石油与天然气

The downstream sector has attracted increased attention of late, with analysts essentially warning refiners to prepare for lower fuel demand and a new focus on petrochemicals as a major source of revenue, according to recent reports.

These warnings are not new. This has been the refining industry's default expectation for several years as governments and environmentalists double down on the energy transition. This view holds that when the energy transition accelerates, as electric vehicles impact gasoline demand and wind and solar replace natural gas as the fuel for power generation, refiners will have no choice but to rely more on petrochemicals.

But so far, the reality has not met ideal expectations. As the head of research at commodities trader Vitol Group recently said, "The energy transition in transportation is slower than expected, and a lack of investment in the oil and gas sector is not translating into supply shortages as expected".

Energy consulting firm Wood Mackenzie said in a report that as the energy transition advances, refineries are facing an increasingly fierce Darwinian battle for survival. Flexibility and integration of refining and petrochemical production will be critical to the downstream industry in the future.

The report highlights the importance of petrochemicals, assuming the energy transition will accelerate and fuel demand will fall as a result. In fact, this forecast is consistent with nearly all forecasts for the future of refining, which is that the refining industry will have to rely on petrochemicals to survive as the transition to electricity reduces demand for fuel.

These forecasts point to the fact that, unlike demand for fuels, demand for petrochemicals has a long-term chance of survival, largely due to their widespread use in various industries, and will be the future of the refining industry along with biofuels.

But demand data suggests it's best to take these forecasts with a grain of salt. For example, in July 2023, Reuters pointed out that the U.S. Energy Information Administration (EIA) had repeatedly forecast a decline in gasoline demand, but later had to revise it to demand growth.

The Wood Mackenzie report also noted that predicting where gasoline demand will go in any given period is difficult because of the interaction of multiple factors that determine the direction of change. But generally speaking, when prices are lower, demand increases; when prices are higher, demand weakens. However, fuel demand may not recover, prompting predictions that, at least in the United States, gasoline demand has peaked in 2018.

In fact, current U.S. gasoline demand is significantly below the 2018 average of 9.33 million barrels per day, but not so much that refiners are worried about the long-term outlook. Statistics show that oil demand has largely recovered from the pandemic-era downturn, but will not return to pre-pandemic levels.

Wood Mackenzie analysts said the focus on petrochemicals would reduce refineries' exposure to punitive government measures targeting carbon emissions. Because the Wood Mackenzie report states that petrochemicals are non-flammable, meaning their Category 3 emissions are lower than internal combustion engine fuels.

Wood Mackenzie's report and others assume that EV adoption will be an upward linear curve. But outside of China, this does not appear to be the case. Even in China, sales of electric vehicles are slowing, raising questions about whether they can fully replace internal combustion engine vehicles for now.

Of course, one could argue that slowing EV sales are simply delaying the inevitable for refiners, who sooner or later will need to start planning for a future in which fuel sales will make up a much smaller share of their business than petrochemicals.

In addition, Bloomberg said three years ago that China's new refining capacity will eventually become stranded assets because fuel demand will peak before 2025. At the time, China was building new refining capacity totaling 1.4 million barrels per day. But fast forward to today, and China has become a major fuel exporter — not just in Asia, but also in Europe, which lacks the refining capacity to process crude oil, forcing it to look for alternative fuel suppliers in the United States, China and India.

Predicting the long-term development of any industry is a difficult task. But in the energy industry, the task seems particularly daunting. Perhaps the best course of action for refiners is not to rush to take advantage of the changes in demand patterns that may result from the energy transition.