Oil is expected to maintain its leading position in meeting the world’s growing energy needs for at least the next two decades. The investment challenge extends along the entire supply chain. The downstream sector is a very important part of that chain.
Over the coming decade, rising volumes, the continued move towards demand for lighter products, and the movement towards significantly cleaner products, means that the downstream sector will require significant investment. However, investments are coming at a considerably slower pace than warranted by the expected demand growth. Ways need to be explored that could accelerate expansion plans, and create the right investment climate.
The decline in the oil price has had a massive impact on the sector and the wider economy. However, for the midstream and downstream, investment is continuing, as participants invest for the longer term. Driven by a desire to achieve higher refinery margins, refiners will build more conversion capacity and push up the complexity of the global refining system.
Global refining overcapacity will put pressure on margins across the major hub markets until 2020. The center of crude oil trade will shift from the Atlantic to the Pacific basin, as North American and European imports decline and West African and Middle Eastern crude exporters send more supply to Asia. Additional refining investments will be needed to meet growing light product shortages in Asia after 2020 assuming product demand grows by 0.7% p.a. from 2020 to 2030. The global heavy fuel oil market will remain tight, with residual material pricing firmly at conversion values through 2020. In 2021, light/heavy product differentials could widen.