demand continues refiners like India’s Nayara Energy show shifting away from volume-based blending
to grow. Oil remains essential to the the sector’s increasing shift toward goals to address questions of land use and
economy and is becoming further petrochemical demand. life-cycle emissions. Non-crop feedstocks
embedded into everyday life through stand to benefit from this shift, while
petrochemical products, despite the Under a rapid energy transition traditional crop-based biofuels are
rapid acceleration in the public’s scenario, sharply lower rates of demand expected to stick around.
ambitions around climate policy. growth for oil products derived from
crude in the late 2020s and 2030s could
While oil demand might peak in the next trigger a profound rationalization in the Future of flight, shipping
decade, it will continue to meet a global refining system, with winners and
significant share of total energy demand losers in a characteristic “survival-of- Aviation will be one of the toughest
for decades to come. the-fittest” race. sectors to decarbonize, as weight,
distance and safety concerns limit the
“The challenge for the industry going But even in this rather gloomy scenario, alternative fuel options available to
forward is to find a way to recognize do not be tempted to write off the other transportation sectors.
what might happen if you no longer need refining industry. The sector has proved
oil as a fuel, but you increasingly need it to be particularly resilient in the past While drop-in biofuels are advancing,
as a building block,” said Madhav four decades, by shutting off the ultimate solution to reducing jet fuel
Acharya, technology-to-market adviser inefficient units in unprofitable emissions might rely on continued
for the US Department of Energy’s markets and investing in new aircraft efficiency gains, together with
independent Advanced Research opportunities and markets. the exploration of alternative and
Projects Agency - Energy. “All of the lower-carbon transport modes for both
molecules in oil end up in products all passengers and freight — particularly
around us. How oil is perceived has to Rules of the road for shorter haul trips.
change. The industry has to come to
terms with that shift as well.” Sulfur content in gasoline is falling With the International Maritime
globally as more countries adopt Organization’s marine sulfur cap in
S&P Global Platts Analytics expects specifications similar to the Euro 5 place, a more protracted battle begins
global oil demand to rise to about 114 standard, with a sulfur limit of 10 ppm, for shippers over which cleaner fuels
million b/d by 2030 or just around 1% a 35% aromatics and 1% benzene. can cut the sector’s emissions in half
year, slowing from a recent high growth by 2050. No clear replacement has yet
rate of 1.9% in 2017. Efficiency, US refiners reached a hard deadline for emerged, with options like LNG,
technology and regulatory changes will Tier 3 standards, resulting in fuel with methanol, hydrogen and ammonia all
drive that slowdown over the next decade. less sulfur and lower exhaust emissions. facing challenges.
4 © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. 5Introduction Introduction
Feeling the heat
reach that goal by 2050, while Shell PASSENGER CARS, COMMERCIAL TRANSPORT TO SEE BIGGEST
aims to cut its net carbon emissions DROP IN OIL DEMAND UNDER 2 DEGREE CELSIUS CLIMATE TARGET
in half by the same year. US (million b/d) 2018 2050 2C Target
independent driller Occidental 30
Petroleum is striving for carbon 25
Global energy demand continues to rise as public pressure mounts on governments neutrality through its extensive
20
work on carbon capture and
and companies to adopt stronger environmental and social policies sequestration technology, although 15
it has not set a deadline.
10
Climate concerns reached a fever products become further embedded While global coal use has peaked, 5
pitch last year as teen activist Greta into everyday life. oil and natural gas will remain
0
Thunberg warned a “change is central to the energy sector for the Passenger cars Commercial road transport Aviation Marine
coming, whether you like it or not.” “Oil is unique because it’s both a foreseeable future, said Roman Source: S&P Global Platts Analytics
source of energy — it embodies a Kramarchuk, S&P Global Platts
Change has certainly happened huge amount of energy — and Analytics’ head of energy scenarios,
when it comes to the public’s desire increasingly it’s a building block,” policy and technology. Despite a these other products that I would would also disrupt how markets
for sustainability – awareness of said Madhav Acharya, technology- relatively rapid shift in rhetoric and argue are equally important – price commodities.
the impact of carbon emissions on to-market adviser for the US ambition surrounding environment maybe even more valuable than
health and the environment, Department of Energy’s and sustainability, peak oil demand gasoline and diesel – but do it in “Right now, everything relies on
willingness to adopt new independent Advanced Research is not expected anytime soon. such a way that I’m not left behind crude pricing and the pricing of
technologies that use energy more Projects Agency-Energy. “All of the with all of this product that I can no fuels,” he said. “All of those prices
Meghan Gordon
efficiently, and ambition to find molecules in oil end up in products “To get there, they have to start longer sell?” get set in the marketplace. If you
Senior Editor
S&P Global Platts radical new solutions to fuel the all around us.” turning the supertanker,” have a very different ecosystem
modern economy. Kramarchuk said. “It’s going to take Tighter fuel specifications around where you have a smaller number of
“The challenge for the industry going a while for the momentum to shift.” the world have already forced the products, but they have very
Change has also happened in forward is to find a way to recognize refining sector to evolve, with different end-uses, how the market
boardrooms, as socially conscious what might happen if you no longer many smaller, simple refineries prices those to enable them to be
investors increasingly demand to need oil as a fuel, but you increasingly The future of oil refining being forced to close while more made will also be part of this shift.”
