Feature Report: Refining, a Sector Undergoing Profound Changes

3 items of content in this feature report

Going in depth

Close-up

Technical and Business Challenges in the Refining Industry

The refining process converts crude oil into petroleum products for consumers and industry (See Feature Report: "About Refining"). This involves using state-of-the-art technology and aligning production with demand. Demand has diversified and shifted in recent years, requiring upgrades to facilities (See Feature Report: "Refining, a Sector Undergoing Profound Changes").

Technical and Business Challenges in the Refining Industry
Total's refinery in Antwerp, Belgium. © M.LABELLE / TOTAL

Changing Demand

Refining is much more than just a technical operation. It is subject to a strong business constraint: meeting market demand (See Close-Up: "Refining, Background and issues").

Today, European refineries produce too much gasoline and not enough diesel.

Petroleum product demand has changed significantly since the mid-20th century. In industrialized countries, demand for light products such as transportation fuelFuel is any solid, liquid or gaseous substance or material that can be combined with an oxidant... has picked up pace, contrasting with declining heavy fuel oilHeavy fuel oil is high-viscosity liquid fuel, used in big diesel ship engines or as a thermal power plant fuel.... consumption for heating and powerIn physics, power is the amount of energy supplied by a system per unit time. In simpler terms, power can be viewed as energy output... generation. Demand has also shifted geographically. In emerging economies such as China and India, consumption is soaring. In comparison, it is steadily falling in Europe, where public authorities are encouraging energy efficiencyIn economic terms, energy efficiency refers to the efforts made to reduce the energy consumption of a system.... As a result, refining capacity continues to grow in emerging economies while Europe is faced with overcapacity.

The “Dieselization” of European Cars

Other trends are also adversely impacting the refining industry. In Europe, and especially in France, the vehicle fleet has become increasingly diesel-powered, with consumers and truckers attracted by lower dieselDiesel is the name of an internal combustion engine that works by compression-ignition... prices, due notably to lower taxes (See Close-Up: "Refining in France: An Expert Eye"). This means European refineries are now producing too much gasoline and not enough diesel, which Europe now has to import. In addition, the American market for gasoline exports from Europe has contracted over the years.

And as oil resources dwindle, oil companies are having to turn to new types of oil, especially heavy oil. This makes refining operations more complex.

A Changing Industry

Due to these trends and shrinking margins, the European refining industry is less and less profitable. Some refineries have already had to shut down. To avoid further closures, refiners are now pushing ahead with upgrades of their facilities (See Close-Up: "Refining, a Production Base Undergoing Profound Change").

To improve their competitiveness, refiners have begun to integrate their refining and petrochemical activities on the same site. Esso in Antwerp, Shell in the Netherlands and Total in Normandy have already created large-scale integrated complexes.