Asian and European refinery margins falling

Over-capacity and falling demand add new pressure to European refiners

The Middle East has been spared from the downstream woes felt by European refiners.
The Middle East has been spared from the downstream woes felt by European refiners.

Refinery throughputs suffered a rapid decline throughout Q3 2013, with Europe and Asia-Pacific shouldering the majority of the burden, as dismal refining margins and maintenance programs took their toll on industry profitability, says a new report from research and consulting firm GlobalData.

According to the company’s latest report, Europe has suffered more than any other region from the reductions in refining margins, due to its over-capacity and sliding demand amid a lingering economic recession, which has destroyed companies’ hopes of profitability.

Furthermore, approximately 1.2 mmbd (million barrels per day) of the region’s atmospheric distillation unit capacity was removed for maintenance purposes in Q3 2013, with many plant turnarounds expected to extend into Q4.

However, with imports of gasoline, gasoil/diesel, jet kerosene and all other hydrocarbon products being readily available from the US, Middle East, India and Russia, GlobalData says there is little urgency to bring these plants back on-stream even after the planned work has been completed.

Jeffrey Kerr, GlobalData’s Managing Analyst for Downstream Oil & Gas, says: “Additionally, a number of Europe’s refineries are currently waiting on the auction block, and those that remain unsold are under threat of being transformed into terminals by their owners, thereby taking this capacity off the market forever.”

Heavy maintenance was also seen in North America, where close to 1 mmbd of atmospheric distillation capacity was taken offline, as refiners changed over their equipment from gasoline production to heating oil production in preparation for the approaching winter heating season.

A further 500 mbd (thousand barrels per day) of crude capacity was under maintenance in the Asia-Pacific region in Q3 2013, with some of this work planned to continue on into Q4.

Kerr continues: “Asia-Pacific’s refining industry is also feeling the bite of reduced margins, as refiners are required to buy crude oil at international market rates and then sell their products at either government-set or subsidized prices in some of the larger countries, such as China. Either way, their profitability is, and will remain, hampered.

“What’s more, a number of smaller refineries, such as those in Australia and Japan, are in danger of closing due to the high costs required to upgrade them, presenting us with a somewhat bleak outlook both for this region and the whole of Europe, as long as crude oil prices stay lofty,” Kerr concludes.

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