Decarbonisation Technology - February 2025 Issue

growth and a re-balancing of the economy has diesel/gasoil as the highest-demand growth fuel in 2025. Higher demand requires a greater volume of liquid renewable blending. There are also two key policy support elements – the first is California’s revisions to its Low Carbon Fuels Standard (LCFS). The low LCFS credit price seen over the past two years reflects an oversupply of low carbon intensity fuels, which has prompted the regulator to accelerate its carbon intensity reduction targets to capture the faster progress. The carbon intensity reduction target for 2025 has been increased by 9%, with the 2030 target raised from 20% to 30%. This will tighten the credit market in 2025 and subsequent years. The second mechanism is the European Union's requirement that aviation fuel contain a 2% minimum share of sustainable aviation fuel (SAF) by volume in 2025. As shown in Figure 4 , this provides a material uplift to the demand for SAF, which will improve the economics of renewable liquid supply during 2025 and beyond. The EU’s requirement for greater use of renewable and low-carbon fuels in the maritime sector also adds support to the demand for liquid renewables. Besides the broader risks of tariffs and trade, the key risks to the outlook for liquid renewables are, again, policy-related. Firstly, policy can be volatile, with Sweden providing an example, as in August 2024, it increased the blending obligation to 10% from July 2025 onwards. Secondly, there is the risk that the small refiner exemption returns under the Trump presidency. This policy exemption eliminated the obligation for refiners under 75,000 b/d of crude input to blend the minimum volumes of renewable fuels into their products. x Commodity chemicals In 2025, global ethylene capacity is poised to resume its growth, with 8.8 Mtpa of new capacity coming online, the majority of which will be contributed by China. However, China’s investment in PDH facilities is expected to slow, which could help ease the long-term oversupply in the propylene market. Olefin margins are expected to remain under pressure in 2025. While stronger GDP growth is forecast for 2025, it will be challenging

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depress oil prices by around $5-7/bbl in 2025, with further declines likely thereafter. v Refining The CDU capacity investment wave witnessed in 2024 eases after Q1 2025, with crude distillation capacity effectively flat after Q1 as announced closures (PetroIneos at Grangemouth and LyondellBasell in Houston) and re-configurations (such as Shell at Rhineland) take place. Global refinery utilisation remains broadly flat as refinery projects commissioned in 2024 reach full commercial operations. Refining margins are projected to remain at current levels through 2025. Oil demand growth can be met by the additional capacity that has become operational during 2024. The slow return of OPEC+ volumes should enable VLCCs to remain in distillate service for some time, keeping downward pressure on freight rates and limiting the upside to refining margins. The potential imposition of US import tariffs provides an upside to US refining margins, given the support this will provide to US ex-refinery gate prices on gasoline, which is still imported in significant volumes into the US Atlantic Coast. Higher US crude runs represent a downward risk to refiners elsewhere, which, when combined with weaker global oil demand growth, could lower global composite gross refining margins for 2025 from ~$5/bbl by $2.5/bbl. w Liquid renewables The outlook for liquid renewables in 2025 is positive, as our outlook for stronger economic Figure 4 SAF expected demand from all offtake agreements by region