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MEA, Aspac drive global refining industry growth

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Fast Eddie


JEDDAH - Global demand for petroleum products is expected to grow in the short to medium term both in the Middle East and Africa (MEA) region and in the Asia-Pacific (Aspac) region as several countries are expanding their refining capacity to either meet their domestic refined products demand or to increase monetization from their indigenous crude oil production. These two regions are poised to witness a rapid increase in oil consumption, and will contribute around 80 percent to net refining capacity additions worldwide by 2016.

In North America and Europe, stringent environmental regulations have forced several countries to upgrade their existing refineries to produce high-quality refined products instead of building new refineries, which require more time and much higher capital investments.

Despite limited growth in the developed refining markets of North America and Europe, global refining capacity is expected to grow at an average annual growth rate (AAGR) of around 3.2 percent during the 2011-2016 period. In terms of net capacity additions, Middle East and Africa will be the largest region, contributing around 44 percent to net capacity additions worldwide during the 2011-2016 period, followed by Asia-Pacific at 36 percent. The refining industry in several countries across these regions is marked by simple refineries producing greater amounts of low-value products like fuel oil, heating oil and lubes, and fewer higher-value middle and light distillates. Strict environmental regulations, along with increasing domestic demand for clean, refined fuel like low-sulfur gasoline and diesel, have created a need for new-build refineries in these two regions.

In terms of installed refining capacity, the combined contribution of Asia-Pacific, Middle East and Africa will increase from around 44 percent to around 50 percent of global refining capacity. Europe and North America's combined contribution to global, installed refining capacity will decline by around 5 percent.

In terms of refinery capacity additions through new-build refineries, the Middle East and Africa, together with Asia-Pacific, will contribute around 78 percent to global refinery capacity additions. South and Central America will also contribute around 15 percent to global refinery capacity additions through new-build refineries.

In all these regions, the refinery capacity expansion is primarily being undertaken to meet the increasing domestic demand for refined products.

Developing regions, especially Asia-Pacific, are witnessing a rapid increase in consumption of refined petroleum products. In Asia-Pacific, countries such as China, India, Indonesia, Malaysia and Vietnam have been witnessing growth in domestic demand for petroleum products. Growth has been so significant that Asia-Pacific has now become the region with the highest demand for petroleum products worldwide, and this has led to the development of new-build refineries in several countries in this region.

The Middle East and Africa, home to most of the world's major oil-exporting countries, is also building new refineries in order to meet its increasing domestic demand, as well as to transform itself into a new refining hub.

Stringent environmental regulations across the globe have led to increasing premiums on light and sweet crude oil over heavy and sour varieties. This has prompted these oil-exporting countries to invest in complex refineries that can process the heavy, sour crude and produce high-quality refined products that can be sold at a premium in the global market. During the 2012-2016 period, China, Saudi Arabia, Iran, Iraq and Brazil will witness the highest refining capacity additions through new-build refineries. These countries together will contribute around 55 percent of total refining capacity additions globally through new-build refineries.

China alone will be adding around 72Mta of new refining capacity through new-build refineries, and will contribute around 15 percent to global new refining capacity additions through new-build terminals. The expected expansion of the domestic transportation sector in China, in addition to its rising domestic demand, is one of the main reasons for China to enhance its refining capacity. In all these countries, refinery capacity expansion is primarily being undertaken by the national oil companies (NOCs), which are investing heavily to enhance indigenous capability to produce and meet domestic refined products demand.

In Asia-Pacific, Middle East and Africa, and South and Central America, NOCs have been playing a key role in the expansion of the refinery infrastructure.

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