Wood Mackenzie’s latest long-term oil products market forecast shows that a surplus of gasoline is expected to flood the market as early as 2017, which, combined with a deficit of middle distillate and fuel oil, will put significant pressure on refiners by the end of the decade.
The global research and consulting firm says this will mark a turning point for the refining industry, which is currently struggling to meet gasoline demand growth of approximately 420 thousand barrels per day (kb/d), thanks to refinery outages in Latin America and the delayed ramp-up of new facilities in the Middle East.
As a result, the oil products market has remained tight and refiners are enjoying healthy margins, aided by low oil prices, which have helped to reduce costs.
However, in the longer term, Wood Mackenzie says it expects global oil demand growth to slow, lowering gasoline demand, thanks to increasing efficiency and alternative fuel sources. In particular, there will be strong growth in liquefied petroleum gas (LPG) supply from natural gas liquids (NGLS) in North America and the Middle East, causing margins to bottom out at minimum sustainable levels for Europe and Asia by 2019.
Furthermore, the ramp-up of three new refineries in the Middle East (which together will add 1.2 million barrels per day (mb/d) in capacity), plus the stabilization of operations in Venezuela, could compound any prolonged period of oversupply.
Refiners will continue to invest in refining operations to meet global demand and to comply with environmental legislation, which could cause an additional 5.5 mb/d in net refining capacity by 2020. This would put pressure on Europe and Asia for further capacity consolidation while the US refining sector may also start to suffer.
The latest oil product analysis from Wood Mackenzie, which tracks 745 operational refineries globally, shows that gasoline yields are expected to increase 1% over the next 15 years. The firm says that, even if no new refineries are built beyond 2020, there will still be an oversupply of gasoline globally for several years (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, the Middle East, and Africa.