The coronavirus pandemic will slow the pace of refinery expansions, but the market will still see significant overcapacity in the years ahead, OPEC said Oct. 8 in its latest long-term outlook.
OPEC expects about 3.8 million b/d of new refining capacity to come online by 2022, it said in its World Oil Outlook. While that growth will slow down significantly after that, the market will not require that much capacity, OPEC said, with about 2.5 million b/d of refinery closures expected by 2025, mostly in Europe, the US and Canada.
From 2025 to 2045, another 6 million b/d of refinery capacity will be shuttered to keep utilization rates at sustainable rates of around 80%, OPEC said.
"We do see a necessity for closures in the medium term, but also in the long-term," said Haris Aliefendic, an OPEC analyst who contributed to the report, in a press briefing. "We will see some kind of consolidation wave, similar to what we saw from 2012 to 2016 or 2017."
COVID-19 caused refinery utilization rates to hit record lows in the first half of 2020 and the continuing slump in demand has caused a build-up of refined product stocks.
OPEC estimated in the outlook that global oil demand could peak in 2040 at 109.3 million b/d, before declining gradually in the subsequent years.
Refinery throughputs will increase to 87.3 million b/d in 2035, and then fall to 87 million b/d in 2045, "in line with the demand slowdown and the rising share of non-refinery streams," the outlook stated.
The vast majority of distillation capacity additions will be located in Asia, the Middle East and Africa, according to the outlook.
"Due to the demand drop related to the COVID-19 outbreak, the cumulative gap between potential refining capacity and required refining capacity will be around 8.5 mb/d in 2020, narrowing to around 4.8 mb/d and 4.3 mb/d in 2021 and 2022, respectively," the report stated.
It estimated that required downstream investment between 2020 and 2045 would total $1.5 trillion, of which $415 billion would be needed for new refinery capacity and $1.1 trillion for maintenance and replacement.
