Singapore December 14, 2021: Global refinery throughputs will exceed 80mn b/d this month for the first time since the start of 2020, the IEA said today. It sees global growth over the coming year focused in China, with OECD countries more or less stagnant.
China’s independent refiners in Shandong province lifted their throughput to five-month highs in November, joining their state-run counterparts who are also stepping up efforts to raise run rates to enjoy attractive refining margins.
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In its Oil Market Report published today, the agency said it expects average refinery throughputs to be 3.1mn b/d higher this year than in 2020, although this will take them less than halfway back towards the 2019 average. Next year, it forecasts average throughputs to rise by 3.7mn b/d, closing in on pre-pandemic levels.
Recovery in global product demand in the current quarter is outpacing the increase in production, meaning product stocks will be drawn down for a sixth consecutive quarter, it said. The IEA predicts stocks will build again in the first quarter of next year, ahead of the spring maintenance season.
Citing preliminary data the IEA said European OECD refinery throughput was 11.4mn b/d in November, the same as the third-quarter average. It forecasts this figure will be little changed in December and in the first three months of 2022, and then 11.3mn b/d in 2022 as a whole, far short of the 12.2mn b/d in 2019 partly reflecting several refinery closures.
By comparison with the IEA’s publication a month ago, the main change is that it has downgraded slightly its European OECD throughput forecast for 2022. This may reflect rising Covid-19 case numbers.
China’s refinery throughput reached 14mn b/d in November, above the 13mn b/d average in 2019, and will average 14.3mn b/d in 2022, the IEA said. Last month, Latin America and the former Soviet Union also exceeded their respective average refinery throughputs from 2019.
The drag in OECD countries is forecast to outweigh the acceleration in non-OECD countries, meaning global refinery throughputs in 2022 will fall short of 2019.
The IEA said recovering refinery throughputs contributed to the decline of global product margins to crude in November, along with rising Covid-19 case numbers and some seasonal factors. This particularly affected gasoline, for which the margin to crude fell by more than two thirds between early and late November. Middle distillates experienced smaller declines.
Margins for sour hydroskimming refineries, which process high-sulphur crudes and lack complex conversion units, turned negative in Europe and Singapore for the first time since July.
The IEA pointed out the double effect of high natural gas prices on European refineries. This has made hydrogen far more expensive to produce through steam methane reforming (SMR), which many refiners rely on to desulphurise their products, and has contributed to a near tripling in the price of EU emission reduction allowances since the start of the year. Refiners facing the biggest problems are those using sour crude grades, since their SMR needs can effectively double their emissions.
The IEA says hydrotreatment or desulphurisation costs for medium-sour crude grades are around $4-5/bl, even when using some by-product hydrogen from other refining processes. Emission allowance costs look likely to reach 75¢/bl by the end of this year and 90¢/bl in 2022, far higher than 20¢/bl over the previous two years.
The IEA said surging Covid-19 cases will weigh on jet fuel markets most heavily out of the refined products. It has downgraded its forecast for global oil demand growth by 100,000 b/d in both 2021 and 2022, mostly for this reason, to 5.4mn b/d this year and 3.3mn b/d next year. This will take demand back to pre-pandemic levels.
Data from local information provider JLC showed that feedstock consumption at China’s independent refineries in eastern Shandong province edged up 0.6% month on month to 2.4 million b/d in November, a five-month high. It was also the third consecutive monthly rise in throughput.
Average refining margins for cracking imported crudes fell to around Yuan 849/mt, 28.4% lower from a record high of Yuan 1,185/mt in October, according to JLC’s calculation.
The margin fall was due to the retreat in prices of gasoil and gasoline. The average price of zero-vapor gasoil eased by 1.75% from October to around Yuan 7,641/mt ($1,201/mt) in November, while the price of 92 RON gasoline fell by 3.15% to Yuan 8,176/mt, sources said.
Despite the decline, margins remain at high levels. “The refining margin remained at quite high levels, judging from the price trend in previous months. This has supported their crude throughput,” an analyst with JLC said.
Crude run rates started to ease slightly toward the end of November as government authorities started some checks on tax issues. The investigation process was expected to continue in December, according to a refinery source.
Sources said that Shandong-based refiners could cut their production levels closer to the Winter Olympics in Beijing, which will be held in early February. This would cap their buying interest for future crude cargoes, sources said.
On a metric-ton basis, Shandong-based independent refineries cracked a combined 9.85 million mt of feedstocks in November. The feedstocks included crude oil, bitumen blend and fuel oil.
It was down from 10.12 million mt in October, which has 31 calendar days.
This could translate to an average run rate of 71.9% against their combined refining capacity in November, marginally higher from 71.5% in October.
JLC’s survey covers 43 independent refineries in Shandong, with a combined capacity of 166.7 million mt/year, which accounts for about 18% of China’s total refining capacity.
On the other hand, with feedstock stocks depleting at refiners’ facilities, they took delivery of more crudes from the ports.
As a result, feedstock inventories at Shandong’s major ports fell by 10.2% from the end of October to 6.31 million mt Nov. 25. It was the second monthly decline in port inventories from a record high of 7.7 million mt at the end of September, JLC data showed.
In addition, the integrated Zhejiang Petroleum & Chemical in Zhejiang province raised its throughput to around 2.65 million mt in November from 1.72 million mt in October, and from 1.68 million mt in September, according to JLC.
The refinery has started up all its four 10 million mt/year CDUs following the new allocation of 12 million mt of crude import quotas at the end of October. This would prompt the refiner to maintain relatively high run rates in December in order to consume the feedstocks.
On the other hand, Hengli Petrochemical (Dalian) Refinery in the northeastern Liaoning province kept its crude throughput largely unchanged at around 1.64 million mt in November, compared with 1.65 million mt in October, according to JLC.
ver the first 11 months of the year, Johan Sverdrup has become the second most favored crude among Shandong independent refineries, with ESPO taking the top position.
Consumption of Johan Sverdrup increased by 17.3% year on year to 8.995 million mt in that period, while ESPO consumption was up 3.4% year on year at 16.985 million mt.
However, consumption of Tupi fell by 44.2% year on year to 7.71 million mt, the sharpest fall among the top 10 crudes cracked by Shandong independent refiners.
Consumption of Upper Zakum has registered the highest growth at 331.2% year on year in the 11-month period, rising to 6.08 million mt, from as low as 1.41 million mt in the same period a year earlier.
