IEA sees no slowdown in refining capacity additions

The IEA said today that refining capacity additions will sharply outpace product demand growth in the next five years, as consumption of road fuels stagnates.

It said global oil demand will grow by around 950,000 b/d each year in 2020-25, which would be one-third slower than growth in the last 10 years. Transport fuel markets will bear the brunt of this change, as engine efficiency improves and electric vehicles take greater market share.

The increase in demand for refined products, of around 4.4mn b/d in total over that period, will be surpassed by refiners adding 6.2mn b/d of capacity, it said. More than 70pc of those capacity additions are in countries that are already net exporters of refined products.

The IEA said the weakest growth in demand over the 2020-25 period, at just 90,000 b/d per year on average, will be for gasoline. By the end of the forecast period, improved efficiency standards and electrical vehicle uptake will curb this demand growth to just 50,000 b/d per year, it said. Demand will decline in the US, the world's largest gasoline market, and in much of the OECD, and this will be barely offset by gains in China and elsewhere.

It expects diesel demand to hardly perform better, growing on average by 110,000 b/d per year in 2020-25.

Proportionally, kerosine and jet fuel demand growth will outstrip all the other transport fuels. Demand will grow by around 90,000 b/d each year, like gasoline, but from a much lower base.

The IEA shifted upwards its demand forecast for low-sulphur fuel oil to 1.3mn b/d in 2020 and to 2.1mn b/d in 2025. Demand for the high-sulphur equivalent (HSFO) will fall by 60pc this year before stabilising. Marine gasoil (MGO) demand will rise by 490,000 b/d in 2020, but will subsequently decline by 70,000 b/d per year in 2021-24 as it gets displaced by low-sulphur fuel oil and by higher uptake of exhaust scrubbers. Around 1.1mn b/d of HSFO will be burned in vessels using scrubbers in 2025, compared with 700,000 b/d in 2020, the IEA said.

The IEA expects naphtha, LPG and ethane to contribute half of all oil demand growth in 2020-25, as consumption of plastics rises.

Capacity growth will again be concentrated in China, which is set to add 1.8mn b/d by 2025 mainly in large petrochemical-integrated projects. Notably, the abundance of light-sweet crude is reducing the need for complex refinery unit upgrades. This "fit into the picture of both supply and demand developments," the IEA said, citing weakening demand growth for both gasoline and middle distillates.

"The premium transport fuels that support refinery margins are most susceptible to replacement by alternative fuels and technologies such as electric vehicles, compressed natural gas vehicles, and LNG-fuelled trucks" it said.

By Benedict George and Harry Riley-Gould