Europe's refining sector to be hardest hit by EV shift: Wood Mackenzie

14 Jun 2021

London (Quantum Commodity Intelligence) - Europe's beleaguered refining sector would bear the brunt of the fall out from US gasoline demand dropping 1 million bpd amid the transition to electric vehicles, warns consultants Wood Mackenzie.

Crude throughout would drop by more than 400,000 bpd amid the loss of a key export market, adding to the wave of rationalization unleashed in Europe over the last year amid the carnage of Covid.

The figures do not include the impact of European drivers ditching fossil fuels for electric cars and vans.

The impact of the US switching away from gasoline will ripple across the global oil complex, said the WoodMackenzie report.

The slump of the global gasoline yield, with cracks falling between $2.5/b and $4.5/b around the world, will force refiners to shift production to other oil products, such as jet, diesel and gasoil.

North American refiners would see the deepest cuts to overall refining margins at $3/b but would lose only 250,000 bpd of throughput because their complex refineries are able to access cheaper crude than Europe, keeping margins higher and giving them a cutting edge in targeting export markets.

"Because of the need to increase exports, the US drop in gasoline demand is felt across the world,” the report noted.

"Those barrels must push into farther and lower value export markets to find a home. The yield shifts spread the price impact of the demand destruction from gasoline to diesel, jet and gasoil, as refiners shift yields to distillate production to maximise margins."

Both US refiners and those refiners exporting to the US will be left scrambling to find and compete in alternative markets to gasoline.

"Both Latin America and Sub-Saharan Africa see additional barrels flowing into their region and lower utilisation in response. The North American margin advantage of US$3 and US$4/bbl on average over counterparts in Latin America and Europe, respectively, drives the ability to compete in export markets that require additional shipping cost to reach."

The shift in production slates to distillates as gasoline demand wanes, and the consequent increase in supply of diesel and jet, would impact global cracks by around $0.5-$1.5/b and $2-$3/b for the products, respectively.

After a five-year pause since the last refinery closure, Europe’s refining sector started to shrink again in 2020.

Gunvor's Antwerp refinery stopped processing crude in May and was then mothballed indefinitely, Finland's Naantali plant was closed permanently, the UK's Grangemouth refinery mothballed two crude units, Total stopped processing crude at Grandpuits in France.

More refinery capacity is expected to be lost in Europe this year.

Not only will world oil demand be turned upside down by the electric car revolution, but the global map of refining is changing.

Some 3.8 million b/d of new capacity will come onstream worldwide in 2021-2022 against announced refinery closures or conversions amounting to 2.3 million b/d, the International Energy Agency said in its June report.

China is leading the net additions, followed by the Middle East and Africa, whereas in the rest of the world capacity is declining, particularly in Europe, the US and Asia.