European oil refinery capacity is set to shrink by a fifth over the next decade even as the continent's facilities are running at close to their limits due to the energy crisis unleashed by the Iran war, Report informs via Financial Times.
Governments have called for greater capacity to keep critical supplies flowing in future crises but investors have shown little inclination to back new projects, resulting in further reductions in capacity in both Europe and North America.
Processing at Europe's refineries will shrink by 20 percent in the decade to 2035 to just over 9mn barrels of oil a day (b/d), according to S&P Global Energy, after starting the 21st century at 14mn b/d.
In the US, S&P expects a 7 percent fall in the 10 years to 2035 to 16.7mn b/d, while refineries in the Middle East, Africa and Asia continue to grow.
Daniel Evans, head of refining at S&P Global, said the shock of the Iran war had not changed the sector's trajectory."[Recent disruption] prompted a rethink about the strategic importance of refining in the west. But does it change the fundamentals in the long run? I would say probably not," he said.
Refineries in the US and Europe, which process crude oil into petrol, diesel and jet fuel, have been running close to capacity this year as the industry scrambles to overcome shortages caused by the war in the Middle East, and are earning bumper profits.
In contrast to the expected contraction in capacity in North America and Europe, companies in China, the Middle East, India and Africa have built huge new and highly competitive refineries. The rise of electric vehicles is another factor in the lack of investment, cutting demand for fuel in Europe as EVs and hybrids take more market share.
EV sales rose by nearly 63 percent in France and 48 percent in Germany in the first half of the year, according to Europe's carmaker association.
The war has prompted governments to focus on ensuring adequate supplies of fuel and could offer vulnerable plants a temporary reprieve. But analysts still expect older and smaller refineries to shut.
"It would be the wrong signal to send now to close a refinery," said Eugene Lindell, head of refined products at FGE NexantECA, a consultancy. "Governments may be willing to fund or at least prioritise their refining assets a little bit more.
"At least in the next 18 months that is not going to happen," he said, referring to closures. "But at the same time, there are forces at work which are not going to be derailed."
Dev Sanyal, chief executive of VaroPreem, whose refineries supply a tenth of Europe's road fuels, said politicians had been thinking more strategically about the sector.