MANAMA: The future of the GCC refining sector likely to be uncertain, says APICORP Energy Research.
“Plans for green field projects and refinery expansions across the GCC countries are entering a critical phase. The region is leading the drive in the Middle East with 1.5m b/d of new refining capacity expected online by 2021. Substantial investments in the refining sector were made to tackle increasing domestic demand and diversify away from crude to more specialised product exports. At the same time, these refinery additions are changing global trade flows, with the region exporting more refined products, particularly to Europe. As global capacity rises and fuel standards improve, competition will become more intense meaning a more uncertain outlook awaits the region’s refineries.
“The GCC refining sector has seen tremendous growth over the past few years, mainly driven by significant government investments during a period of high oil prices. Governments have prioritised the expansion of the downstream sector for several reasons. First, the region has witnessed rapidly rising demand for gasoline and diesel in the transportation sector, as well as diesel and fuel oil in the power sectors of Saudi Arabia and Kuwait. Second, governments are seeking to diversify away from crude exports towards more specialised refined products. Third, they are also committing to create more value in their economies by integrating the crude, refining and petrochemical industries. The last few years saw the expansion of refining capacity due to the commissioning of several projects. The completion of the two Saudi refineries – Yasref and Satorp – in 2014 and the expansion of the Ruwais facility in the UAE added approximately 1.2m b/d of new and cleaner refining capacity.
“Built with an eye on supplying the growing Asian market, these new refineries have contributed to turning the GCC countries into a net exporter of refined products in 2016, particularly in the diesel segment. As they ramped up to reach full capacity in 2015, GCC economies slowed and governments introduced limited pricing reforms, slowing domestic demand growth and, in some cases, reversing growth. This was particularly the case for diesel in Saudi Arabia. The slowdown in the rate at which demand had been growing in the region is freeing up more refined products for export, competing with Asian refineries in a more congested products market. Built with an eye on supplying the growing Asian market, these new refineries have contributed to turning the GCC countries into a net exporter of refined products in 2016, particularly in the diesel segment. As they ramped up to reach full capacity in 2015, GCC economies slowed and governments introduced limited pricing reforms, slowing domestic demand growth and, in some cases, reversing growth. This was particularly the case for diesel in Saudi Arabia. The slowdown in the rate at which demand had been growing in the region is freeing up more refined products for export, competing with Asian refineries in a more congested products market.”
