A wave of new distillation capacity underscores the inevitability of more refinery closures in Europe and other markets. Global refiners will add nearly two million b/d of distillation capacity in the coming 12 months. This compares to less than 300,000 b/d of capacity growth in the last 12 months. The coming crest will further undermine the profitability of marginal refiners, especially in Europe. As a result, Europe will be under pressure to cut another 250-350,000 b/d in the next 12 months, according to ESAI Energy’s recently published Global Refining Outlook.

The most dramatic shift is in Asia. In the last 12 months, rationalization in Japan and Australia more than offset new capacity in that region, leading to a decrease in Asian capacity. The coming year will see both China and India add substantial capacity. All combined, new capacity less rationalization in OECD Asia will result in a net increase of 950,000 b/d of distillation capacity in the coming 12 months. Elsewhere, big refinery projects in Saudi Arabia and the U.A.E. will lead to the addition of an anticipated 900,000 b/d of capacity in the Middle East. The next 12 months will also see capacity expansions in Latin America and the U.S.

“The wave of new capacity makes 2015 a turning point for Europe’s refining sector,”  says Christopher Barber, Manager of Refining at ESAI Energy. “This fall, wider diesel spreads temporarily give European refiners some breathing space. But in 2015, new capacity elsewhere will make European refiners even less profitable. The announced capacity cuts by ENI are a start, but they will not be enough”, asserts Barber. “Europe will need to cut more than 250,000 b/d by 2015  just to maintain minimal operating rates similar to the past four years.”
Source: ESAI Energy