Baku, Azerbaijan, Aug. 24
By Dalga Khatinoglu -- Trend:
Wood Mackenzie says the global oil product market could experience a surplus of gasoline supply as early as 2017 which, combined with a deficit of middle distillate and fuel oil, would put significant pressure on refiners by the end of the decade.
According to a Wood Mackenzie's report obtained by Trend on Aug.24, this is in contrast to the current picture, with refiners benefiting from low oil prices, unplanned refinery outages and slower than expected ramp-up of new facilities which have helped keep oil product markets tight. However, Wood Mackenzie cautions that oil demand growth will eventually slow in the long-term thanks to increasing efficiency and alternative fuel sources. By 2019 Wood Mackenzie expects margins to fall to the minimum sustainable level for some refiners and identifies key market indicators that could see gasoline cracks bottom out at low levels last seen in 2013.
According to Wood Mackenzie's latest long-term oil product market forecast, a surplus of gasoline is expected to flood the market as early as 2017 - in contrast with what's happening right now, where refiners are struggling to meet gasoline demand growth of approximately 420 thousand barrels per day (kb/d). Jonathan Leitch, a Research Director for oil product markets research at Wood Mackenzie explains: "Although gasoline cracks have been very strong this year, we could see a complete reversal in the market in just two years. The outlook for 2016 remains similar and in many ways stable, but in 2020 we start to see a glut of gasoline supply developing - in excess of 30 million tonnes - which doesn't go away for a decade."
The latest oil product analysis from Wood Mackenzie - which tracks 745 operational refineries globally - shows that gasoline yields are expected to increase by 1% over the next 15 years. This means even if there aren't any new refineries built beyond 2020, there will still be an oversupply of gasoline globally for several years. Wood Mackenzie says this is the result of falling demand in the key market of North America, combined with continued declines in Europe and Asia, which offsets most of the demand growth seen in the emerging Asian economies, Latin America, Middle East and Africa.
Wood Mackenzie asserts that at present refiners are enjoying healthy margins due to several factors: low oil prices have reduced costs, while refinery outages in Latin America and slower than expected ramp-up of new facilities in the Middle East have all caused global refining capacity, and therefore supply, to lag compared to demand. However, Wood Mackenzie cautions that global oil demand growth will eventually slow in the longer term due to increasing efficiency and alternative fuel sources - lowering global gasoline demand. In addition the ramp up for three new refineries in the Middle East, which combined add 1.2 million barrels per day (mb/d) in capacity plus the stabilization of operations in Venezuela could be key indicators of the prolonged period of oversupply.
Leitch says, "Surplus supplies coupled with the continued growth of alternative fuel products from outside the refining system - increasing by 1.8 million barrels per day (mb/d) between 2014 and 2020 from products such as biofuels and gas and coal to liquid products by 2020 - means that there will be increasing pressure on refinery margins. We expect to see particularly strong growth in liquefied petroleum gas (LPG) supply from natural gas liquids (NGLs) in North America and the Middle East, and by 2019 margins could bottom out at minimum sustainable levels for Europe and Asia. We expect to see gasoline cracks come down and margins weakening again - taking us back to levels where we were last year and in 2013."
"Refiners will continue to invest in refining operations to meet global demand and increasing stringent product specifications to comply with environmental legislation, which could see an additional 5.5 mb/d in net refining capacity by 2020. This would put significant pressure on Europe and Asia for further capacity consolidation and the US refining sector could also start to suffer, particularly in areas without access to export markets," Leitch adds.
Edited by CN