2017 saw an uptick in new capacity additions but also several significant unplanned outages that helped to keep the market tight.
Total major capacity additions for 2016 totaled only 200 thousand barrels/day. While planned additions for 2017 were a much higher 1 million barrels/day, much of this was planned for late in the year and delays have pushed some into 2018.
With demand growth of about 1.5 million barrels/day, it is not a surprise that there was some market tightening.
Adding to tightness were several significant and unrelated outages:
- European outages – A number of individual European refineries experienced unexpected plant-wide outages through the year including: Shell, Pernis (420 kbpd); ENI, Livorno (84 kbpd): Hellenic, Ellefsis (100kbpd): and Total, Leuna (210 kbpd).
- Pemex system – Throughput for the entire Pemex system was down 400 thousand barrels/day. This was partly due to earthquake damage at the Salina Cruz refinery but also more widespread difficulty in maintaining operational throughput.
- Gulf Coast – The Gulf Coast saw 1.5 million barrels/day lower throughput in September and November due to multiple hurricanes and related severe flooding across the region.
Refiners should not count on similar trends in 2018. The number of outages in 2017 was unusually high and is unlikely to be repeated. More importantly, the full effect of higher rates of new capacity investment should become apparent in 2018 and persist at similar or higher rates for the next two years. If anything, recent higher margins could accelerate the timing and expand the capacity of new additions.
Strong product demand growth may (just) be enough to keep the market tight and margins strong. But the market should be closer to the edge of oversupply, with the risk that any slowdown in demand pushes the industry back to falling utilization and lower margins.
Tim Fitzgibbon is a senior industry expert based in Houston.