Energy Transition Impact On The Refining Industry
__
<p style="text-align: justify;"><span data-contrast="none">The demand for transportation fossil fuels will decline over the longer term. The pace of change is moderate considering the established road transport, the associated infrastructure fueling system, and an established distribution network for fossil fuel. However, global warming and environmental concerns lead us to the energy transition with various new green and renewable alternatives, with accelerated technology development and growth of cleaner fuel to the consumers. </span><span data-ccp-props="{"134233117":false,"134233118":false,"201341983":0,"335551550":0,"335551620":0,"335559738":0,"335559739":0,"335559740":259}"> </span></p><p style="text-align: justify;"><span data-contrast="none">As of date, the key drivers are the penetration of alternative electric vehicles and stunning adaptation of the same by consumers in urban markets, emerging new policies and regulations that support no internal combustion engines by 2030, fuel cell-based long-haul and electrification of city trucks and green fuels like methanol and ammonia to lower the shipping emissions and sustainable aviation fuel (SAF) fuel. </span><span data-ccp-props="{"134233117":false,"134233118":false,"201341983":0,"335551550":0,"335551620":0,"335559738":0,"335559739":0,"335559740":259}"> </span></p><p style="text-align: justify;"><span data-contrast="none">The cost of alternative clean fuels, without government subsidies/incentives, to replace fossil fuels limits growth. At the same time, for petrochemicals, alternative feed streams like off-gases, LNG, diesel to naphtha downgrade, crude-to-chemicals, intermediate as well as semi-finished streams to light olefins and aromatics, etc, are needed. </span><span data-ccp-props="{"134233117":false,"134233118":false,"201341983":0,"335551550":0,"335551620":0,"335559738":0,"335559739":0,"335559740":259}"> </span></p><p style="text-align: justify;"> </p><h2 style="text-align: justify;"><span style="font-size: 14pt;">Challenges faced by the Refining Industry </span></h2><p style="text-align: justify;"><span data-contrast="none">The global refining industry faces a challenging few year with the addition of more than 1.5 million barrels per day (mmbd) global capacity with the three new ones, i.e., Dos Bocas refinery Mexico, Kuwait's Al Zour facility and Nigeria's Africa--Dangote. Besides, China is expected to add 3.0mmbd of CDU capacity by 2027, while India and Pakistan are expected to add 1.7mmbd and 1.6mmbd, respectively. </span><span data-ccp-props="{"134233117":false,"134233118":false,"201341983":0,"335551550":0,"335551620":0,"335559738":0,"335559739":0,"335559740":259}"> </span></p><p style="text-align: justify;"><span data-contrast="none">Further investments in new refineries are unlikely because of the energy transition. Meanwhile, these new developments in the refining sector give the transition critics the ability to argue that the rest of the world is prioritizing the energy supply, regardless of its source. </span><span data-ccp-props="{"134233117":false,"134233118":false,"201341983":0,"335551550":0,"335551620":0,"335559738":0,"335559739":0,"335559740":259}"> </span></p><p style="text-align: justify;"><span data-contrast="none">Notwithstanding the above, the refinery investment and operating strategies consider not only the lowering demand trends but also pressure from emerging market supply from competitors where investment in refining capacity seems to continue. As a result, the refining industry is facing complex choices like:</span><span data-ccp-props="{"134233117":false,"134233118":false,"201341983":0,"335551550":0,"335551620":0,"335559738":0,"335559739":0,"335559740":259}"> </span></p><ul style="text-align: justify;"><li data-leveltext="" data-font="Symbol" data-listid="1" data-list-defn-props="{"335552541":1,"335559683":0,"335559684":-2,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" aria-setsize="-1" data-aria-posinset="1" data-aria-level="1"><span data-contrast="none">Pressure to decarbonize liquid fossil fuels</span><span data-ccp-props="{"134233117":false,"134233118":false,"201341983":0,"335551550":0,"335551620":0,"335559738":0,"335559739":0,"335559740":259}"> </span></li><li data-leveltext="" data-font="Symbol" data-listid="1" data-list-defn-props="{"335552541":1,"335559683":0,"335559684":-2,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" aria-setsize="-1" data-aria-posinset="2" data-aria-level="1"><span data-contrast="none">Opt for lower carbon crude and other feedstocks</span><span data-ccp-props="{"134233117":false,"134233118":false,"201341983":0,"335551550":0,"335551620":0,"335559738":0,"335559739":0,"335559740":259}"> </span></li><li data-leveltext="" data-font="Symbol" data-listid="1" data-list-defn-props="{"335552541":1,"335559683":0,"335559684":-2,"335559685":720,"335559991":360,"469769226":"Symbol","469769242":[8226],"469777803":"left","469777804":"","469777815":"hybridMultilevel"}" aria-setsize="-1" data-aria-posinset="3" data-aria-level="1"><span data-contrast="none">Integrating bio-derived fuels, renewable offsite power, and blue/green hydrogen contracts</span><span data-ccp-props="{"134233117":false,"134233118":false,"201341983":0,"335551550":0,"335551620":0,"335559738":0,"335559739":0,"335559740":259}"> </span></li></ul><p style="text-align: justify;"><span data-contrast="none">However, the proactive measures like focusing on plant reliability, lowering costs, buying emissions credits, and shifting product placement into unregulated export markets may be successful in the near term but will certainly threaten longer-term viability. In addition, more refining and petrochemical plant integration strategies are needed in the downstream industry.