The Future of Refining

Rafael Moreno Lahore from The Boston Consulting Group discusses with us main current trends in the downstream oil & gas industry.

Rafael is a BCG member of the Energy Practice and part of the WESA expert team in Downstream and Petrochemicals. Rafael is a leader in lean manufacturing and production optimisation initiatives in crude refining, value chain optimisation, energy improvement, waste reduction, debottlenecking and continuous improvement. He has experience in implementation in large IOCs and NOC. Rafael also has operational expertise having held several positions in refineries, such as FCC and Energy Business Area Manager, including utilities and power production and technological leadership in FCC and CHP improvement groups for an IOC. Prior to joining BCG, Rafael worked for the Spanish oil major CEPSA for more than 15 years in refineries mainly in Operations as Business Area Manager, Deputy Business Manager and LP Engineer. Rafael holds a degree in Industrial Engineering from the Sevilla Industrial School of Engineers, Master of Science in Petroleum, Engineering & Gas from the French Institute of Petroleum and has also graduated from the Management Development Programme with honors at IE Business School.

Euro Petroleum Consultants (EPC Ltd.): You will present a refining industry economic scenario overview at the IDTC 2017. In this context, would you kindly outline the current state of the international refining industry?

R. Moreno: The refining industry is continuing to experience uneven growth concentrated in specific regions. Additionally, there is a general trend of consolidation into larger (new >300 kbbl/d refineries), fewer (closures expected to continue in non-growing markets) and more complex assets with integrated petrochemical specialties. The fact that the industry is registering nearly flat growth in various markets and 70% is concentrated in the Middle East & Asia supports the saying that the industry is "moving east".

Margins are relatively strong worldwide (similar to 1Q15 and above 1Q16) and refineries are currently operating at reasonable occupation levels, however forecasts place capacity growth above demand, meaning the refining industry will be under increasing pressure as its market share of oil products decreases—in fact, nearly 15% of oil demand is already covered by non-refining products.

IMO 2020 sulfur cap is already a major disruption today, one that will have losers and winners in 2020 not only in refiners but also in shippers and oil producers, clear strategies and movement are needed.

EPC Ltd.: Do you see technical trends or innovations that would positively impact the sector?

R. Moreno: A relevant industry trend is the increasing adoption of "Industry 4.0" technologies, such as Big Data and Artificial Neural Networks (ANNs) for crude selection, process optimization or maintenance, which aim to boost efficiency and reliability or the ones oriented to increase operator productivity and safety using digital ATEX devices and AR, drones, etc.

It is important that industry players have a clear understanding of the potential advantages they offer, as well as a strategy to implement them in businesses as a new lever to drive foreword improvements.

With regards to processes, even if not new, there are some highly relevant pure refining processes, such as:

· Crude to olefins processes where some players are starting to move

· Bottom upgrading process (especially for vacuum residue) through desulfurization and conversion

· Capacity to process very light crudes (e.g., condensate splitters in USA) or sour crudes.

And, finally, surveying technologies from other industries are having an impact on refining:

· Due to its impact in the IMO's 2020 disruption scrubbers, and to a lesser degree, LNG for ships have to be on the radar

· As for urban transport, EV (electric vehicle) penetration and regulatory changes are impacting diesel (WE major cities).

EPC Ltd.: Which economic scenarios that refiners are facing are you going to discuss in your presentation?

R. Moreno: The refining industry is at a turning point in light of impending disruptions:

· USA Border Adjustment Tax (BAT)

· In the European market, a potential future ban on diesel in Western European cities represents a threat

·  Demand driven peak oil as potential reality

IMO's 2020 sulfur cap is not considered as a scenario, as it is a real major disruption. All of these changes have potential to alter the refining market as we know it, and players need to prepare and adapt to them.