The global crisis in oil refining

The global crisis in oil refining – Today Current Affairs

What’s the Issue?

Fuel prices are skyrocketing, and expenses are rising for industrial production, electricity generation, and building heating, which is hurting drivers around the world at the pump.

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Background

Before Russia invaded Ukraine on February 24, prices were already high. While crude prices have barely slightly increased since mid-March, fuel prices have skyrocketed.

Lack of sufficient refining capacity to convert oil into gasoline and diesel to fulfill growing worldwide demand is a major contributing factor.

How much can global refineries generate per day? The Hindu Analysis

According to the International Energy Agency, there is enough capacity in the world to process around 100 million barrels of oil per day, but only about 20% of that capacity is actually put to use.

In Latin America and other regions where there is a dearth of investment, a large portion of that unused capacity is located.

The remaining anticipated capacity is probably between 82 and 83 million barrels per day (bpd).

How many refineries have been shut down? The Hindu Analysis

The world’s daily refining capacity has decreased by 3.3 million barrels, according to the refining industry, since the year 2020.

These losses were split roughly evenly between the United States, Russia, China, and Europe.

Early in the epidemic, when lockdowns and remote work were common, fuel demand fell.

Before that, there had been at least three decades where refining capacity had increased.

Reasons behind the high prices : The Hindu Analysis

Refineries are running at lesser capacity than they were prior to the epidemic in the United States, China, Russia, and Europe.

US refiners have reduced their capacity by around a million barrels per day (bpd) since 2019.

Russia: According to sources who spoke to Reuters, about 30% of Russia’s refining capacity was idle in May. Russian fuel is being rejected by many Western countries.

China: Its capacity for refining is the lowest.

Exports of refined goods are only permitted in accordance with official quotas, which are typically given to big state-owned refineries rather than independent small businesses.

China’s independent refineries averaged 65.5 percent, compared to 71.3 percent for state-backed refineries.Though lower than average historically, that was up from earlier in the year.

What other factors are involved in the high prices? The Hindu Analysis

  • Due to increased global demand and sanctions against Russian boats, the cost of shipping goods overseas has increased.
  • The high cost of natural gas, which fuels refineries’ operations, limits their ability to operate throughout Europe.  The Hindu Analysis
  • Vacuum gas oil is another intermediate fuel used by some refiners.
  • The shutdown of some gasoline-producing units was caused by the loss of Russian vacuum Gas Oil.

Who stands to gain from the existing circumstances? The Hindu Analysis

  • Refiners, particularly ones that ship a lot of petroleum abroad, like US refiners.
  • Due to the widespread fuel shortages, refining margins have reached all-time highs, with the crucial 3-2-1 crack spread approaching $60 per barrel.
  • For US-based Valero and India-based Reliance Industries, this has resulted in significant profits.

Will oil refining increase in the next few years? The Hindu Analysis

The capacity of the world’s refineries is expected to increase by 1 million barrels per day in 2022 and by 1.6 million bpd in 2023.

Daily processing of 78 million barrels in April was significantly lower than the pre-pandemic average of 82.1 million bpd.

As Chinese refineries restart, the IEA anticipates that refining will increase this summer to 81.9 million bpd.

 

What is the position of India? The Hindu Analysis

According to the IEA, India refines more than 5 million bpd and has been buying inexpensive Russian crude for both internal use and export.

By year’s end, the IEA predicts a 450,000 increase in output.

What should we do next? The Hindu Analysis

To accommodate the rising demand, more refining capacity is expected to go online in the Middle East and Asia.

The need can be satisfied until nations like the US, Russia, and China resume their pre-pandemic levels of operation.

 

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Plutus IAS Daily Current Affairs Eng Med 24th June