Integrated Refineries: Macroeconomic Trends

GlobalData Thematic Research 26 August 2020 (Last Updated August 26th, 2020 14:42)

The conventional model, where refiners generate revenue primarily by processing crude oil to produce transportation fuels, is increasingly under threat from falling fuels demand, particularly in Europe. This threat could be amplified further in the aftermath of the Covid-19 pandemic.

Integrated Refineries: Macroeconomic Trends

An integrated refinery, where refining and petrochemical units are interconnected, is an approach designed to make refinery operations more sustainable.

Listed below are the key macroeconomic trends impacting integrated refineries, as identified by GlobalData.

Population growth

Increasing global population is one of the key factors supporting the sustained rise in demand for downstream products. During the five years to 2019, global population grew at a CAGR of 0.9% to around 7.7 billion. An important consideration in this population growth is that people aged 25 to 49 are accounting for a 35 share of the total. These youngsters are driving the demand for a wide range of commodities, especially consumer electronics and household products, which are manufactured using plastics and other petrochemicals.

Emerging economies

Rapid growth in emerging economies has become one of the major features of industrial expansion in the last decade or so. Countries, such as China, India and Brazil have observed a rise in per-capita income. This new found upward social mobility has constructively lifted people’s consumption pattern in these countries. Demand for gasoline, diesel, and petrochemical products has seen a strong correlation with this rise in consumption. As economic growth in these countries is expected to continue, it is likely to create a massive opportunity for refinery and petrochemical operators.

Covid-19 outbreak

To mitigate the spread of the Covid-19 virus, many countries started imposing nationwide lockdowns from the first quarter of 2020 that stretched for over two months. This brought all forms of transportation virtually to a halt and temporarily wiped out the global demand for fuels. Due to this unprecedented scenario, refiners were forced to either reduce their capacity utilisation or suspend operations. Total SA reduced the throughput at its Leuna refinery in Germany by about 25%. The company also delayed the restart of its Feyzin refinery in France.

In this situation, petrochemical units continued to observe steady demand for polyethylene-based products, for the healthcare and food industries. There was also a demand for isopropyl alcohol based sanitisers, and other essential goods that allowed petrochemical plants to function, albeit at lower throughput.

The pandemic also has severely impacted the construction of several upcoming projects due to labour and material shortages. This includes the construction of 12 units at the Abadan I refinery in Iran. ExxonMobil has deferred the expansion of its Beaumont refinery in Texas citing low fuel demand. There are concerns that fuel demand may never return to pre-pandemic levels. This may force refiners to reconsider their expansion plans and focus on producing more petrochemicals for growth and sustainability.

This is an edited extract from the Integrated Refineries (Oil and Gas) – Thematic Research report produced by GlobalData Thematic Research.