Plan to pivot Demand for petrochemicals and liquid
• Feedstock differentials drive the slope of the curve, with the absolute level of refining margins determining the number of sites that are cash negative. With our outlook of medium-term demand growth outpacing capacity additions, global refinery utilisation and refining margins remain at healthy levels until peak oil demand is passed. Falling global demand pressures refinery throughput, lowering utilisation, and driving the commercial performance of competitively weak assets to margins that challenge their viability. European refineries are particularly exposed, as domestic demand is already declining. Figure 6 shows how much lower European gross refining margins are relative to the global composite. European refiners are further challenged by the cost of carbon emissions, with the EU Emissions Trading System (ETS) carbon price scheme projected to rise to more than €150 per tonne in the early 2030s. Each refinery is unique, but categorisation of assets into quadrants by integrated net cash margin and emissions intensity identifies the target attributes (high earnings and low emissions intensity). Competitive assets with high emissions intensity are to focus investments on emissions-reduction projects. Competitively weak assets have a dilemma: sustained crude oil processing may not be commercially viable within the next two to three major turnaround cycles, so they need to plan to pivot toward higher-value opportunities.
renewables, particularly SAF, is projected to grow strongly over the medium to long term, providing an opportunity in stark contrast to the declines projected for road fuels. Petrochemical integration is an essential feature of grassroots facilities and major upgrades planned for refineries in the Middle East and China. It is not a pragmatic opportunity for most competitively weak refining sites in Europe, as they are unable to provide sufficient feedstock for world-scale petrochemical facilities without a significant transformation (crude-to-chemicals facility) that would be very capital intensive. For European sites, pivoting means shifting to supplying liquid renewables, thereby becoming an integral part of the circular economy. SAF represents a strong growth potential, as shown in Figure 7 . An increasing number of economic unions, countries, and states within countries are adopting policies to support the uptake of SAF, with the EU adopting the most stringent policies in terms of the carbon intensity of the feedstock. The provision of SAF will depend on multiple technologies, as while HEFA-SAF technology is mature and investment is growing fast, there are limits to the availability of sustainable feedstocks and there will be competition from road fuel decarbonisation. The first commercial Alcohol-to-Jet (ATJ) plant is now operating. However, the availability of low-carbon-intensity ethanol represents a long-term challenge to the growth of this technology route. Biomass-to-
Liquid (BTL) project commercialisation offers a wide feedstock pool but remains technically challenging. Start- ups and new entrants dominate the e-SAF project landscape, but high e-SAF costs and project complexity slow project development. It is important to note that liquid renewables
70
18%
BTL
HEFA ATJ
16%
60
Share of global jet fuel demand e-SAF
14%
50
12%
40
10%
8%
30
6%
20
4%
10
2%
0%
0
2020
2025
2030
2035
2040
2045
2050
Figure 7 Global SAF demand forecast by fuel type.
Source: Wood Mackenzie Liquid Renewable Fuels Service
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