Around the world, announced capacity rationalizations will total more than one million b/d by end 2016. ESAI Energy explains, however, that refining capacity closures are likely to be much higher. In its recent Global Refining Outlook, ESAI Energy forecasts weaker refining margins that will put economic pressure on marginal capacity in Europe and Asia. Meanwhile, changing government policy will put even more capacity at risk in Asia and Russia. According to ESAI Energy’s Chris Barber, “The total capacity at risk of closure by end 2016 is as high as two million b/d.”

Europe’s refiners have already announced plans to rationalize 320,000 b/d of capacity by end-2016. FSU countries will shutter another 280,000 b/d of refining capacity. In Asia, refiners have plans to cut 420,000 b/d of capacity in Taiwan, Australia and Japan. Reports also suggest that Saudi Aramco is planning to close its 88,000 b/d Jeddah refinery, now that two new joint venture refineries are operating. Altogether these announced capacity rationalizations total 1.1 million b/d.  

“On top of announced cuts,” Barber says “policy changes in Japan, China and Russia put as much as an additional 700,000 capacity at risk of closure by end 2016”. Another round of rationalization is expected in Japan by March 2017 under a new directive from METI, putting as much as 300,000 b/d at risk of closure before the March 2017 deadline. A new crude import quota policy for independent refiners in China will put as much as 240,000 b/d of additional capacity at risk of closure. ESAI Energy has also identified another 160,000 b/d of capacity at risk in Russia, as changing product export duties mean Russia’s refiners are less protected from international price dynamics.
Source: ESAI Energy