Already Gone, Part 2 - Refinery Shutdowns Around the World

We often tend to focus on the U.S. refining picture, but, just like crude oil, refined products trade globally, and international closures ultimately have the same effect as domestic ones on the worldwide products market. Recent international closures have been distributed throughout the world — concentrated in developed countries, including several in Europe, as well as Japan, Singapore, Australia and New Zealand, but also in some developing economies like South Africa and Sri Lanka. Most of these capacity reductions were driven by the same forces as in the U.S., namely, poor economics as a result of the pandemic-lockdown-driven demand plunge in 2020 and 2021, as well as expectations that margins would take a long time to recover post-COVID. Of course, worries that the energy transition and policies to that end would suppress demand in the long-term also played a key role, as did some fundamental competitiveness issues at individual facilities. In today’s RBN blog, we take a closer look at the more than 2 MMb/d of international capacity closures since 2019.

The first blog in this series reviewed the roughly 1.3 MMb/d of North American refinery capacity reductions that have occurred since 2019, and the additional 400 Mb/d planned to be taken offline over the next two years. But unlike in the U.S., where the refining industry had been adding capacity prior to 2019, Europe has experienced a long-term decline in refining capacity due to sluggish demand and decreased competitiveness. Since 1980, the continent’s refinery capacity (excluding Turkey and the former USSR) has fallen by almost 8 MMb/d (a decline of more than a third; stacked bars in Figure 1). Most recently, Europe lost about 3 MMb/d of refinery capacity from 2006 through 2017 (dashed red box), before a brief “European Spring,” inspired by lower crude costs and a bump in demand, led to a few years of better margins. The good times came to an abrupt end with the COVID-related lockdowns, and since the beginning of 2020, Europe has lost an additional 800 Mb/d of refining capacity through complete and partial closures.

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