The refining industry estimates that the world has lost 3.3 million barrels of daily capacity since 2020.
Drivers around the world are feeling pain at the pump with skyrocketing fuel prices, and the costs of heating buildings, power generation, and industrial production are rising.
Prices were already high before Russia invaded Ukraine on February 24. But since mid-March, fuel costs have soared, while crude prices have risen only modestly. Much of the reason is a lack of adequate refining capacity to process crude into gasoline and diesel to meet high global demand.
How much can the world’s refineries produce daily?
In general, there is enough capacity to refine about 100 million barrels of oil per day, according to the International Energy Agency, but about 20% of that capacity is not usable. Much of that unusable capacity is in Latin America and other places where investment is lacking. That leaves about 82-83 million bpd in projected capacity.
How many refineries have closed?
The refining industry estimates that the world has lost a total of 3.3 million barrels of refining capacity daily since the beginning of 2020. About a third of these losses were in the United States, with the rest in Russia, China and Europe. . Fuel demand plummeted early in the pandemic when lockdowns and remote work were widespread. Before that, refining capacity had not decreased in any year for at least three decades.
Will refining pick up?
Global refining capacity will expand by 1 million bpd per day in 2022 and 1.6 million bpd in 2023.
How much has refining decreased since before the pandemic?
In April, 78 million barrels per day were processed, well below the pre-pandemic average of 82.1 million bpd. The IEA expects refining to recover over the summer to 81.9 million bpd as Chinese refineries come back online.
Where is most of the refining capacity offline and why?
The United States, China, Russia and Europe are operating refineries at lower capacity than before the pandemic. US refineries have shut down almost a million bpd of capacity since 2019 for various reasons.
Nearly 30% of Russia’s refining capacity was idled in May, sources told Reuters. Many Western nations are rejecting Russian fuel.
China has the most available refining capacity, exports of refined products are only allowed under official quotas, granted mainly to large state-owned refining companies and not to smaller independent companies that own much of China’s spare capacity.
As of last week, run rates at China’s state-backed refineries averaged around 71.3% and independent refiners were around 65.5%. That was higher than at the beginning of the year, but low by historical standards.
What else is contributing to high prices?
The cost of transporting products on ships abroad has increased due to high global demand, as well as sanctions on Russian ships. In Europe, refiners are constrained by high natural gas prices, which drive their operations.
Some refineries also rely on vacuum gas oil as an intermediate fuel. The loss of Russian vacuum diesel has prevented some from restarting certain gasoline-producing units.
Who is benefiting from the current situation?
Refineries, especially those that export a lot of fuel to other countries, such as US refineries. Global fuel shortages have pushed refining margins to record highs, with the key 3-2-1 crack spread approaching $60 a barrel. That has generated big profits for US-based Valero and India-based Reliance Industries.
India, which refines more than 5 million bpd, according to the IEA, has been importing cheap Russian crude for domestic use and export. Production is expected to increase by 450,000 by the end of the year, the IEA said.
More refining capacity is scheduled to come online in the Middle East and Asia to meet growing demand.Share This