Refining capacity additions in Asia-Pacific must focus on meeting petrochemical demand in order to be viable, as a slowdown in transport fuel growth and competition from China pressure margins, participants at the Argus Crude Live virtual conference said.
Global refining overcapacity is likely to prevail for the rest of this decade, although it will fall from more than 3.5mn b/d this year to around 1.5mn b/d by 2030, according to Argus forecasts. Asia is the only region where fuel demand is expected to increase over that period.
China has added around 2.7mn b/d of refining capacity in the last five years, with up to another 1.7mn b/d due to come on line by 2025, Argus estimates. The expansions have outstripped growth in domestic transport fuel demand and sent more oil products into export markets. This has combined with lower demand for transport fuels because of the Covid-19 pandemic and weaker margins to leave over 500,000 b/d of regional capacity at the risk of closure, mainly in Australia, New Zealand and the Philippines.
But most downstream expansions in China are now geared primarily to meeting demand from the petrochemical sector, as growth in gasoline and diesel consumption levels off ahead of a peak as early as 2025. The 400,000 b/d Changxing refinery operated by Hengli Petrochemical and Rongsheng's 800,000 b/d ZPC plant that have come on line since 2019, as well as Shenghong's 320,000 b/d Lianyungang refinery that will start up later this year, have minimised transport fuel output in favour of petrochemical feedstocks.
Capacity additions elsewhere in Asia are likely to mirror this trend. Oil demand in Asia-Pacific is recovering from the impact of Covid-19 more quickly than in other markets, and transport fuel consumption in markets such as India could return to pre-pandemic levels within 3-5 years, conference participants said. But margins are unlikely to recover enough to support the case for new refineries focused on transport fuel production.
The conference discussions were held under Chatham House rules, which preclude media from identifying the participants.
