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REM-Chemicals - $2.15/bbl REM - $0.90/bbl
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Integrated re nery petrochemical sites Standalone fuels re neries Re ning only
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Figure 3 European Refining Competitive profile (2019, US$/bbl)
Portfolio rationalisation will be critical to focus investment on sustainable sites The falling demand for liquid fuels means not all refining sites will survive. Companies with multiple sites, such as the oil majors, have a portfolio to manage, with carbon emissions being a key metric to identify those that are sustainable for the coming decades, as shown in Figure 4 . The four quadrants reflect the relative position of sites reflecting their net cash margin position and their carbon emissions. The characterisation reflects Wood Mackenzie’s thesis that future sites need to be both competitively strong and low emissions to be sustainable as these provide cashflow to support both investment and returns to investors. Key actions are identified by quadrant. There are several sites in the ‘invest’ category – these are competitively weak but low emissions intensity. The challenge for owners is to establish whether a major expansion/upgrade can be commercially viable. This challenge is too much for those in the ‘divest/close’ category, as those sites are currently low margin and high emissions intensity and so they are likely to be converted to storage sites or liquid bio-facilities (following the examples from Eni and TotalEnergies). For those sites that are competitively strong, the requirement is to deliver low carbon operations through: • Fuel efficiency improvements and process electrification
sectors. Refining also has a key role in supporting the development of a circular economy through the chemical recycling of petrochemicals and conversion of municipal solid waste. The challenge facing the sector is that these technologies are still under development and so are not yet commercial, even at Europe’s current high carbon costs. Refiners need to be prepared to partner with others to pilot new technologies and approaches to deliver low carbon fuels. Government policies are critical to ensuring early-stage projects are nurtured and form the basis for future industry deployment at far larger scales. For this to be successful, these investments need to be made at a commercially viable conversion sites that are generating cash for both future investment plus providing a return to investors. Our REM-Chemicals research confirms that large integrated refinery/petrochemical sites dominate the first and second quartile competitive positions. These are the sites best placed to adapt to the challenge of the energy transition. Petrochemical integration has many benefits, including that the additional value from a major petrochemical investment significantly outweighs the additional costs of carbon emissions, given the synergies that are available between refineries and liquids-based steam cracking. Not all sites, however, can support such investments and so refiners need to consider their portfolio of site options.
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