know that company profits are not need it as a building block,” said complex plants tailor their output
coming at the expense of the Acharya, a chemical engineer who Huge uncertainties loom if an to the new standards. Further
environment, workers’ well-being or spent 17 years at ExxonMobil. “How energy transition is to be carried consolidation is inevitable as Investor pressure
the overall health of society. oil is perceived has to change. The out. Refiners will have one of the governments tighten regulations
industry has to come to terms with hardest puzzles to solve: how to and demand patterns shift. Demand for energy may continue to
Watch Meghan Gordon outline the But these growing ambitions have that shift as well.” produce more jet fuel and rise, but demand for oil may not, said
sustainability shift and what it means for not changed the trajectory of global “If there’s not as much fuel needed
petrochemical feedstocks to meet Andrew Logan, senior director for oil
the future of oil
energy demand or the desire of rising demand for those products to come from refineries, then it and gas at Ceres Investor Network,
developing countries to improve Turning the supertanker while curtailing gasoline and diesel becomes more of a low-cost whose 170 institutional investors
living standards. output, as demand for those provider, survival-of-the-fittest manage more than $26 trillion.
Oil companies have started mainstay fuels is on track to slow analysis,” said Jacques Rousseau,
If the world is, in fact, set to make responding to calls for more with the rise of electric vehicles, managing director of ClearView “While nobody has a crystal ball,
the massive shift that Thunberg sustainability with measures such biofuels and other alternative Energy Partners in Washington. and every forecast about this sector
warns about, it will not be the oil as tying executive pay to emissions transportation fuels. “You’re going to see a has no doubt been wrong, it is a real
sector’s burden to bear alone. The reductions, writing off long-cycle number of refineries end up shift for the industry to move from
reverberations will be felt in every assets and setting targets for “When you’re converting oil, you’re closing down because they won’t 125 years of more or less being able
sector of the global economy, as reaching carbon neutrality. producing all these other products,” be profitable.” to bet with some certainty that
overall demand for energy shows no Acharya said. “The main challenge demand will grow over time – to now
signs of slowing in the coming Spain’s Repsol became the first the industry needs to confront is: ARPA-E’s Acharya said it being much more of a mixed
decades, and petrochemical large oil company to promise to how do I continue to make some of transforming the energy economy picture,” Logan said. “If you’re doing
6 © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. 7Introduction Introduction
strategic planning as an oil and gas batteries have succeeded because Field, a Colorado State University “You’ll be waddling your way into this
company, you have to at least they operate on the existing engineer who collaborates with future. It’s not going to be a sprint.
consider the idea that demand for electricity grid. ecologists to study the lifecycle It’s certainly not going to be
your product may peak in the mid- sustainability of different biofuels. without challenges. But eventually
to longer term.” “We tend to overlook the fact that it’s something where you decide
getting oil from all across the world “It’s impossible to rule out dramatic on the most likely path to
Logan said that possibility has all is an enormous business in its own technology improvements in success, and then focus on
sorts of implications for how right,” said ARPA-E’s Acharya. “If batteries, hydrogen storage and taking the best technologies
companies invest capital. “It argues you can find a way to produce the things like that,” Field added. “But with the best deployment
against long-lived resources like the same kind of fuel with the same at the moment, based on where the pathway to putting those
oil sands or some offshore properties that we’re using right technology is and where it might go investments in place,”
projects,” he said, adding “it makes now, it will allow you to use the in the next couple of decades, Acharya said.
shorter-lived assets a bit more same infrastructure and not have to there’s a lot of thinking that biofuels
attractive. It maybe makes you less worry about building all of that out.” just fills that niche better and more
likely in general to invest more cost effectively than some of these
money in growing production, and other alternatives.”
that’s been a trend that’s been Role for biofuels
encouraged by other factors as Field said biofuels research also
well,” including the recent Wall This challenge of infrastructure could contribute to finding systems
Street pressure on US shale drillers gave biofuels early potential, as it is for removing carbon dioxide from the
to return capital to shareholders a liquid fuel that can, to some atmosphere, if the world overshoots
rather than increasing production at extent, be shipped, stored, and warming limits like the Paris Accord’s
any cost. used like conventional fuels. While 2 degree Celsius target. While the
the sector continues to confront area of research is still speculative,
questions of land use and lifecycle he said one of the front-runner
Optionality of US shale carbon emissions, researchers technologies would separate the CO2
are pressing on to find next- produced from converting biomass
In a sense, the shale boom gives the generation biofuels and innovative feedstock into fuels, compress it,
US more optionality during a potential new feedstocks. and store it underground.
energy transition, Logan said.
The Mariner project at ARPA-E, for
“If you’re investing in a shale well, example, is examining the potential ‘Waddling’ into the future
you’re not making a bet on oil demand to grow algae in the open ocean as a
in 2040, which is very different from if feedstock for biofuels. “If you were Acharya predicts that something
you’re investing in an Arctic drilling going to scale biofuels and do it on a bigger and more intangible will be
platform or the oil sands,” he said. scale of 100 million b/d, you would needed than new technologies:
“There’s a way in which shale need a game changer like that willingness and readiness by a
becoming the swing producer, or at where you would harvest biomass in wider swath of society.
least the marginal producer, is enormous quantities, because
helpful. It gives the US and the you’re out essentially in free space,” “It’s up to societies as a whole
broader global economy the ability to Acharya said. around the world to accept that that
ramp down demand if need be.” kind of a shift is both necessary and
Biofuels’ future in the energy mix possible,” he said. “The possibility
New technologies will be critical to may depend on demand from will not simply be a magical
an eventual energy transition, but aviation, shipping and long-haul technology that gets dropped from
those that can operate within the trucking. “Those are areas that are above. It will require adjustments
existing liquid fuel supply chain going to be very challenging to along the way. There will be a shift,
stand the best chance in the either electrify or switch over to then there will be a response, then
medium term. In the power sector, hydrogen and fuel cells,” said John another shift.
