What’s fueling the global downstream market?

Things are looking challenging for the global downstream market. With MARPOL regulations scheduled to go into effect on January 1 and the energy transition well underway, the outlook is more complex than ever. With that in mind, what can we expect to see within the downstream market? What, besides major factors like MARPOL and the energy transition, will shape the market going forward, and what developments might emerge in the coming few years?

We answered these questions and more at our recent webinar “Three factors fueling the global downstream market.” If you’d like to dive into the details, check out the recording, or read through some of the questions asked by audience members below.

Q: When will we start to see some impact of IMO 2020?

A: We are already seeing some indication of lower fuel oil prices in forward markets. However, most of the effect will likely appear just before implementation as ships actually stop buying HSFO. 

Q: What is your estimate of compliance to the regulation by the shipping industry?

A: We believe that there will be a high level of compliance through a mixture of scrubber investment, switching to VLSFO, and switching to marine gasoil. We assume non-compliance in 2020 will be less than 10%.

Q: What is the risk to diesel demand from EV penetration?

A: We expect EV adoption to easily penetrate the light duty vehicle segment, displacing gasoline and diesel demand. However, there is uncertainty around the pace of EV adoption in the heavy-duty segment, which will help maintain diesel demand’s growth relative to gasoline.

Q: Given the rationalization of refining capacity in Europe, where and how will Europe's product demand be met?

A: The rationalization in Europe will be driven by falling demand for European refining from a combination of lower local market demand and increased imports, especially from the Middle East, as global overcapacity causes Middle East exports to redirect to Europe.

Q: Would rising petrochemical demand for naphtha cause naphtha to become more valuable than gasoline?

A: We believe naphtha supply from NGLs and lighter crude slate will largely match growth in petrochemical demand for naphtha. Additionally, we believe the flexibility to blend more or less light naphtha into the global gasoline pool at current price relationships to gasoline is far larger than any uncertainty in the naphtha supply demand balance. Consequently, prices should not change significantly for better or for worse.

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