2018: Year in Review
January 2019
2018 was a year of ambitious refinery projects, with the overall direction of refinery development suggesting a much more focused approach towards the long-term export of refined products, and chemicals by major oil producers.

India was 2018’s fastest growing oil market; Indian demand growth for oil products expected to be 5.6% in 2018 with imports breaking through the 5Mbpd (23.66Mt) volume mark in October. India’s refineries are rushing to adopt the new Bharat-6 standard for emissions compliance, and sector expansion will be ongoing, exemplified by the US$40bn Ratnagiri Refining and Petrochemical Complex in Maharashtra state that will process 1,200kbpd (60Mtpa) of crude. Ratnagiri is being developed by Indian refiners IOCL, BPCL and HPCL. Not to be outdone, private operator Reliance Industries (RIL) announced this year that a third, US$10bn refinery will be constructed at its Jamnagar complex to add another 600kbpd of capacity to lift its crude processing capacity at Jamnagar to a gigantic 2Mbbl. Interestingly, Jamnagar also dedicates capacity towards product exports from its “SEZ” (special economic zone) refinery.

In China, large projects by independent (non-state owned) conglomerates in 2018 included three bold projects with capacity of 400kbpd each. In Liaoning Province Hengli Petrochemical’s 400kbpd Dalian will add to Petrochina’s long-established 410kbpd Dalian Refinery in what is rapidly becoming a new refinery row; the new unit is expected to come online in 2019 and will be configured to use Saudi and Brazilian crude oil. Both refineries are situated on Changxing Island near Dalian, where they may be joined by a third refinery also with a 400kbpd (20Mtpa) capacity that is being planned by Fujia Group with the China Huayang Economic and Trade Group. This third refinery will be partly funded by US$1bn of foreign capital but is still in the preliminary stages of planning. Further South, Rongsheng’s 400kbpd Zhejiang (Zhoushan) refinery complex is taking shape and is due for completion by early 2019.

Chinese refiners are being courted by Saudi Arabia, who is pursuing an expanded role in the Asian downstream sector as a supplier of crude. Saudi hopes may be to retake the number-one supplier position currently occupied by Russia, who is supplying around 1.7Mbpd of East Siberian Pipeline Oil (ESPO) blend to China. Saudi involvement in Asian development is not confined to China. Saudi Aramco also has a role in Petronas’ newest refinery, the Refinery and Petrochemical Integrated Development (RAPID) project. It is a 300kbpd refinery and a petrochemical complex with a combined 3.61mtpa production capacity. Saudi Aramco delivered the first 2Mbbl cargo of crude to the nearly completed complex in September.

2018 was also the year of the super-merger between Marathon and Andeavor, creating the largest refining company in the US—at 3.3Mbpd of capacity and sixteen refineries. The US$23.3bn merger concluded in October and consigned the Andeavor name to history. Claimed benefits to shareholders included US$1bn of “tangible annual run-rate synergies”. 2018 was also the year that at least two new projects that broke ground in the United States; although these are small scale, they are the first new plants in the US in decades and included a 49.5kbpd complex in North Dakota and a smaller, 10kbpd plant in West Texas.

The US refining sector has benefited from failures by state owned refineries in Mexico, Brazil and Venezuela, allowing it to maintain high operating rates. Mexico, the largest importer of US gasoline, is suffering average utilisation rates of just 50%, but is determined to perform a turnaround to lift gasoline output to 600kbpd via improvements to its six large-sized refineries and the construction of a seventh. Work on the plan is expected to begin in early 2019 from a US$3.9bn budget, of which US$524m will be spend on turnarounds at existing refineries, and the balance will go towards preparing to the construction of a new, 330kbpd unit in Tabasco state. Brazil is also recording falling utilisation rates to an average of 70% at Petrobras operated refineries. Unlike Mexico, the poor result by Petrobras is being attributed to poor marketing and increasing competition from importers of gasoline, diesel and lubricants.

The development direction in the United Arab Emirates, Oman, Saudi Arabia and Kuwait all suggest a diversified future for these key oil producers who are adding a vast capacity for production of finished products and derivatives. The largest of these could be KNPC’s Ruwais development that will continue into 2019; It comprises a massive liquids processing capacity of 837kbpd of which crude processing is 515kbpd. The integrated complex will optimize heavy oil from the country’s own fields into clean fuels and derivatives which are squarely aimed at exports into Asia.