London, March 25, 2010
A challenging period lies ahead for the European refining industry, according to international energy consultant Purvin & Gertz in its annual update of its Global Petroleum Market Outlook. The economic recession and resultant fall in demand has already put pressure on the industry leading to refinery closures and potential refinery sales. Refinery utilisation levels have fallen to their lowest levels since the 1980s and refining profitability has been poor.
Although some recovery in demand is expected as European economic growth re-establishes, efficiency gains, particularly in the transport sector, and some fuel substitution in other sectors result in little overall demand increase over the next ten years. The only significant growth areas continue to be jet fuel and diesel but even here growth is expected to be more moderate due to efficiency improvements. As a result, middle distillate, which includes jet fuel and diesel, is expected to grow from its current proportion of about 54% of demand to 63% by 2030.
In addition the United States, Europe’s traditional market for its excess gasoline, will require fewer imports in the longer term, also due to car efficiency gains. These factors, in combination with refinery capacity increases, primarily in the Middle East and Asia, in the next few years and EU environmental legislation, are expected to result in further European refinery capacity closures. Purvin & Gertz expects that over 1 million barrels per day of less competitive refining capacity will close, or re-configure, in Europe to bring refining margins back to more profitable levels. As a result, Europe will become even more dependent on imports of jet fuel and diesel from other regions; by 2020 net imports of middle distillate will account for 20% of European demand.
On a more positive note, refining margins for more complex refineries may be helped by the changes to marine bunker fuel specifications mainly affecting Northern Europe in 2015. The change is expected to result in an increase in demand for marine diesel at the expense of heavy fuel oil thereby strengthening prices for middle distillates and refinery profitability.
Despite the low growth in demand, refined products will continue to supply a major part of the European energy mix for the foreseeable future and a viable and efficient refining industry will be essential to support the European economy.
For further details please contact Colin Birch or Damian Kennaby at Purvin & Gertz’ London office on +44-207-632-1280 or through this website.
About Purvin & Gertz
Purvin & Gertz is an employee owned independent energy consulting firm providing technical, commercial and strategic advice. Purvin & Gertz specialises in providing services to clients involved in the production, processing, transportation and marketing of oil, natural gas and gas liquids, and petroleum products. Headquartered in Houston, the firm consists of an international network of offices in Buenos Aires, Calgary, Dubai, Long Beach, London, Moscow and Singapore.