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Impact of reduced refining margins

Impact of reduced refining margins. Oscar Volkwyn Energy efficiency coordinator SASOL. Supply and Demand remain the fundamental drivers. Source - INTERNATIONAL ENERGY AGENCY. Supply-Demand vs Brent cracking margin (NWE). Source - INTERNATIONAL ENERGY AGENCY. Supply and demand drivers.

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Impact of reduced refining margins

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  1. Impact of reduced refining margins Oscar Volkwyn Energy efficiency coordinator SASOL

  2. Supply and Demand remain the fundamental drivers Source - INTERNATIONAL ENERGY AGENCY

  3. Supply-Demand vs Brent cracking margin (NWE) Source - INTERNATIONAL ENERGY AGENCY

  4. Supply and demand drivers Supply Favorable • New discoveries • Improved recovery • Surplus refining capacity Unfavorable • Refinery shutdowns • Supply chain interruptions • Political tensions Demand Favorable • Economic growth • Aging populations (longevity) • Climate extremes Unfavorable • Economic recessions • Environmental impacts • Higher efficiency

  5. Reduced margins – two reactions Developed economies Developing economies Mega refinery commissioning Economic growth focus Environmental followers Growth in national oil companies • Refinery sales • Research for alternatives • Environmental leaders • Oil majors focus on upstream or exiting

  6. Refinery sales/closures – Europe (Reuters) 2.5 million barrels/day for sale 750 000 barrels/day shut down

  7. To stay in the business • Gross margin = Output value – Raw material • Maximise output value • Minimise raw material cost (with optimised variable cost) • Have the right flow scheme • Align strongly with the market (distillate) • Focus on yield maximisation and efficiency • Be sure to control costs • Eliminate non value add • Reward innovation

  8. Some probing questions • Can a mature industry be revived three times? • 1973 oil crisis • Mid 90’s environmental drives • Millennium specification changes • Can technology be developed fast enough? • Basic technology with us since the 40’s • Incremental change characteristic of oil and gas • Do we have the right people? • Baby boomers are moving out • Is the generation X sufficiently patient • Will society continue tolerating a dirty industry?

  9. Conclusion • Refining has never been for sissies, more so today • Surplus capacity will continue suppressing margins • To stay in business or exit will require: • Innovative thinking • Efficient and excellent operation • Whether we meet in 10 years time depends on us!!

  10. Thank you

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