Trends shaping the industry in 2020 and going forward:
- The mobility revolution is expected to reduce fuel demand by 20 million barrels of oil equivalent by 2050. A slowdown in fleet growth from 3% per year to 1% per year over the next decade due to slowing OECD growth and transportation as a service. Increasing light vehicle electrification to ~80% by 2050 (from ~2% in 2018) and improving ICE fuel efficiency The demand for oil in transportation is expected to peak by 2025 and decline below 2018 levels after 2030.
- Regulatory changes in carbon coverage and pricing. Tougher regulatory requirements to limit emissions lead to a gradual increase in carbon taxation, which is expected to increase gradually by 2030; carbon pricing from $30 per ton to $110 per ton under various scenarios
- Introduction of new technologies Emerging new energy sources such as hydrogen, synthetic fuels, plastic pyrolysis, hydrogenation of plant waste, battery storage, and cheaper electrification of vehicles - major breakthroughs not expected until the late 2020s - synthetic fuels not expected to be cost-effective until 2040.
- Social shift toward environmental concerns. Increased environmental awareness among consumers and a new wave of regulation in the EPA; social pressure expected to intensify in the medium term in emerging economies as well.
The solution to refining overcapacity will be to eliminate some of the capacity in developed countries, whether that means the closing off the Antwerp refinery owned by Gunvor Group Ltd. or switching from refining to other products by HollyFrontier Corp. in the United States. Perhaps the industry-wide response to the pandemic is to consolidate the refining industry, according to Goldman Sachs Inc.
The cost of electricity from bioenergy, hydropower, geothermal, and wind was in the range of fossil-fuel power generation costs from 2010-2018. Since 2014, the weighted average cost of photovoltaic electricity has also fallen into this cost range. Among the projects set to come online in 2020, 77% of onshore wind and 83% of solar PV capacity in the PPA database have electricity prices that are lower than the cheapest fossil energy, burning fossil fuels for the new generation.
In addition to the economic appeal of decarbonizing the power sector, these costs reduce opportunities for decarbonization in end-use sectors in the industry, transportation and buildings, and electricity end-use technologies such as electric vehicles and heat pumps. According to a recent analysis by IRENA, electrification is on the road to sustainable energy worldwide, with electricity growing from less than 1/5th of final energy demand to nearly half in 2050 through cost-competitive renewable energy sources.
To stay relevant to the refinery business and stay in the game, we must offer and actually bring to market very specific, relevant and practical solutions to significantly improve transportation carbon efficiency.
Compared to traditional ICE cars, the market for electric cars and electric vehicles is expanding at an ever-increasing rate - the fleet exceeded 5 million last year, and sales of new electric vehicles nearly doubled over the previous year.
Forecasts for electric vehicles diverge considerably. According to the EV30@30 scenario (IEA New Policy Scenario), the goal is to achieve a 30% market share of electric vehicles by 2030, which means that global electric vehicle sales should reach 23 million units and the stock should exceed 130 million units. China will retain its position as the world leader with an EV market share of 57% in 2030, Europe (26%) and Japan (21%), less than Canada, the U.S. and India.
In the projected scenario, this would affect demand for petroleum products by 127 million tonnes. Electricity demand for electric vehicles under the new policy scenario is projected to reach nearly 640 or even 110 TWh in 2030, with passenger cars among the largest consumers of electricity.
H2 production for fuel cell vehicles, as well as Power-to-X (eFuel) and Re-Oil, according to Roland Berger, could provide a sustainable future for liquid fuels, but it is not an easy and traditional way to invest.
Biofuel production relies heavily on technology and financial support, which is why the EU has created a number of organizations to support R&D for best practices and innovation, such as NER300, FP7, Horizon 2020. The total budget for the latter two exceeds $6 billion. These instruments promote bioenergy offerings across industries and sectors. Despite the strong technological background, experts consider investment planning as a weak link in the entire alternative energy development program. Certain barriers in regulation, cooperation in the biofuel industry and others remain at a high level, preventing the minimization of risks and effective allocation of funds.
As a result of all the above, by 2020, about 10% of transport fuel in the EU will be biofuels - 3 times more than 5 years ago. Currently, biodiesel production is higher than ethanol.
According to the IEA, production in total is half what was expected in 2019, which is about 2.5 million bpd, and the structure remains essentially unchanged. The main factors for further production increases, in addition to high energy prices and trade incentives, are the availability of land suitable for growing biofuel feedstock, the availability of available labour and the relatively low cost of production. The highest price of ethanol production is 50 cents per litre, for biodiesel, it is even lower - 8-11 cents compared to the standard cost of processing a new plant in the United States - 70 cents and up to 3 dollars per litre of biofuel. At the same time, all of these aspects lead to increased risks and additional problems for biofuels in the region. For example, larger crop production has unavoidable environmental impacts; food security is exacerbated and there may be a displacement of small businesses.
One way to almost complete decarbonization is to electrify the entire energy system and use clean renewable energy sources. However, electrifying the entire energy system would be difficult, or at least much more expensive, than combining renewable energy with low-carbon fuels. Green hydrogen is one of several potentially low-carbon fuels that could replace fossil hydrocarbons.
Admittedly, hydrogen is far from ideal as a fuel. Its low density makes it difficult to store and move. And its flammability could be a problem, as highlighted in the June 2019 explosion at a Norwegian hydrogen filling station.
'Big Oil''s interest in green hydrogen could be critical to the commercial viability of the fuel. Lowering the cost of green hydrogen production will require massive investment and enormous scale - something that oil giants are uniquely positioned to do.
Saudi Arabia is a leader in investing in new petrochemical capacity. The kingdom plans to triple the petrochemical production capacity from 12 million tons per year in 2016 to 34 million tons per year by 2030. The country will achieve this goal by adding petrochemical capacity to existing petrochemical plants as well as building downstream facilities. They analyzed that the transition to a circular economy will help gradually reduce the GWP per barrel of crude oil consumed by 47% after all changes and upgrades are completed, unprecedented resource savings and expected efficiency gains. The COTC project concept involves the construction of an integrated refining and petrochemical complex in Yanbu, Saudi Arabia, which will refine 20 million tons of Arabian light and Arabian extra-light crude with a maximum production of petroleum products (polyolefins, aromatics and butadiene). The process configuration of the project will include an integrated primary and vacuum distillation unit, distillate hydrotreatment, vacuum gasoil hydrocracker and catalytic cracking of residues. The petrochemical part of the project will be represented by a steam cracker operating on mixed feedstocks, as well as facilities for polyethylene and polypropylene production, butadiene production and aromatic hydrocarbons production. Saudi Aramco and SABIC opened a tender for construction and installation work in mid-2020, and the complex will be commissioned by the end of 2024. The total investment in the project is more than $20 billion.
Looking at the transformation of the industry as a whole, we see 3 options/ways of development:
- Competition - survival of the strongest of the strongest
- Consolidation : Alliances and JVs
- Politically supported transformation
• Each refinery is fighting its own battle and trying to survive.
• Loss-making units and refineries will go into restructuring and will eventually be shut down.
• Refiners are exploring joint actions with peers to form joint ventures and alliances.
• Combined capacity is then reduced in line with declining demand.
• Joint transformation into a carbon-neutral future.
• The EU/Europe recognizes the need to support the transformation of the industry.
• Political and financial support for the transformation of the refining industry into carbon-neutral suppliers of liquid petroleum products and petrochemicals.
Euro Petroleum Consultants is a technical oil and gas consultancy with offices in Dubai, London, Moscow, Sofia and Kuala Lumpur. Euro Petroleum Consultants also organises
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