8 © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. 9Infographic Infographic
The future of fuels
Petrochemicals, middle distillates to capture most demand growth (%)
Percent of expected demand change 2018-2030
ed
Changing landscape for global refiners to 2030
fe
Petchem
l
er
Global refiners are facing a tricky balancing act as oil supplies become lighter, while their customers demand ever increasing volumes of
e
38%
Dies
ne
Jet
diesel and petrochemical feedstocks. At the same time, growing levels of oil demand are being met by fuels such as ethanol.
oli
Oth
oil
el
19% 15% 14%
Gas
Refiners facing lighter oil supplies (million b/d) 8%
Fu
The graphic below shows expected growth in global crude by API gravity and liquid supplies from 2018 to 2030
6%
Rising global plastics Diesel for heavy Rising incomes are Oil use in sectors Passenger cars will Fuel oil demand for
and chemical demand to transport and shipping expected to boost such as industry feel the biggest shipping and power
Biofuels, see petchem feedstocks makes up the biggest air travel globally, and buildings set impact from generation will be
NGLs, condensates, other Ethers, GTL, etc. absorb 5 million b/d of part of the demand adding 2 million b/d to rise by almost transport electrifica- increasingly limited
additional oil by 2030 picture with 30.7 to demand for jet 1.8 million b/d tion hitting gasoline by environmental and
million b/d in 2030 in 2030 by 2030 demand growth air quality regulations
NGLs
11
million
Extra Light/Cond.
Change in transport fuel demand (million b/d)
The four major transport sectors face different paths in terms of demand growth and fuel mix as the transition to lower carbon energy
gains pace. While electrification and alternative fuels are expected to increasingly sap demand for oil to power passenger cars, oil-based
fuels for trucks, marine and aviation are likely to be displaced at a much slower pace.
b/d
oil sourced fuels non-oil sourced fuels
Natural
Change in oil-sourced
Passenger cars Ethanol gas
Electricity
fuels vs non-oil
Light Gasoline Diesel LPG
Biodiesel
Crude oils
2030
Medium
2018
4
0 5 10 15 20 25 30 +0.93 +2.00
Trucks/buses LPG
Gasoline Biodiesel
million Gasoil/Diesel
Natural gas
b/d 2030 Ethanol
2018 Electricity
Heavy +1.71 +2.66
0 5 10 15 20 25 30
Aviation
Middle distillates push out gasoline refining volumes (million b/d) Jet fuel kerosene Aviation gasoline
Expected change in global refining yields from 2018-2030 2030
Gasoil/Diesel 3.33 2018
5 10 15 20 25 30 +2.13
0
Kero/Jet 2.02
Marine
Gasoline 0.91 RFO: RFO: High- Gasoil/
Low sulfur sulfur Diesel Natural
fuel oil fuel oil gas
Residual fuel oil 0.75 2030
2018
+1.02 +0.39
0 5 10 15 20 25 30
Source: S&P Global Platts Analytics
10 © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. 11Refining changes Refining changes
Time to turnaround “ Technological advancements in electric mobility, efficiency improvements in
almost all oil sectors and regulatory tightening in CO2 emissions will create the
perfect storm, which will significantly slow the pace of oil demand growth starting in
”
Global oil demand will undergo significant disruptive changes over the next decade and 2025-2030. But it’s too early to call for a plateau
refiners will need to invest and adapt to remain competitive
— Claudio Galimberti, S&P Global Platts Analytics
The refining industry has shown complexity – often integrated with This will help set the future Evolving product demand
itself to be adept and flexible in the petrochemical units. Europe, faced direction for the industry as
past, reacting to and overcoming with dwindling local demand, has petrochemical feedstock demand World oil product demand has now
whatever market conditions it become a key gasoline supplier to growth will continue to outpace that reached 102 million b/d, after
confronts. The last few decades the US, Latin America and Africa. of transportation fuels, as well as growing by an average of nearly 1.6
have brought remarkable changes China has overbuilt its refining other refined products. million b/d per year since 2009. The
operationally as the industry has system, while continuing to battle pace of the increase has, of course,
striven to cut costs and remain high energy costs and a lack of In response to such developments, varied by year and across regions.
profitable, while at the same time indigenous feedstocks, leaving it a number of refiners have been In 2010, the traditional Organization
investing in increased complexity. with excess volumes for exports. gearing and will continue to gear for Economic Co-operation and
their refinery configurations toward Development nations represented
There have been periods of Refiners have seen demand the production of more about 40.7 million b/d of oil
Claudio Galimberti
upheaval as weaker operations were continually increase at a global level, petrochemicals, turning crude into demand, around 45% of the world
Head of Demand, Refining & Agriculture
S&P Global Platts Analytics closed and as new entrants came although some sectors, such as chemicals, rather than traditional total. By 2019, the share of oil
into the business. Indeed, larger residential and industrial, and a few refined products. consumption for the major
multinational refiners closed or sold regions, like Europe, Japan and
facilities and, in turn, helped create Australia, have seen rather The change is already underway, as
quite large independent refining consistent periods of decline or flat the refining industry demonstrates
businesses. Companies have tended growth since the start of the century. its ability to successfully adapt to a
to exhibit more operational Between 1990 and 2009, global changing market environment, even
flexibility, with a focus on meeting refined products demand rose nearly though another challenge looms
market needs, while at the same 19.7 million b/d, largely in terms of large: natural gas liquids’ relentless
time complying with ever more distillates and gasoline. growth, primarily from US shale
restrictive government regulations Petrochemical feedstocks demand formations — produced from
on product quality and other grew faster, but the additional volume y-grades fractionation — which
requirements, all of which was just a fraction of that required for bypasses the refining system and
necessitated significant stay-in- transport fuels at 3.8 million b/d. accordingly reduces crude demand
business capital investment. and refining utilization.