</span><span data-ccp-props="{"134233117":false,"134233118":false,"201341983":0,"335551550":0,"335551620":0,"335559738":0,"335559739":0,"335559740":259}"> </span></p><p style="text-align: justify;"> </p><p style="text-align: justify;"> </p><p style="text-align: justify;"><span class="ui-provider bpb bpc c d e f g h i j k l m n o p q r s t bpd bpe w x y z ab ac ae af ag ah ai aj ak" dir="ltr"><em>This article was contributed by our expert </em></span><a href="https://www.linkedin.com/in/p-raman-narayanan-p-eng-a37b84132/" target="_blank" rel="noopener">P. Raman Narayanan</a></p><p style="text-align: justify;"> </p><p style="text-align: justify;"> </p><h3 style="text-align: justify;"><span class="ui-provider bpb bpc c d e f g h i j k l m n o p q r s t bpd bpe w x y z ab ac ae af ag ah ai aj ak" dir="ltr" style="font-size: 18pt;">Frequently Asked Questions Answered by P. Raman Narayanan</span></h3><h3 style="text-align: justify;"> </h3><h2 style="text-align: justify;"><span style="font-size: 12pt;">1. What specific regulatory measures are refineries adopting to reduce carbon emissions and increase sustainability?</span></h2><p style="text-align: justify;"><span data-contrast="auto">To curtail the refining emissions cost-effectively, a system of combining post-combustion CCS to tackle the largest emission point sources with fuel switching for smaller distributed emission sources with gaseous fuels such as biomethane and blue (green) hydrogen could serve as drop-in fuels without the need for significant restructuring of refinery operations.</span><span data-ccp-props="{"201341983":0,"335559739":160,"335559740":259}"> </span></p><p style="text-align: justify;"><span data-contrast="auto">As mentioned in the abstract, securing offsite green hydrogen and power contracts is also done by some refineries. The emerging new regulatory measures may hit the older, smaller refineries as they will find it hard to meet them.</span><span data-ccp-props="{"201341983":0,"335559739":160,"335559740":259}"> </span></p><p style="text-align: justify;"> </p><h2 style="text-align: justify;"><span style="font-size: 12pt;">2. How is the refining industry leveraging new technologies, such as electrification and digitalization, to enhance energy efficiency and reduce environmental impact?</span></h2><p style="text-align: justify;"><span data-contrast="auto">Renewable (green and hydro) power could lead to a suitable alternative to electric heating, subject to a significant reduction in production cost and demonstration of operational reliability. Enhanced energy efficiency may allow a modest reduction in emissions of 5–10% and cannot be the sole driver for decarbonization of the refining sector. </span><span data-ccp-props="{"201341983":0,"335559739":160,"335559740":259}"> </span></p><p style="text-align: justify;"><span data-contrast="auto">In digital transformations, value creation is always front and center. As per a research study, almost 70 percent of digitization projects have not moved beyond the pilot phase. Even Though pilot projects are successful, and technology meets or exceeds the goals, digital transformations stall due to big cultural and organizational barriers. </span><span data-ccp-props="{"201341983":0,"335559739":160,"335559740":259}"> </span></p><p style="text-align: justify;"> </p><h2 style="text-align: justify;"><span style="font-size: 12pt;">3. How does integrating refining and petrochemical operations impact market dynamics for both sectors?</span></h2><p style="text-align: justify;"><span data-contrast="auto">Refineries are increasingly seeking chemical opportunities ranging from well-known options like expanding Propylene from the Fluidized Catalytic Cracking (FCC) unit to non-traditional opportunities such as utilizing heavier cracker feed apart from emerging new technology innovation in crude-to-chemicals. </span><span data-ccp-props="{"201341983":0,"335559739":160,"335559740":259}"> </span></p><p style="text-align: justify;"><span data-contrast="auto">The global installed capacity for major petrochemicals is estimated to be ~13 percent of current oil refining capacity, and ~ 8% of natural gas could power global demand for major petrochemicals, leading to industry rationalization in the near future. </span><span data-ccp-props="{"201341983":0,"335559739":160,"335559740":259}"> </span></p><p style="text-align: justify;"><span data-contrast="auto">Also, first movers in the petrochemical industry, especially those facilities with total integration of refining and petrochemicals located close to growing demand centers, have a potential competitive advantage. </span><span data-ccp-props="{"201341983":0,"335559739":160,"335559740":259}"> </span></p><p style="text-align: justify;"> </p><h2 style="text-align: justify;"><span style="font-size: 12pt;">4. In the face of global disruptions, how are refineries enhancing supply chain resilience and ensuring a consistent flow of feedstocks and products?</span></h2><p style="text-align: justify;"><span data-contrast="auto">In the context of global disruptions, the refiners focus on key areas like end-to-end hydrocarbon optimization, supply chain digitization, and digitally enabled B2C programs to deliver cost savings and increase profitability. As mentioned in the abstract, refineries may opt for lower carbon crude and other feedstock supply sources as well as integrate bio derived fuels.</span><span data-ccp-props="{"201341983":0,"335559739":160,"335559740":259}"> </span></p><p style="text-align: justify;"> </p><p style="text-align: justify;"> </p><p style="text-align: justify;"> </p>
KR Expert - P. Raman Narayanan
Core Services
Human insights are irreplaceable in business decision making. Businesses rely on Knowledge Ridge to access valuable insights from custom-vetted experts across diverse specialties and industries globally.
Phone Interviews
Our flagship service, phone consultations, enables you to get access to first-hand, grass-root level information from our global expert network to form or validate your hypothesis.
Targeted Custom Surveys
Have a customized questionnaire for a pre-sampled population to understand customer preferences imperative to your product portfolio.
Term Engagements
Our expert, or a group of experts, guides you to validate a critical project or an assignment.
Executive/Board Placements
Concentrate your efforts on the core competencies of your business while we identify the next precise fit for your team.
Premium Insights
Stay ahead of the competition with our refined and customized Premium Insights. Unlock exclusive knowledge and expertise!
500+