During the novel coronavirus pneumonia, consumption of fuel dropped sharply, accelerating the transfer of refining capacity from North America to Europe, and accelerating the transformation and upgrading of refinery capacity from old and small refineries to modern, high capacity large refineries.
The result is a wave of refinery closures that barely survived the 2008-2009 recession.
Since 2007, fuel consumption in most parts of North America, Western Europe and Japan has stagnated or declined due to improved energy efficiency. Refineries in North America, Europe and Japan have been trying to protect declining market share, which puts downward pressure on profitability. The problem of overcapacity was covered up in the period of strong economic growth, but exposed in every crisis.
Unlike Western Europe, North America and Japan, fuel consumption in the rest of Asia has grown rapidly over the past decade. Since 2009, the region’s three sub markets – West Asia (with the Gulf region as the center), South Asia (with India as the center) and East Asia (China) have contributed more than two-thirds of the world’s oil consumption growth.
Refining capacity continues to grow in Asia, and refineries are often built near consumer centers to match consumption growth, as it makes it easier to transport products.
Asia and the Middle East account for 43% of global refining capacity, almost equivalent to their 44% share of global oil consumption, compared with 33% in 1999.
Asian refineries are more competitive because they are closer to growing markets, can handle mass production, have better economies of scale, and are equipped with more modern and sophisticated equipment.
In the 1960s and 1970s, the minimum effective capacity of new refineries was between 100000 and 250000 barrels per day, but in the 10 and 20 years of the early 21st century, the capacity of refineries was usually 300000 to 400000 barrels per day or more.
New ultra large refineries usually have integrated petrochemical plants that enable them to produce higher value-added chemicals and lower value fuels. As a result, new large refineries can extract a larger share of valuable products from the same crude oil at a lower cost, surpassing their North American and European competitors.
Facing the shrinking domestic fuel market, refiners in North America and Europe are finding it increasingly difficult to make up for this gap by increasing fuel export earnings.
As the average size and complexity of new refineries increase, the oldest, smallest and least complex refineries have become uneconomical. The result is a wave of refineries being shut down and terminals, tank farms and pipelines being transformed into import terminals.
Most of the closed refineries are located in North America and Europe, but smaller, older, fuel only refineries in other parts of the world, including Australia and the Philippines, have also been hit.