The pace of change was even more
Each year has seen its challenges rapid over the following decade, with
and the response has, in most consumption of the key
cases, varied regionally. The US has transportation fuels jumping an
become a major supplier of refined additional 8.6 million b/d.
products to Latin America and other Petrochemical feedstock demand
parts of the world thanks to its surpassed even that, rising more than
aggressive competitiveness, which 3% a year, or about 3.6 million b/d,
has been reinforced by its access to and the sector’s share of overall oil
increasingly low-cost feedstocks, demand rose to nearly 13% in 2019
low energy costs and high from roughly 7% in 1990.
12 © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. 13Refining changes Refining changes
industrialized nations dropped to in petrochemical feedstocks transportation fuels account for in the working age population and growth has been supported by expected to slow quite significantly
around 40%. More importantly, the demand, which leads to new types over 50% of overall oil product growth in alternative powertrains government mandates in many in the years ahead, while the usage
growth in demand in the OECD of chemical refineries. demand, with much of the could begin to dent oil demand. parts of the world, including the US of ethanol continues to grow, albeit
nations over that period only regulatory environmental pressure However, India and Africa are likely and Western Europe. at a slower pace.
amounted to around 1 million b/d, The other significant growth will continuing to focus on this sector. to see continuous oil demand
while the rest of the world saw a occur in the transportation sector, growth well into the 2040s due to Ethanol supplements gasoline Over half the growth in volumetric
gain of 14.6 million b/d. albeit at a far slower pace. Gasoline Non-OECD Asia represented around the underlying population trend and supplies and currently accounts for gasoline demand is expected to be
Almost all of that occurred in demand is set to slow in US, 30% of overall demand in 2019, still huge economic development about 7% of the world gasoline pool absorbed by ethanol over the
non-OECD Asia. although it will continue to grow in which is expected to grow to an potential to be fulfilled in the on a volumetric basis. Penetration 2019-2025 period, while virtually all
non-OECD countries for at least the estimated 34% by 2030. Additional decades to come. has been highest in South America of the gains will be taken by ethanol
Technological advancements in next 10-15 years. Diesel demand will key growth areas include Latin at around 36% and in the US at from 2025-2030. Consequently, in
electric mobility, efficiency be robust for the next two decades America and the Middle East. On As the product, regional mix and around 10%. Both China and India general, refiners will not see an
improvements in almost all oil globally as there appears to be little the other hand, Europe, Japan, growth rates change, refiners have plans in place to reach 10% incentive to invest in new facilities,
sectors and regulatory tightening in threat from fuel substitution in Australia and potentially some will adapt their systems to meet ethanol blending nationwide in the clearly limiting new investment in
carbon dioxide emissions will create heavy-duty freight, a major source regions in the US, such as the West the requirements. next decade, from current levels gasoline production capability,
the perfect storm, which will of transportation diesel demand. Coast, will see demand declines, that are still below 5%. except for perhaps octane generation
significantly slow the pace of oil Jet fuel demand is projected to be due to a combination of heavier and ultra-low sulfur gasoline.
demand growth starting in 2025- strong due to a lack of fuel regulation of fossil fuels and Competition from biofuels Refiners have already been adapting
2030. But it’s too early to call for a substitutes and strong underlying changing consumer preferences to the loss of market position for As with ethanol, biodiesel is a
plateau. Demand is expected to growth in consumption of air favoring alternative fuels. China is Biofuels have played an increasing traditional hydrocarbon-based supplement to hydrocarbon-based
increase to around 114 million b/d transport, fueled by the swelling likely to see vigorous growth until role in meeting transportation gasoline. But the pressure on diesel that has seen rapid growth over
by 2030, or around 1% a year. The middle classes in emerging the 2030s, when a combination of sector needs, as part of clean and refiners will only increase as overall the past decade, but from a low base
fastest growth is expected to occur markets. It is noteworthy that slowing economic growth, a decline renewable fuel programs. The gasoline consumption growth is level. Over the past 10 years, the
14 © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. 15Refining changes Refining changes
increase in world usage has amounted to Looking ahead, investment in Asian operations in late 2019. Kuwait is also
over 9% a year, but to just around refineries will still be dominant, in the construction phase for a long-
800,000 b/d, or roughly 3.5% of the world
transportation sector’s diesel use. That
amounting to just under 40% of the
planned firm plus probable
delayed 615,000 b/d refinery that is now
due online in early 2021. These projects
Refining: an industry in transition
share is expected to grow to 5-6% during additions between 2019 and 2025. follow the 400,000 b/d Hengli refinery
Is the refining sector agile enough make the massive reconfiguration
the course of the next decade. Once again, China will see the in Dalian, which commenced operations
largest share within Asia at over in 2019. that would be needed for a global energy transition?
