In this second in a series of blogs produced in collaboration with IIR Energy – a leading supply side global market intelligence player servicing the commodity trading community – we discuss anticipated capacity changes across the globe and consider their potential impact on market dynamics.
- Despite many challenges within the global petroleum refining industry, there exists a golden opportunity for grassroots developments to be located close to supply sources and growing end-user demand.
- Some specific new refinery projects worth noting include the Dangote Group’s Lekki Refinery in Nigeria, the Olmeca refinery in Mexico, and Kuwait Integrated Petroleum Industries Company (KIPIC)’s Al Zour Refinery.
- Fully understanding the impact of expected capacity changes on market dynamics is only possible with access to complete, reliable and up-to-date data and analytics.
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Understanding projected capacity
As outlined in our first blog within this series, the global petroleum refining industry is, inter alia, tasked with delivering sufficient refined products to meet growing post-Covid 19 demand.
The highly dynamic nature of the global crude supply landscape presents an array of challenges for producers, but when it comes to meeting demand, a golden opportunity exists to locate grassroots refining capacity near both crude supply sources and end-user demand.
IIR Energy’s Senior Director of Energy Market Intelligence, Hillary Stevenson, explains that the company is tracking over two dozen grassroots refinery projects currently under construction across Africa, Asia and Latin America.
Analysis of these projects reveals that a projected volume of 1.4 million bpd is already nearing completion, while nearly 3 million bpd day capacity could be online as early as 2025.
Stevenson further points out that 2023 itself is a significant year for refining capacity, “Several long-awaited projects – including Dangote, Al Zour and Karbala, to name a few – are anticipated to complete this year and this will bring global refining back to 2019 levels.”
Future capacity beyond 2025 is subject to final investment decisions (FIDs), which could still be impacted by potential delays and/or cancellations.
Drilling down: a snapshot of some specific refinery projects
Some projects worth noting include:
- Dangote Group’s Lekki Refinery in Nigeria – which will consume local crude supply and has been designed to reduce imports of refined products into the country – will be the biggest refinery in Africa and will increase the country’s refining capacity to 3.24 million bpd. The refinery will have one single 650,000 bpd crude distillation unit which, once commissioned, will be the biggest unit by capacity in the world. Stevenson notes, “The market is watching this start-up very closely, especially as it pertains to how much crude it will process. Our research shows that the plant is expected to operate at 50% capacity until downstream units are operational, which may not be until 2025.”
- The Olmeca refinery (previously Dos Bocas) in Tabasco, Mexico, is a 340,000-bpd project that will process local crude. The refinery is an ambitious project and has experienced a number of challenges to date. Jim Mitchell, Head of Americas Oil Analysts, Refinitiv, explains further, “This project has been highly politicised since inception and has been impacted by issues ranging from theft to maintenance challenges. In addition, distribution challenges persist – neither the local docks nor the pipeline infrastructure can readily facilitate efficient distribution.”
- Kuwait Integrated Petroleum Industries Company (KIPIC)’s 615,000 bpd Al Zour Refinery in Kuwait began construction in 2016 but has experienced several delays. Two of the planned three units have been commissioned but have experienced operational issues. These have delayed the commissioning of the third crude train, expected later this year, according to IIR Energy. This world-class, 615,000 bpd project can switch feedstocks based on economics, thus reducing operational and price risk. It will consume local crude supply.
Understanding the potential impact of capacity changes
Mitchell comments on the potential impact of these developments on global markets and flows, “Dynamic capacity scenarios impact crude and fuel markets in different ways. In this snapshot alone, we have looked briefly at Nigeria, Mexico and Kuwait – three sophisticated producers that are all poised to bring new refining capacity to the global playing field. This will have a knock-on effect, not least of all in terms of putting other, less efficient refineries out of business and driving increased competition in this space.”
Against this dynamic backdrop, industry players need complete, reliable and up-to-date data and analytics if they are to fully understand the impact of capacity and other changes.
To empower stakeholders to develop a more holistic view of the industry, Refinitiv and IIR Energy have collaborated to create a powerful combination of detailed operational knowledge and accurate, trusted data: IIR’s PetroCast Live, available on the Refinitiv platform, delivers comprehensive, real-time data on global refining operations, enabling users to more accurately predict the price of crude and refined products and make better, more informed decisions.
In the last blog within this series, we will unpack some pertinent environmental, social and governance (ESG) related initiatives in different parts of the world and look at how these could help to drive broader global energy transition goals.