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IEA forecasts threat for refining sector as gas increasingly used for chemical feedstocks

06 March 2018

One of the conclusions of the International Energy Agency’s (IEA) latest five-year forecast is that market changes will shift oil demand away from motor fuels to petrochemicals, with refinery overcapacity a possible result. World oil demand is expected to rise by 6.9 million barrels per day (bpd) by 2023, with a quarter of this growth coming from demand for petrochemical feedstocks ethane and naphtha.

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“Global economic growth is lifting more people into the middle class in developing countries and higher incomes mean sharply rising demand for consumer goods and services,” the IEA said.

“A large group of chemicals derived from oil and natural gas are crucial to the manufacture of many products that satisfy this rising demand,” it added.

Naphtha is made by oil refineries processing crude, but other petrochemical feedstocks - ethane or liquefied petroleum gas (LPG) - are processed outside traditional oil refineries.

“Ethane, liquefied petroleum gases and naphtha, pose a bigger threat to the refiners’ market share than electric vehicles and gas-powered transportation combined,” the IEA said, estimating refiners would see just 4.8 million bpd of the demand growth to 2023, missing out on 30% of it.

The boom in US shale oil has dramatically expanded the availability of ethane, and a string of new projects on the US Gulf Coast are underway to process it.

In total, the world is expected to add 1.4 million bpd in new petrochemical-producing steam crackers to 2023, the IEA said.

Demand for ethane will expand at the fastest pace in the next five years, rising by 885,000 bpd, followed by naphtha with growth of 495,000 bpd and LPG with growth of 40,000 bpd, it forecast.

Jet fuel, supported by growing demand for air travel, will grow by 1.2% to 2023, the IEA added.

But it said demand for gasoline and diesel would rise by just 0.7% each, with expansion slowed by fuel efficiency standards that now cover two thirds of the world’s top car markets.

More than 80% of global car sales are now in markets covered by efficiency standards, including China, India the United States and Europe. The IEA said this “will impact strongly on future oil demand.”

Partially as a result, the IEA warned that new refinery capacity totalling 7.7 million bpd would outstrip growth in demand for refined products by 2023 by some 3 million bpd.

“The gap between refinery capacity growth and refined product demand growth has never been so large in recent history,” the IEA said.

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