Global oil refining capacity will shift away from OECD countries and focus on supplying petrochemical feedstocks and transport fuels over the decades to come, according to the IEA.
Total refined products demand continues to grow in the period to 2040 under the New Policies Scenario of the IEA's World Energy Outlook (WEO), with growth in petrochemicals demand, aviation, freight and marine fuel pushing it higher. The New Policies Scenario is the energy watchdog's main scenario.
Global refining capacity rises by 16mn b/d by 2040 against a backdrop of an average 400,000 b/d annual increase in oil demand, under the IEA's main scenario, which is based on existing and announced government policies. The global capacity at risk by 2040 is little changed from last year's WEO at 14.7mn b/d, up slightly from 14.6mn b/d in last year's report.
A major regional shift is seen, with the role of European, American and OECD Asia Oceania refiners continuing to shrink, making way for new capacity in the Middle East, India and China.
Europe's refining sector bears the brunt of refinery run cut, with a 3.7mn b/d drop in refinery runs from 2015 to 2040, taking throughput down to 10mn b/d. European refinery runs fall to 11.8mn b/d by 2025. Refinery runs in North America also decline, shrinking to 18.2mn b/d in 2025 and 16mn b/d in 2040, down from 19.3mn b/d in 2015.
In stark comparison, refinery runs in the Middle East are expected to climb by over 80pc over the same period to 11.6mn b/d — overtaking Europe — helped along by a 4.3mn b/d net increase in capacity. Middle Eastern refinery runs reach 10.1mn b/d in 2025. Strong throughput growth and capacity additions are also expected in China, India, Southeast Asia, Africa and Brazil, while North America and OECD Asia Oceania will see throughput reductions and capacity cuts. Asian refinery runs rise to 30mn b/d in 2025 and 35.2mn b/d in 2040, up from 27.3mn b/d in 2015.
Changing regional demand patterns partly explain the refining industry's shift towards the non-OECD regions. European, US and Japanese oil demand keep falling in the IEA's main scenario, dropping by a total 10.9mn b/d from 2015 to 2040, while Chinese, Indian, Middle Eastern and African demand will climb by a combined 15.7mn b/d. Refiners from both oil exporting regions, such as the Middle East and Russia, and traditional refining centres, including Japan and Korea, are expected to branch into sub-Saharan Africa in their search for growing markets. The key justification for new investment in this region will be the lack of transport fuel availability, albeit towards the end of the 2015-2040 projection.
Gasoline demand underpins much of the swing to non-OECD regions. It climbs by 5.5mn b/d in the non-OECD region, but falls by the same amount in the OECD, creating an 11mn b/d demand shift from OECD to non-OECD. Diesel demand shows a similar trend. Increases in shipping and road freight push diesel demand up by 3mn b/d by 2040, but demand from passenger vehicles will only grow until the early 2020s. Thereafter, falls in demand from EU drivers will increasingly outweigh growth in non-OECD countries, so that by 2040 global diesel use for passenger vehicles will fall below 2015 levels.
Kerosine demand will grow fastest, buoyed by increasing demand from the aviation sector in both non-OECD and OECD regions. Aviation demand rises by 60pc to 9.3mn b/d in 2040 from 5.8mn b/d 2015, but kerosine demand for heating in OECD countries and for lighting and cooking in non-OECD areas will drop away.
Along with transport fuels, petrochemical feedstocks — naphtha, LPG and ethane — will make the largest contribution to overall oil product demand growth from 2015-2040, with their share of total oil product demand climbing from 12pc to 15pc. Petrochemical feedstock demand rises by 5mn b/d to 15.7mn b/d in 2040 from 2015. "While the share of natural gas rises slightly in the petrochemical sector and there is a small uptake in the use of bio-derived feedstocks, this does little to erode a 50pc increase in oil use in this sector between 2015 and 2040," the IEA said.
Fuel oil demand will also continue to fall until 2020, with the latest IMO ruling — a global bunker fuels sulphur cap of 0.5pc to be in place by 2020 — likely to further curtail demand. Demand from the shipping industry will continue to rise by 1.9pc per annum between 2015-2040, despite energy efficiency improvements and the use of larger ships, which typically have a better t-km ratio than smaller vessels. LNG is expected to account for about 13pc of shipping fuel demand by 2040. Oil use in the power generation sector declines to 2.9mn b/d in 2040 from 5.4mn b/d in 2015.
The global car fleet doubles, but oil demand for passenger cars falls as efficiency gains, biofuels and electric cars undermine demand. The electric vehicle market keeps growing, but will have a limited impact on the oil market: 300,000 b/d of demand will be displaced by electric vehicles by 2025 and 1.3mn b/d by 2040. But the impact within individual countries will be much greater. In Denmark, Finland, Iceland, Norway and Sweden, electric vehicles will make up 16pc of the total fleet, with sales supported by high taxes on fuels and conventional cars and CO2 reduction commitments. China is expected to be the largest market for electric vehicles, with over 11pc of its cars electric by 2040.
