March 29, 2018

European Refining Forecast to 2035

Stratas Advisors

This report is from an excerpt from a report that is available to subscribers of Stratas Advisors’ Global Refining & Products service.

European crude oil imports will continue to be high, but they will decline as a result of reduced refinery throughput. A large portion of the imported crude oil will continue to be sourced from the Commonwealth of Independent States (CIS) region. The Middle East and Africa will make up the remainder. European refiners will compete with Asia-Pacific for marginal low-sulfur crude oil supplies from Africa.

▪ Between 2017 and 2035, the crude oil processed in European refineries will become heavier and the content of sulfur will become higher. The gravity will decrease from 36.1 °API to 34.9 °API and average sulfur content will increase from 0.89 wt% to 1.31 wt%.

▪ Projected production of indigenous crude oil is going down from 3.1 million b/d in 2016 to 2.1 million b/d in 2035. Refinery throughput is projected to decline from 11.3 million b/d in 2016 to 10.2 million b/d in 2035. Due to higher rate of crude oil production decline, European refiners will increase imports from 75% of crude oil supply in 2016 to 79% in 2035.

Europe has experienced a dramatic drop in demand resulting partly from the global economic crisis that started in 2008. European petroleum product consumption is projected to continue to decline at an average pace of 0.36% annually between 2017 and 2035. It is worth noting that neither the peak demand of 2005-2006 nor the pre-crisis demand of 2008 is projected to be reached ever again.

▪ Gasoline demand will decline by 0.25 million barrels per day (b/d) from 2017 to 2035. Both naphtha and jet fuel demands are expected to increase by 0.14 million b/d in the same time period. LPG demand is expected to be marginally higher. Middle distillate demand is projected to be lower by 0.35 million b/d by 2035.

▪ A stepwise reduction of allowable CO2 emissions will further accelerate the drop in gasoline demand and slow the growth of diesel demand. The set of CO2 requirements for the European vehicle fleet was started to be phased in from 2012 and the stringent limit of 95g CO2/km for new vehicles will be required in 2021.

▪ Residual fuel demand is projected to continue to decline, shrinking by another 0.26 million b/d (26%) between 2017 and 2035. 

Europe will remain in a strong supply-and-demand imbalance with regard to gasoline and middle distillates. However, a projected decline in both gasoline and diesel demand will somewhat offset non-matching production and will lead to Europe’s lower dependence on imported ULSD, which will continue to be sourced mainly from the CIS (Russia) and the Middle East. Imports of ULSD from North America are projected to remain stable in the midterm and slightly decrease in the longer term. Europe will maintain a gasoline surplus, but the traditional export market of North America is declining, as is the Middle East. However, Europe might find an unlikely market for its gasoline in Asia-Pacific, where expansion projects will not be able to keep up with strong demand.

▪ In 2016, gasoline production exceeded consumption by 0.86 million b/d while middle distillate imports of 1.15 million b/d were required to meet demand. Gasoline exports are projected to be 1.05 million b/d by 2035. Middle distillate import requirement in 2035 is projected to be 1.21 million b/d. Even though demand will decrease, capacity reduction will lead to slightly higher import than of middle distillate than 2016 level.

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