Global oil refining capacity at risk

More than a fifth of global oil refining capacity is at risk of closure, energy consultancy Wood Mackenzie found in analysis published on Thursday, as gasoline margins weaken and the pressure to reduce carbon emissions mounts.

Of 465 refining assets analyzed, the consultancy ranked about 21% of 2023 global refining capacity at some risk of closure.

Europe and China house the greatest number of high-risk sites, putting about 3.9 million barrels per day (bpd) of refining capacity in jeopardy, Wood Mac found, based on its estimate of net cash margins, cost of carbon emissions, ownership, environmental investment and strategic value of refineries.

There are 11 European sites that account for 45% of all high-risk plants.

About 30 European refineries have already shut down since 2009, data from industry body Concawe shows, with nearly 90 still in operation.

This spate of closures has been brought on by competition from newer and more complex plants in the Middle East and Asia as well as the impact of the COVID-19 pandemic.

Gasoline margins are expected to weaken by the end of this decade as demand declines and sanctions on Russia ease while expected carbon taxes should also start to bite.

Operating costs could go up so much that "closure may be the only option", said Wood Mac senior oils and chemicals analyst Emma Fox.

Meanwhile, Nigeria's huge Dangote oil refinery could bring to an end decades-long gasoline trade from Europe to Africa worth US$17 billion a year, heaping pressure on European refineries already at risk of closure from heightened competition.

The Dangote refinery, with capacity of up to 650,000 bpd, began production in January but was not included in Wood Mac's analysis.

The seven high-risk sites in China are small-scale independent refineries. Sometimes called 'teapots', these refineries are subject to more stringent government regulations and compete with larger integrated sites that are typically state-owned and more complex.

Suez Canal may remain closed for days and weeks

The Suez Canal Authority (SCA), which had allowed some vessels to enter the canal in the hope the blockage could be cleared, said it had temporarily suspended all traffic on Thursday.

“We can’t exclude it might take weeks, depending on the situation,” Peter Berdowski, CEO of Dutch company Boskalis which is trying to free the ship, told the Dutch television program “Nieuwsuur”.

A total of 156 large container ships, tankers carrying oil and gas, and bulk vessels hauling grain have backed up at either end of the canal, Egypt’s Leith Agencies said, creating one of the worst shipping jams seen for years.

“It is like an enormous beached whale. It’s an enormous weight on the sand. We might have to work with a combination of reducing the weight by removing containers, oil and water from the ship, tug boats and dredging of sand.”

Shipping experts say that if the blockage is not cleared in the coming days, some shipping may re-route around Africa, which would add roughly a week to the journey.

“Every port in Western Europe is going to feel this,” Leon Willems, a spokesman for Rotterdam Port, Europe’s largest, said. “We hope for both companies and consumers that it will be resolved soon. When these ships do arrive in Europe, there will inevitably be longer waiting times.”

Consultancy Wood Mackenzie said the biggest impact was on container shipping, but there were also a total of 16 laden crude and product oil tankers due to sail through the canal and now delayed.

The tankers were carrying 870,000 tons of crude and 670,000 tons of clean oil products such as gasoline, naphtha and diesel, it said.

According to oil analytics firm Vortexa, Russia and Saudi Arabia are the top two exporters of oil through the canal, while India and China are the main importers.

Joanna Konings, senior economist, International Trade Analysis at Dutch bank ING, said the impact on the world economy would be limited if it did not drag on since the container shipping industry was used to days of delays.

But Germany’s BDI industry association was concerned. Deputy Managing Director Holger Loesch said earlier delays were already impacting production, with industries depending on raw materials or construction supply deliveries particularly affected.

About 16% of Germany’s chemicals imports arrive by ship via the Suez Canal and the chief economist for the association of German chemicals and pharmaceuticals producers VCI, Henrik Meincke, said they would be affected with every day of blockage.

Bernhard Schulte Ship Management (BSM), the technical manager of Ever Given, said dredgers were working to clear sand and mud from around the blocked vessel while tugboats in conjunction with Ever Given’s winches work to shift it.

Japanese ship owner Shoei Kisen apologized for the incident and said work on freeing the ship, which was heading to Europe from China, “has been extremely difficult” and it was not clear when the vessel would float again.

The owner and insurers face claims totaling millions of dollars even if the ship is refloated quickly, industry sources said on Wednesday. Shoei Kisen said the hull insurer of the group is MS&AD Insurance Group while the liability insurer is UK P&I Club.