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June 24, 2020updated 26 Oct 2021 11:41am

Impact of Covid-19 on Asia Pacific refinery sector

By GlobalData Energy

Nationwide lockdowns across the Asia Pacific region to curtail the spread of Covid-19 has resulted in a steep decline in demand for transportation fuel. This has resulted in piling up of stocks and higher inventory costs, which have forced refineries in the Asia Pacific to look for alternative strategies to reduce losses. Capping production capacities, cutting capital expenditure and stalling avoidable projects have become a norm for several refiners to conserve cash and sustain the crisis.

While several refineries in the Asia Pacific have reduced their operating capacities, a few others have decided to suspend operations to navigate through the current crisis. SK Innovation Co Ltd’s Ulsan refinery (South Korea) is currently operating at 85% due to a sharp fall in fuel demand amid the Covid-19 outbreak. In India, Kochi refinery operated by Bharat Petroleum Corp Ltd has reduced nearly a third of its 311 mbd production capacity. Few other refineries such as the Limay and Tabangao in the Phillippines have suspended operations to tackle the devastating impact caused by the virus.

In addition, some companies in the region have reduced their CapEx in response to the economic slowdown caused by the  Covid-19 pandemic. PetroChina Company Limited has also reduced its 2020 CapEx guidance by a third, bringing it down to nearly $28.9bn, while PT Pertamina cut CapEx from the initially planned $7bn to $6bn, indicating the magnitude of the impact of the current crisis on the region’s refinery sector.

Refinery operators in the region may look to restructure their businesses to evaluate diverse opportunities. Review of delayed or stalled projects based on demand, prices and profitability is likely to become vital. Automation and digitalisation may take centre stage, which can reduce dependencies on the human workforce while equipping refiners to tackle a similar pandemic crisis in the long run.

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