Refineries may shut on less demand, new projects: Goldman

New York

THE global refining industry is entering a consolidation phase as slowing oil demand growth is set to coincide with large-scale projects that will start coming online next year, according to Goldman Sachs Group Inc.

The demand hit from the coronavirus is yet to cause any delays in a number of mega-refining projects, most of which are in China and the Middle East, that will start operations from 2021 to 2024, the bank said in a note. This will cause global utilisation rates to be 3 per cent lower over this period than in 2019.

"We expect competition to intensify leading to below consensus - and mid-cycle - refining margins over 2021-22 and potential refinery closures in developed markets," analysts including Nikhil Bhandari said in the note. Global oil demand will return to pre-virus levels by 2022, they said.

Emerging markets will provide the bulk of oil consumption growth in the first half of the decade and the new mega-refineries will be located close to where the demand is. This means refinery closures will be more likely in developed nations.

Among oil products, gasoline will lead the recovery in fuel demand, the lender said. The outlook for distillates is more challenging as jet fuel's recovery will be slower and diesel consumption will be hit by the uptake of electric vehicles in the medium term. In addition, the new mega-refineries are distillates heavy. BLOOMBERG

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