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Global refining review: part two

Hydrocarbon Engineering,

The full version of this article is available in the November 2011 issue of Hydrocarbon Engineering.

While the global financial crisis has had a negative impact on all major markets, most countries in the rapidly developing Middle East and Asia have managed to avoid recession, continuing to grow, in some cases quite strongly, while Western markets have foundered. Buoyed by persistent industrial demand and a young and increasingly affluent middle class, both regions have managed to grow their economies, as well as their oil demand, even as global demand levels declined year on year through the depth of the economic downturn in 2008 - 2009.

The Middle East

Though they have slowed over the past few years, Middle Eastern economies have continued to grow through the downturn. Global project finance slowed to a trickle in 2008 and 2009, bringing much of the speculative construction and infrastructure spending to a halt. However, a lot of the state backed investment in energy projects has continued, addressing the inevitable prospect of continued demand for OPEC oil as the global economy recovers to pre 2007 levels and resumes its upward trajectory. KBC anticipates global oil demand growth will continue on a trend of approximately 1 - 1.5 million bpd through 2020, allowing for some variation high or low in any given year. The medium term need for more crude oil and, more recently, the supply of petrodollars from US$ 100+ crude oil has kept the economies of the Arabian Gulf growing while others have declined.

Middle Eastern refiners may actually have perceived the financial slowdown as a small reprieve from booming domestic demand pressures that saw many Arabian Gulf countries importing refined products. In effect, the slowdown gave regional supply a chance to catch up through the addition of a number of large scale new refinery investments expected on stream within the next five years. Major projects in the Gulf are starting to come to market this year with the start up in Qatar of the Pearl GTL complex. These will be followed by three new refineries in Saudi Arabia, major expansions of the Ruwais refinery in Abu Dhabi and the Sohar refinery in Oman, to be followed by additional new grassroots capacity both in Oman and Kuwait. The combined impact of all of these new refineries will be to add nearly 3 million bpd of new refining capacity in the Gulf over the next decade.

Assuming all of these projects are built, the Gulf region will become a significant product exporter, with a potential surplus of approximately 1 million bpd of refined products and petrochemicals by 2016. KBC anticipates that these refineries will run hard, backed with crude supply from domestic sources. One key justification for expanding refining capacity in the region is to create more quality technical employment and secondary economic growth in Arabian Gulf countries.

Asia and Pacific

Although the economic crisis has been felt less in Asia than in other markets, the region’s refiners have still borne their share of the pain of global overcapacity in the refining sector. Refining margins under pressure have limited the economics of merchant refining for international trade. This has especially hurt refiners in Australia and Japan, where smaller scale, simpler refineries with relatively high operating costs have met with a collapse in domestic demand as a result of recession and abundant supplies from larger, more efficient refiners across the region.

Although the earthquake and tsunami of early 2011 may have given a brief reprieve to Japanese refiners, in the longer term Japan will face capacity closures as regulations from the Ministries of Economy, Trade and Industry compel Japan’s energy companies to increase the average complexity of their refining assets. Rather than invest, most have said they will idle marginal capacity, which is expected to remove more than 1 million bpd from Japan’s refining base by 2014. Australia will also see refining capacity idled with the closure of Shell’s Clyde refinery, currently anticipated for 2013. Others may follow.

China and India as leaders

The region’s two main economies, China and India, continue to account for the lion’s share both of product demand growth and refinery investment. China’s role in propping up global economic growth over the past few years is hard to overstate. While the rate of GDP growth has slowed modestly, it is still delivering near double digit annual economic growth, and with it robust demand for energy of all forms. Chinese oil demand surged by over 1 million bpd in 2010 and is expected to grow by approximately 500 000 bpd /y over the next decade, taking Chinese demand to over 14 million bpd by 2020.

Other Asian markets

As the global economy stalled, numerous Asian downstream projects seemed to unravel, though there are emerging signs of a renewal of interest in some markets. Indonesia was probably the hardest hit, as a number of new refinery projects appear to have collapsed, along with the proposed expansions and upgrades of the existing Pertamina assets, many of which were being developed as joint ventures with Asian regional oil companies. Vietnam has also seen a slowing of its refinery expansion plans following the successful start up of the 130 000 bpd Binh Son refinery, Vietnam’s first, in 2009.


The global financial crisis has been less burdensome in Asia and the Middle East than in other regions. Consequently, developments in these markets have been less transformative than they have been in the Atlantic Basin, though disrupted financial markets have had an impact, particularly on more speculative new project intentions.

 The full version of this article is available in the November 2011 issue of Hydrocarbon Engineering.

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