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Aug-2020

Spending your way out

Assuming that this pandemic has an end-point, businesses in general and refiners more than most would prefer a restoration of near-normal to some realignment of reality. Will max-oil arrive much sooner? Perhaps.

Chris Cunningham
PTQ

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Article Summary

Will we all drive electric by the end of the decade? Probably not. And what about young chemical engineers in search of a career path? What is their view of oil refining for a reliable future? So far, there are plenty of statements on the breeze, but few certainties.
At PTQ’s press time, Europe’s refiners through their trade body, the European Petroleum Refiners Association, set out their view on a ‘climate neutral’ industry by 2050. The association’s task is to coordinate with the European Union executive; 2050 is a target set previously by the EU. The refiners were detailing some practical requirements for climate neutrality in the form of a ‘potential pathway’. They base their case on the development of low carbon liquid fuels for road, marine, and air transport, meaning second and third generation biofuels and green hydrogen. Next comes the financial hit: “To deliver such a pathway an investment estimated between €400 to €650 billion will be needed.”

Provided the cash is to hand, the pathway indicates that a cut of 100 million t/y in carbon dioxide output from the transport sector could be possible by 2035. At the end of the road to 2050, the refiners say, automobiles would have largely shifted to electric drives, so that the market for liquid fuels in transport would fall to as little as a third of current levels, or about 150 million t/y of liquid fuel products. The balance of demand from air, sea, and heavy road transport would be met by liquid fuels.

Finding the finance to at least kick-start this pathway to mid-century may prove troublesome for the foreseeable future. In mid-June oil prices were dipping significantly for the first time since April while margins were already running at low levels, especially in Europe where diesel is in heavy over-supply. The tipping point for some upstream operations, particularly shale oil production, continues to loom. BP, meanwhile, has earmarked up to $17.5 billion of operating write-downs to counter continued low prices and declining demand.

The International Energy Agency has been tracking investment in energy projects all the more closely in response to the pandemic. At the start of 2020 the IEA projected a rise in investment spending of perhaps 2% on the year. Lower demand, reduced earnings, and restricted movement of people have hit the energy industry particularly hard and so wrecked a once-reasonable estimate. The current year is likely to experience the biggest decline in energy investment on record, by a fifth, or almost $400 billion, set against spending in 2019.

By aggregating investment data and announcements the agency has revised its estimates. Petroleum based operations are taking the biggest hit, largely because of cuts to movement by land and air which together account for nearly 60% of the world’s demand for oil. At the height of the crisis in April, year-on-year demand for oil was down by around 25 million b/d. At best, demand in 2020 could slip by an average 9 million b/d, which is where we were in 2012.

This short article was the editorial forward in PTQ's Q3 2020 Issue

You can view the issue HERE


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