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Global downstream outlook to 2035

Perspective on global refining markets and projections to 2035.

Our Global Downstream Outlook—based on data and insights from Energy Insights’ models—outlines recent trends in global refining and presents our outlook on supply, demand, and margins. The outlook also offers a perspective on how changes in global refining capacity, regulations such as MARPOL, and developing economies will affect refining utilization, crude and product balances, and trade flows.

Executive summary

The global refining market in 2018 saw significant capacity additions coincide with slower demand growth. Looking ahead, more global capacity is slated to be added in the near term, which will lead capacity to continue to outpace demand growth. As a result, utilization rates are poised to slip.

European utilization rates should dip below 70 percent by 2023 due to declining demand and the region’s sensitivity to capacity additions in Africa, Asia, and the Middle East. While Asia’s long-term outlook remains strong, its utilization rates will also dip in a similar fashion as Europe, to 73 percent by 2023. After 2023, growing demand will lead Asia’s utilization to steadily increase to over 80 percent by 2026 and higher after that. The US Gulf Coast’s unique market conditions—including refinery complexity, access to cheap natural gas, crude pricing at export parity, and strong demand for product exports—will cause utilization rates to remain in the mid-80s for the foreseeable future.

Five key findings

Supply and demand outlook

Strong production increases in the Americas and Middle East will offset falling production in Asia and Africa, leading global crude supply to grow at 0.2 percent per annum to 2035. Meanwhile, refining distillation capacity will grow by 1.2 percent per annum in the next four to five years, adding almost 7 million barrels per day (MMb/d) of capacity, with most of the capacity additions in Asia and the Middle East. However, higher supply of non-crude-based material, particularly from biofuels, will reduce the need for refining, and demand growth will slow from the current 1.2 percent per annum to 0.5 percent per annum until 2035.

Balances and flows outlook

As we have seen, global capacity additions show no sign of slowing down, leading to overcapacity in the near term and lower utilization in Asia and Europe through 2024 as a result. Asia’s crude slate will become lighter as the region imports more light tight oil and replaces falling Russian and Asian crude supply with US and Middle Eastern crudes.

For increasing product flows, the majority will take place in Africa, South Asia, and Southeast Asia—fast-growing regions that rely on imports to meet product demand.

Future of prices and margins

The outlook for prices and margins is deeply dependent on MARPOL regulations which go into effect on January 1, 2020. MARPOL will increase the light/heavy and diesel/gasoline differentials by $13 to $17 per barrel and $3 to $8 per barrel, respectively, in 2020. MARPOL will also push sweet crudes to be priced higher relative to sour crudes from 2020 to 2022. But after 2022, these premiums and discounts should transition back to historical levels.

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