Biodiesel has been and will continue to 1.2 million b/d. East Asia and
be most actively used in Western South Asia will continue to grow
Europe. Other key markets will include their refining capacity. Increasing focus on chemicals Refiners will face multiple challenges over the next vulnerability based on the availability of discounted
the US, Latin America and Southeast decade, including recent and imminent specification heavy crude. The Middle East will finally establish
Asia. Unlike for gasoline, Platts In addition, the Middle East will see What is notable about several of these changes to marine and road fuels across the globe. itself as an important refining center, capable of
Analytics expects growth in further significant capacity growth, projects, aside from their size, is their The decrease in the sulfur content in fuels will result competitively exporting oil products, thus threatening
hydrocarbon-based diesel demand over even after the addition of capacity added capability for producing large in higher refining costs, but will also unlock less dynamic refining systems in contiguous regions,
the course of the next decade, although between 2010 and 2019. About a volumes of on-purpose chemicals on top opportunities for innovative refineries willing to invest such as the Mediterranean.
the pace of change is set to slow. quarter of the net new additions of traditional hydrocarbon-based refined in the most efficient kit to produce clean fuels and
between 2019 and 2025 — products, including at Zhejiang process discounted sour crudes. Under a rapid energy transition scenario, sharply
1.7 million b/d — are expected to and Hengli. lower rates of demand growth for oil products derived
Refiners expand outside OECD occur in the Middle East. Africa, The global crude slate will continue to get lighter, at from crude in the late 2020s and 2030s could trigger
which, saw a net decrease between These are geared to making least until the mid-2020s, according to S&P Global a profound rationalization in the global refining
Refining margins will remain cyclical 2010 and 2019, is expected to add substantial volumes of chemicals Platts Analytics’ latest estimates, on the back of US system, with winners and losers in a characteristic
and essentially revert to the mean, with more than 1 million b/d in the such as ethylene and paraxylene. shale production growth, potentially putting complex “survival-of-the-fittest” race. But even in this rather
the potential for elevated profitability coming five years. Much of this The chemical yield for these and refineries’ margins under pressure. Yet this trend gloomy scenario, do not be tempted to write off the
at complex refineries in 2020, the year involves the 650,000 b/d refinery several other newer facilities could could reverse by the mid-2020s, if not earlier, as refining industry.
of the International Maritime being built by Dangote Group in be over 70%, as opposed to a more Iranian and Venezuelan barrels potentially return to
Organization’s marine fuel sulfur cap Nigeria, which is expected to start typical yield of up to 20%. More the market, providing much-needed heavier crude to In fact, it has proved to be particularly resilient in
change. Between 2000 and 2019, over up in 2022. such refineries will be coming online cokers in the US, China and India. the past four decades already, by shutting off
19 million b/d of net new refinery over the next several years and such inefficient units in unprofitable markets and
capacity was added, with nearly 80% of This scale of capacity addition is a trend is expected to continue well Refining margins will remain cyclical and essentially investing in new opportunities and markets in a
that occurring in Asian markets. Not becoming more commonplace as into the 2030s. revert to the mean, with the potential for elevated timely fashion. One of these opportunities in the
surprisingly, most of the additions several new mega-refinery additions profitability at complex refineries during the first year coming years appears to be the increasing
occurred in China or about 11.6 million are coming to fruition in the next few Platts Analytics expects the world of the International Maritime Organization’s marine integration between trading and refining, whereby
b/d. While there were also significant years. The commissioning of Dangote to need the equivalent of 63 fuel sulfur cap transition. Lower margins will likely trading effectively takes advantage of refineries’
additions in East Asia and South Asia, will make Nigeria’s local products Worldscale ethylene crackers of follow in the subsequent two to three years due to the high optionality, both on the crude and on the
there were net closures of almost 2 markets almost self-sufficient, 1.5 million mt/year capacity vast additional capacity being added, especially in refined product side, which tends to be very
million b/d in Australia and Japan, depriving European refineries of a between 2020 and 2035 to satisfy China and the Middle East, which will reduce lucrative in periods of high price volatility. Recently,
reflecting the changing dynamics of key outlet for their high sulfur fuel growing demand for petrochemical utilization rates for crude distillation units and for vast investment in the establishment of trading
the industry. exports. This could have far-reaching products, which in turn is going to some downstream units. desks by large integrated oil companies and, at the
effects for Northwest European raise petrochemical feedstock same time, numerous acquisitions of refining assets
The Middle East also had over 4 refining in particular, due to its demand from 13.7 million b/d in The commissioning of the Dangote refinery in Nigeria by traditional trading companies is evidence of
million b/d of net expansions over reliance on medium sour Urals crude 2020 to 20.7 million b/d in 2035, at a will structurally change crude and refined product this trend.
the period, with the US and Canada from Russia. compound annual growth rate of trade flows, depriving mostly Northwest European
adding just roughly 1.6 million b/d. 2.8% per year. The demand refineries of a key outlet for their high sulfur products Despite the many challenges refineries will face in the
There were about 2.8 million b/d of Saudi Aramco’s 400,000 b/d Jizan projection includes propane exports. The US refining system will likely remain coming decades, there is no reason to doubt they will
net closures in Western and Eastern refinery will start up in 2020, as will the dehydrogenation processes. resilient due to its underlying competitive advantage find a way to compete and prosper. But the road will
Europe as well as Latin America, second phase of the Zhejiang Without PDH, petrochemicals of its high complexity, although there is some surely be bumpy.
reflecting the major differences (Rongsheng) refinery with a 200,000 b/d demand will rise to 17.8 million b/d
in performance among countries crude distillation unit, after the first in 2035 from 11.7 million b/d
and companies. 200,000 b/d of capacity began in 2020.
