It is critical in a globally competitive commodity market such as refining to understand the relative competitive position of your site. Wood Mackenzie measures competitiveness in terms of net cash margin, but given that the energy transition drives towards lower emissions, it is important to assess relative carbon emissions from refining operations. Figure 5 shows the distribution of assets when assessing net cash margins and emissions intensity, categorising sites into four quadrants. The ‘target’ quadrant is the important place – above-average net cash margin and below-average emissions intensity. Moving from other quadrants into the target involves either investment to add value or emissions reduction. The requirement for both suggests to us that such sites may be at risk of closure or divestment from the portfolio (by owners who have multiple sites). Decarbonisation of operations is a key focus for European refiners due to their exposure to the high cost of emissions from the EU’s emissions trading scheme. Europe’s introduction of the carbon border adjustment mechanism puts site decarbonisation not just on the agenda of refiners in Europe but also refiners who export product to Europe, the US, the Middle East, China, and West Coast India. Value drivers beyond refining are essential Given that the energy transition turns oil demand growth negative in the early 2030s, investments to sustain value growth need to be in sectors beyond transport fuels.
65% 67% 69% 71% 73% 75% 77% 81% 79% 85% 83%
120
110
100
90
80
Crude intake CDU capacity Average utilisation rate
70
60
2010
2020
2030
2040
2050
Petrochemicals and liquid renewables are the obvious candidates. Petrochemicals is the traditional extension of the refinery value chain, as there are synergies in the production of both fuels and commodity chemicals in an integrated facility. Petrochemicals typically achieve significantly higher prices than transport fuels and so add value. The value uplift does, however, depend upon the health of the petrochemical sector. Figure 6 shows this, as in 2021, the value uplift from petrochemicals was strong. However, in 2022, there was little additional value as the Russia/Ukraine conflict drove transport fuel crack spreads to unprecedented highs. During the latter part of 2022, a significant surplus petrochemical capacity emerged in China. Despite this apparent contradiction, integrated sites demonstrate: Figure 4 Global refinery capacity, utilisation, and throughput Source: Wood Mackenzie Product Markets Service
700
Median
Close/divest
Reduce emissions
600
500
400
Median
300
Integrated site Re ning-only site
200
100
Invest
Target
0
-25
-15
-5
5 Integrated NCM ($/bbl)
15
25
35
Figure 5 Emissions intensity vs Integrated NCM, Global, 2021-2022 Source: REM-Chemicals, PetroPlan
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