Financing refinery expansion
The Paris-based International Energy Agency (IEA) expects record oil demand in 2023, ramping up from its current 100 million bpd to almost 104 million bpd by 2024.
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To no one’s surprise, China will drive most of this demand (almost 48%). What may be surprising is that additional growth in oil production and refining is set to come from the highly regulated USA oil and gas industry, including downstream refining and petrochemical capacity. For example, Exxon is adding a 250,000 bpd crude distillation unit at its Beaumont refinery on the Gulf Coast, increasing capacity by 65% to 412,500 bpd, while their nearby Baytown facility is incorporating an advanced plastics recycling plant processing exceeding 80 million pounds of plastic waste per year, based on Exxon’s proprietary “Exxtend” recycling technology.
The expected new global refining capacity in 2023 mainly includes diesel, which is in higher demand than gasoline. Against this backdrop, Europe is loading up on Russian diesel prior to the ban that begins February 5, as per the price cap on Russian fuel exports by EU, the G-7 and its allies. The loss of Russian barrels means Europe will have to replace about 599,000 bpd of diesel from Russia. This partly explains why 4.7 million bpd of refinery hydrocracking capacity will be added globally from new grassroots and expansion projects, taking total global refinery hydrocracking capacity to 15.3 million bpd by 2024.
What seems to be developing is that increased crude shipments from Russia to India allows Indian refiners to sell diesel product back to Europe, but obviously at much higher prices due to the logistics challenges. Beyond 2023, the European market will more than likely turn to Middle East refiners for distillate, gasoline and jet fuel. Compared to a generation ago, additional increases in hydrocarbons production follows close adherence to environmental stewardship and embracement of Best Practices and AI-based implementation towards energy efficient process-intensive operations.
As with other major industries affected by the pandemic, many refinery projects originally expected to come online in 2021 or 2022 were delayed into 2023. Understandably, the larger projects may not go online until 2024 or 2025. This includes several high throughput refinery projects, such as the 300,000 b/d Huajin refinery project and the 400,000 b/d Yulong refinery project that includes a 3.0 million tonne per year (tpy) ethylene unit and other downstream facilities, followed by several long-term phases to achieve 800,000 b/d by 2030. Both facilities have targeted start dates before 2025.
Increasing oil production and the infrastructure to monetize it seems to come with a double-edged sword. For example, PEMEX is investing $5.66 billion to phase out fuel oil production via 2 new coker plants at the Tula refinery and Salina Cruz refinery, expected to go online in 2024. However, flaring problems continue to plague PEMEX, burning off natural gas emitted during oil production due to lack of infrastructure required to capture it. For example, the PEMEX Perdiz plant is unable to process the vast volumes of gas sent from the Ixachi field outside of Tierra Blanca. According to sources, 31% of gas production from the Ixachi field is lost to flaring.
These types of uncontrolled emissions, such as flaring, have the potential to make energy-based enterprises and their processing assets non-compliant with ESG benchmarks. The way ESG ratings have evolved, they are supposed to provide analytical tools that help the financial sector make informed decisions when supporting the industry and enable a level of transparency required in modern day markets. So, if operators don’t get up to date regarding ESG criteria, such as with flaring, they may be excluded from debt markets, which would obviously be detrimental to refiners needing to refinance debt.
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