16 © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. 17Infographic Infographic
A clean slate ARCTIC OCEAN
NORTHWEST
Refiners plan for changing oil demand EUROPE EAST EUROPE
FORMER
CANADA
SOVIET UNION
The global refining landscape is changing to meet new complexities, with expected
changes to oil products consumption over the next decade. While oil demand is still refineries to
expected to grow, at least over the coming years, what makes up that demand and where go offline
that demand comes from is becoming ever more important. The push to meet environmen- EUROPE (-115.0 b/d)
tal goals has seen shippers switch to cleaner marine fuels and road users re-evaluate what UNITED JAPAN
STATES MIDDLE ASIA CHINA
they put in their automobiles. But a bet on the rise of petrochemical demand despite the
backlash against single-use plastics, means a surge in complex mega-refineries ready to EAST Panipat
ATLANTIC Shenghong
handle this downstream dynamism. Asia, Africa and the Middle East will be the driving Al Zour
NORTH AMERICA OCEAN MEDITERRANEAN
forces as they seize on their roles as key demand and supply hubs amid questions over Jamnagar
Ruwais
how different fuels may power different sectors in different parts of the world. Guandong
Maharashtra Zhanjiang
Capacity additions PACIFIC
AFRICA Jazan
Duqm
PACIFIC
OCEAN OCEAN
Dangote
Scenario: firm & probable Distillation capacity LATIN
7.5
AMERICA SOUTH
(million b/d) AFRICA ASIA
8,000 EAST
ASIA
Tuban
SOUTH AMERICA
MILLION B/D 4,000
OCEANIA
2,000 INDIAN
Scenario: Less likely OCEAN
30
1,000
New refineries
100
Expansions
MILLION B/D
Downstream’s big hitters: 2020 2021 2022 2024 2025 2030
key capacity additions
JAZAN DANGOTE GUANDONG DUQM AL ZOUR MAHARASHTRA JAMNAGAR
A closer look at the most important and Saudi Aramco Dangote Group PetroChina Oman Oil Company and KIPIC RRPCL, Saudi Aramco, Reliance Industries
400,000 b/d 650,000 b/d 400,000 b/d Kuwait Petroleum International 615,000 b/d ADNOC 600,000 b/d
sizable refining capacities coming online over 230,000 b/d 1.2 million b/d
the next decade (capacity increases of
ZHANJIANG SHENGHONG PANIPAT TUBAN
200,000 b/d or more).
Sinopec Shenghong Group IOC Rosneft, Pertamina
200,000 b/d 320,000 b/d 200,000 b/d 300,000 b/d
RUWAIS
ADNOC
600,000 b/d
Source: S&P Global Platts Analytics
18 © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. 19CEO interview CEO interview
A refiner’s view
demand is rising. Moreover, India is At Nayara Energy, we have invested in
expected to witness the fastest growth building capacity for cleaner and better
in oil and gas demand in the world, fossil fuels such as BS VI [or Euro
largely driven by industrialization and 6-equivalent fuels], solar power
urbanization. Gasoil and gasoline will plants in our depot and other
B. Anand, CEO of Indian refiner Nayara Energy, speaks with Sambit Mohanty continue to be important to meet the infrastructure, etc. and that plays
growing demand. We believe cleaner a pivotal role in decarbonization.
about what the future oil refining sector might look like in a decarbonized world and high-quality transportation fuel will In addition to this, we are also
play a significant role. diversifying our energy
India is one of the last countries still although no concrete plans have basket by building an
building mega-refineries, with capacity been firmed up yet. What does the future refining sector integrated petrochemical
of 247 million mt/year expected to grow look like in a decarbonized world? complex, making it
by 113 million mt/year in brownfield The refiner also wants to play a bigger among the world’s
expansions and 78 million mt/year of role in pushing cleaner forms of energy, Conventional fossil fuels and new largest integrated
new capacity by 2030. including solar energy and biogas, in generation alternatives will coexist in sites.
the future. S&P Global Platts’ Sambit the future. It is economic returns and
Nayara Energy operates the 20 million Mohanty sat down with the company’s energy security that will drive growth
mt/year Vadinar refinery, India’s top executive, B. Anand. for each of them. While there is an
second-largest private refinery. The increased focus on renewables, oil and
former Essar Oil was taken over in 2017 How is global refining technology gas will continue to remain essential
by a consortium of Rosneft, Trafigura evolving to accommodate components of the energy mix for many
B. Anand and United Capital Partners. demand trends? years to come.
CEO
Nayara Energy As investor concern builds around future Technology is at the core of our To keep up with the demand for
decarbonization of transportation fuels business. Today, we have the distinct energy, the government of India is
and stranded asset risk from standalone advantage of being one of the few undertaking several forward-
oil refineries, Nayara illustrates the refineries in the country that can looking policy initiatives
sector’s increasing shift toward process the most diversified crude across the value chain to
petrochemical demand. from around the world. enhance oil and gas
production, develop
In 2019, Nayara signed agreements The evolving refining technology and infrastructure and
with the state government in the digitization of processes is helping improve
western Indian state of Gujarat as part drive improvement in reliability, efficiencies
of plans to build petrochemical units, efficiency and capacity, backed by an within the
including a 450,000 mt/year agile and nimble supply chain. This is downstream
polypropylene plant and a 200,000 mt/ also marked by an enhanced capability sector.
year MTBE plant. Construction of the to process cleaner fuels that have low
units is expected to be completed by sulfur content.
the end of 2022.
Sambit Mohanty
Senior Editor Will refiners be able to adapt to
S&P Global Platts The proposed investment would expected long-term declines in
contribute significantly toward the gasoline and diesel demand
development of the Devbhumi Dwarka and focus on other products where
district, where the existing refinery at demand is not projected to fall, like
Vadinar is located. petrochemicals and jet fuel?
