Argus Live: Vitol says refining faces overcapacity

Oil products demand will fall short of pre-pandemic levels in 2023-24, while the global refining industry faces "a wave" of new capacity coming online in the same period, trading firm Vitol's head of research Giovanni Serio told the Argus Crude Live virtual conference today.

Serio suggested that the global refining industry is facing overcapacity. He said he expects global oil products demand to fall short of 2019 levels — by around 3mn b/d — in 2023-24, partly because Covid-19 has accelerated the energy transition, especially in Europe.

Meanwhile, refiners in the Mideast Gulf plan to add a total of 2mn b/d of capacity by 2023, with expansions of around 2.5mn b/d in Asia-Pacific and 600,000 b/d in North America adding to the surplus, Serio said.

The start up of "more complex refineries" in the Mideast Gulf, such as Saudi state-controlled Aramco's 400,000 b/d Jizan refinery on the Red Sea coast and Kuwaiti Kipic's 615,000 b/d Al-Zour refinery will add additional pressure to the already bloated global refining capacity, he said.

While the two plants are unlikely to run at full rates their imminent start will especially weigh on refineries in the Mediterranean, which are already been struggling with overcapacity and weak margins, he said.

In the Mediterranean region, Spanish integrated Cepsa mothballed a crude distillation unit (CDU) at its 220,000 b/d Huelva refinery last year as a result of weak margins. The north European refining sector is likely to come under similar pressures, as the region has already introduced "more decisive policies on renewable energies" in the transport sector, he said.

"Europe tends to be the one that bears the brunt of global [refinery] expansion" because of a lack of access to cheap crude, which has already resulted in shutdowns, Serio told Argus Crude Live delegates.

While Europe has been at the forefront of refinery rationalisation, the effects of Covid-19 have accelerated the energy transition and prompted plant conversions to biofuels as an alternative to permanent closures.

In northwest Europe, Portuguese integrated Galp plans to close its 110,000 b/d Porto refinery at the end of March. Total has taken steps to convert its 93,000 b/d Grandpuits refinery near Paris into a 400,000 t/yr biorefinery, scheduled to start up in 2024.

By Florence Schmit