Oil Refiners Shut Plants As Demand Losses Seen Continuing

Oil refiners are permanently closing processing plants in Asia and North America and facilities in Europe could be next as uncertain prospects for a recovery in fuel demand after the coronavirus pandemic triggered losses. The pandemic initially cut global fuel demand 30% and refiners temporarily idled plants. But consumption has not returned to pre-pandemic levels and lower travel may be here to stay, leading to tough decisions for permanent shutdowns. Royal Dutch Shell will permanently shut its 110,000-barrel-per-day Tabangao facility in Philippines' Batangas province, one of only two oil refineries in the country. Shell blamed a pandemic-led slump in margins for turning the plant into an import terminal.

Also Read: India's Weak Fuel Demand Drags On As Virus Crisis Worsens

The pandemic initially cut global fuel demand 30% and refiners temporarily idled plants.

Marathon Petroleum, the largest U.S. refiner by volume, plans to permanently halt processing at refineries in Martinez, California, and Gallup, New Mexico. The larger plant in California will become an oil-storage facility and may convert to produce renewable diesel, a fuel made from industry waste and used cooking oil.

"Around 4 million barrels per day (bpd) of shutdowns will be necessary over the next few years to underpin a meaningful refinery margin recovery," said Kostantsa Rangelova, head of downstream at JBC Energy. "Of that, we see about 1.5 million bpd coming from Asia, with OECD and Southeast Asian refiners showing the greatest vulnerability."

JBC Energy said it expected a strong push for consolidation in China's refining sector potentially offsetting part of the strong capacity growth expected in the country. Plants in Japan, Australia and New Zealand could be likely candidates for closure ahead, said Mia Geng, at consultancy FGE.

Refining NZ said in late June it was considering shutting New Zealand's only oil refinery and turning it into a fuel import terminal in the long run, but first would reduce its operations to cut costs and break even into 2021. The coronavirus-driven collapse in fuel demand is also threatening Australia's oil refining industry, just as supply chain disruptions wrought by the pandemic have focused the government on the need to shore up fuel security.

Also Read: Total's Indian Joint-Venture To Seek Fuel Retailing License

About 9 per cent of refining capacity in Europe is at risk of shut-downs by 2022-2023

There have been no permanent plant closures in Europe due to the virus. However, Gunvor Group said in June it was considering mothballing its 110,000 bpd refinery in Antwerp as COVID-19 hurt the plant's economic viability. Energy consultancy Wood Mackenzie separately estimated 1.4 million barrels per day, about 9%, of refining capacity in Europe is at risk of shut-downs by 2022-2023. It put plants in Netherlands, France, and Scotland on a list of potential closures.