Nayara aims to eventually double its As one of the fastest-growing
refining capacity in the longer term, economies in the world, India’s energy
20 © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. 21Crude slates Crude slates
Lightening the load
environment, especially in Asia and US PERMIAN CRUDES GETTING LIGHTER
Europe for low complexity refining.”
UNITED STATES
OK AR
Phillips 66 is just one of several refiners
and midstream companies who are NM Midland
Rising supply of US light sweet crude oil is helping less complex refiners in Europe and Asia actively engaged in supporting the US Basin
crude export market, as US Gulf Coast
remain competitive as they work to meet tighter limits on sulfur in gasoline refiners are reaching their limits for
running light sweet crude in their
sophisticated coking plants. LA
An increase in the global supply of light European cracking margins for refiners Delaware TEXAS
Basin
sweet crude oil has been a boon to most running WTI MEH — US benchmark Phillips 66 expects to increase its API Gravity
refiners around the world, particularly West Texas Intermediate priced at current 400,000 b/d of crude export >56
those less complex plants lacking the Magellan’s East Houston terminal on capacity to 1.8 million b/d in 2022. In 51-55
deep conversion capacity necessary to the US Gulf Coast — averaged $5.89/b November, Phillips 66 started limited 46-50
handle heavier, more sulfurous and in November, according to Platts service on its Gray Oak Pipeline, which, 41-45
cheaper grades. Analytics margin data, a 55-cent when in full service early in 2020, will 36-40
premium over running local North Sea carry 900,000 b/d of Midland crude to MEXICORoad fuel regulations Road fuel regulations
Rules of the road
NATIONS TIGHTEN GASOLINE STANDARDS TO CURB AIR POLLUTION
ARCTIC OCEAN
Road fuels are evolving across the world as countries target air pollution by setting tougher
sulfur standards for gasoline and looking to blend in more renewable fuels
The road fuel market is set to evolve the gasoline-powered vehicles PACIFIC PACIFIC
OCEAN OCEAN
as refiners adapt to optimize gasoline produced since 2010. ATLANTIC
production and meet increased OCEAN
demand for higher octane fuels, and European consumers are becoming
Maximum sulfur limits
governments require lower sulfur more conscious about in gasoline, 2020 INDIAN
content and higher biofuel blending. environmental protection as well as OCEAN
0-10 ppm
vehicle efficiency.
11-50 ppm
The transition to cleaner road fuels
is evident in Europe’s gasoline The growth of the electric vehicle fleet 51-150 ppm
Solomon Lanitis market as nations move toward 10% will rise in importance in 2020, with 151-500 ppm
Associate Editor ethanol content in gasoline. countries such as the UK boosting Over 501 ppm
both the number of cars on the road No information/ Not regulated
The EN228 gasoline standard, which and the charging infrastructure. The
is widely adopted across Northwest UK offers grants of up to £3,500 for
Europe and became an EU directive, new electric cars, but the subsidy’s
Source: Stratas Advisors, S&P Global Platts
contains up to 5% ethanol, future is uncertain.
maximum 10ppm sulfur and
minimum 95 RON. The market is Another topic closely being
moving to E10, driven by EU-wide monitored is the growth in sales of
targets under the Renewable Energy higher-octane, or premium, gasoline Overshadowed by the whirlwind worthless,” said George Hoekstra, Hoekstra estimates that Tier 3
Directive and Fuel Quality Directive, in Europe, which commands a higher challenge of IMO 2020, US refiners faced independent oil consultant and credit supply is “minuscule
but it is implemented differently in price at the pump. Sales of higher- another major sulfur cut January 1 with expert on Tier 3 gasoline. In August, compared to likely demand,” which
Janet McGurty
each member state. octane fuel have grown steadily in the US Environmental Protection S&P Global Platts Analytics means prices will rise further.
Senior Editor
recent years, with a more advanced Agency’s Tier 3 gasoline specifications pegged Tier 3 credits at about
The Netherlands — the largest vehicle fleet across Europe’s more — requiring US refiners to reduce the $1,990/credit. “Tier 3 credits will go high enough
gasoline-exporting nation in Europe developed economies, although amount of sulfur in gasoline to 10 ppm that some refiners will pay
with over 1.29 million b/d of consumers’ environmental concerns from 30 ppm — going into full force. Hoekstra estimates that about 70% hundreds of millions of dollars for
capacity — introduced gasoline have somewhat capped the increase. of US refiners are not making 10 them in 2020, 2021, and 2022. It will
blended with 10% ethanol in Under the 2014 law, refiners had six ppm sulfur gasoline required by the be similar to how the RINs issue
October, joining Finland, Belgium, years to phase in capital Tier 3 gasoline specs. played out,” he said, referring to US
France, and Germany in the higher- US hard deadline for Tier 3 investments to be able to make renewable fuel credits.
ethanol blend at the pump. enough low-sulfur gasoline to meet “All refiners are compliant,” he
US refiners face challenges ahead for demand. In the interim, refiners said. “But not all refiners are But sources with knowledge of the
Concerns about higher ethanol both major road fuels, diesel and have been able to fill the gaps with making compliant gasoline. Most situation said most of the major
Mark Tan blends persist, particularly among gasoline. Diesel cracks climbed above credits while making Tier 2 gasoline. refiners who say they are Tier 3 refiners, like Chevron, Valero, and
Associate Editor Germany’s car enthusiasts, but the five-year average levels ahead of the compliant mean they will be Marathon, are already complying
consensus is that E10 can be used January 1 debut of the 0.5% sulfur limit As the deadline neared, the price of shipping off-spec barrels with the with Tier 3 gasoline requirements,
in around 90% of gasoline-powered for marine fuel the International Tier 3 credits spiked, while expiring intent to comply by buying credits and are building up Tier 3 credits
vehicles in Europe and in 99.7% of Maritime Organization mandated. Tier 2 sulfur credits “are nearly later at unknown future prices.” as a result.
