Paris Compliance Would Shutter 25% of Oil Refining Capacity by 2035
About 100 of the world’s 492 oil refineries, representing one-quarter of 2016 capacity, will be shut down by declining demand by 2035 if countries are serious about limiting average global warming to 2.0°C, the UK-based Carbon Tracker Initiative reports this week.
The scenario, in which oil demand peaks in 2020 and then falls year by year, translates into a 23% drop over 15 years, Carbon Tracker notes. That assumes governments will work to limit atmospheric concentrations of carbon dioxide to around 450 parts per million under the terms of the Paris Agreement, CTV News reports.
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“With demand falling, refinery output would need to fall commensurately,” Carbon Tracker states. “Market forces would drive margins down in order to force the least competitive refiners out of the market. Accordingly, under a 2D scenario, the industry is likely to see major rationalization, with many players exiting the market rather than hemorrhaging cash.”
Carbon Tracker foresees a 50% drop in refinery earnings between 2015 and 2035, with diesel, gasoline, and jet fuel—the mainstays of the industry, accounting for about 70% of refiners’ output—emerging as the most vulnerable commodities. While the Middle East and Asia might see some growth in refinery capacity, “mature regions, predominantly within the OECD, are likely to need larger cuts than the global demand trend might imply.”
But “Canadian refineries are among the most likely to remain open, as they pay less for the oilsands crude they use, which means their refining operations have healthier profit margins than many others,” CTV notes.