By Mark Jaffe, EUCI energy writer
A combination of demand for refined products and limited refining capacity will keep margins high through 2035 for the global refining industry, but a drop in demand for gasoline and the rise in biofuels will pressure the sector after 2040, according to consultant Rystad Energy.
“Refining margins are expected to stay elevated compared to historical levels,” Rystad Energy said in its sector analysis. “Refiners should leverage this to prepare for long-term decline in demand for refined fuels.”
In the short term, after reaching historic highs in 2022 and 2023, there will be pressure on margins for the next two years from weaker growth in demand and new capacity additions – including the Dangote refinery in Nigeria, Duqm in Oman, and Kuwait’s Al-Zour.
After that, however, margins will remain strong through 2030 as demand of about 1 million barrels a day outstrips capacity growth of about 750,000 barrels a day.
While demand for gasoline will decline in western countries with the adoption of more electric vehicles (EVs), in the East, demand for naphtha and transportation fuels will grow.
“North America and the Middle East, with their complex refineries and access to competitive feedstock, are well-positioned to maintain profitability and increase exports,” Rystad Energy said. “Margins in Asia are forecast to remain robust, while Northwest Europe faces declining demand, higher energy costs, and intensifying competition.”
From 2040 on, demand will begin to decline as the share of gasoline produced drops and that of biofuels increases. This will put pressure on refining margins. It will also lead to the need to cut 25 thousand barrels a day of capacity.
The demand for gasoline wanes across most regions, with North America and China in the forefront of the decline. Africa remains the exception.
Diesel demand is expected to remain strong across regions creating a situation where refiners having to keep utilization high to meet diesel demand end up also producing more gasoline even as demand and prices for the fuel fall.
Hydrocracking units, with their ability to produce both naphtha and diesel, are projected to be attractive investment opportunities, the analysis said.
“To stay competitive in the short and long term, refineries must decide how to invest for maximizing margins, responding to biofuel competition and reducing emissions,” Rystad Energy said.
Among the trends refiners will have to navigate are a rise in demand for petrochemical feedstocks, even as traditional fuel demand declines, and expanding biofuel capacity, which will further reduce fossil fuel demand in the long term.
“The combined change in total liquids and biofuel supply causes a significant shift in the demand mix for refined products,” the Rystad Energy analysis said.
In its scenario for the mostly likely path for refining Rystad Energy projects gasoline’s share of total demand falling to 17% in 2050 from 29% in 2024. Meanwhile, sustainable aviation fuels rise from zero to 14% of total jet fuel-kerosene demand.
Bioethanol triples to 21% of total gasoline demand and biodiesel grows from about 4% of total liquids demand in 2024 to 9% of total diesel demand in 2050. Naphtha’s share is expected to rise to 22% from 9%, while diesel from refineries maintains a steady share.
“Global refining is being reshaped by the shift from gasoline-dominated markets in the West, driven by EV adoption, to rising petrochemical demand in the East,” Rystad Energy said. “After peak demand in the mid-to-late 2030s, global refining margins will come under increasing pressure as refinery closures fail to keep pace with declining demand.”
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