24 © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. 25Road fuel regulations Road fuel regulations
One conundrum these refiners face is 3.39 million b/d in 2016, EIA data shows, desulfurization, but again we believe months before the deadline. Major But higher taxes and insurance costs 500 ppm maximum sulfur. Nigeria is
that reducing the amount of sulfur in imposing a ceiling on reformate prices. octane loss will be manageable,” turnarounds at Indian refineries boosted have dampened vehicle ownership in the leading importer of European
gasoline also reduces the octane level, Reformate barges on the US Gulf Coast according to Platts Analytics. demand for spot gasoline imports to India amid a slowing economy, and the gasoline, taking about 281,000 b/d,
at a time when car manufacturers are are averaging $2.26/gal so far in the first plug supply gaps, which raised prices pace of decline in auto sales has typically from the Amsterdam-
making cars with higher-performance quarter, compared with the $2.10/gal and caused new trade flows to emerge. accelerated as a liquidity crunch in the Rotterdam-Antwerp hub.
engines that require more octane. average in Q1 2019. Asia tightens sulfur limits shadow banking sector has dried up
New refining capacity is making the lines of credit to both auto dealers and
While increased hydrotreating will US alkylate capacity has also grown to In Asia, developing economies’ Asian gasoline pool lower in sulfur, with potential car buyers. Changing benchmarks
reduce the sulfur content in gasoline, it 1.38 million b/d in 2019 from 1.29 million embrace of lower sulfur limits will have integrated refineries such as Malaysia’s
also strips out more octane. New b/d in 2016, according to EIA data, a major impact on trade flows. RAPID plant and Brunei’s Hengyi, among India’s implementation of Euro Recognizing the need to stay relevant
hydrotreating catalysts that minimize helping to mitigate rising octane costs. others, having the capability to make 6-equivalent gasoline specifications in the increasingly cleaner gasoline
octane loss have been installed in China adopted the Euro 6-equivalent lower-sulfur fuels. could dampen gasoline demand, as space, S&P Global Platts undertook
many refineries and will help staunch While the price spread between USGC China VI standards in 2019, placing the happened in China last year. several changes in 2019 in its ongoing
the octane loss, according to 87 regular gasoline and USGC 93 region’s biggest exporter of gasoline Chinese state-owned refiners are commitment in providing robust price
Platts Analytics. premium gasoline octane has become among the top five countries in Asia increasing their focus on India as an assessments that reflect regional
more expensive on the USGC, it has not with strict emission standards, such as outlet for gasoline. For example, Sulfur shift seen in Africa trade flows. Platts amended the
Platts Analytics estimates that cat moved excessively, according to Platts neighbors South Korea and Japan. Petrochina sent its first MR-sized cargo specifications for the benchmark FOB
gasoline from the main gasoline- assessments. The difference was 18.49 to Indian state-owned Hindustan Expanding Asian refining capacity Singapore 92 RON unleaded gasoline,
making fluid catalytic cracking unit cents/gal in early Q1 2020, compared Historically, China plays a large role in Petroleum Corp. Ltd. in October. has also opened opportunities for 95 RON unleaded gasoline and 97 RON
accounts for about 30% of the US with 16.67 cents/gal in Q1 2019. the gasoline market, with 2020 exports cargoes to move to West Africa, unleaded gasoline on July 1, 2019,
gasoline pool, with reformate, alkylate, expected to surpass the 2019 average Asia’s gasoline demand growth which historically have been very rare. following a prolonged consultation with
naphtha and other components making The IMO bunker change could of around 380,000 b/d. weakened sharply to below 190,000 b/d market participants.
up the rest. exacerbate gasoline sulfur content in 2018 from close to 500,000 b/d in West Africa is a major gasoline
removal. Low sulfur vacuum gasoil — a Gasoline-hungry India is set in April to 2015, and it is expected to fall to importer that still allows a sulfur The change dropped the sulfur
And thus any octane loss could “be commonly-used feed for fluid catalytic adopt the Bharat VI standard, which is 150,000 b/d in 2019, mainly from the content of up to 1,000 pm — 100 times content for all three gasoline grades
alleviated by increasing reformer cracking units — may be pulled away from similar to Euro 6 specifications and slowdown in China amid trade tensions the limit of Europe, the US, China, and to a maximum of 50 ppm from 350
throughput and severity,” according to the gasoline pool to blend with fuel oil to limits sulfur content to 10 ppm from the with the US and a slump in vehicle sales. soon, India — although it too is feeling ppm, as well as lowering the
Platts Analytics. make lower sulfur distillate for bunker use. current 50 ppm. global pressure to curb emissions. maximum limits of several other
India’s gasoline demand rose to specifications, such as final boiling
US catalytic-reforming capacity has “This might put some added pressure on The market impact of India’s shift to 700,000 b/d in 2019, from 668,000 b/d A recent Nigerian National Petroleum point, aromatics limit, olefins limit,
increased to 3.49 million b/d in 2019 from cat gasoline hydrotreaters to do more lower-sulfur gasoline started appearing in 2018. Corp. tender sought gasoline with and Reid Vapor Pressure.
26 © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. © 2020 S&P Global Platts, a division of S&P Global Inc. All rights reserved. 27You can also read
