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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

Impact of reduced refining margins

Oscar Volkwyn

Energy efficiency coordinator

SASOL


Supply and demand remain the fundamental drivers
Supply and Demand remain the fundamental drivers

Source - INTERNATIONAL ENERGY AGENCY


Supply demand vs brent cracking margin nwe
Supply-Demand vs Brent cracking margin (NWE)

Source - INTERNATIONAL ENERGY AGENCY


Supply and demand drivers
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


Reduced margins two reactions
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


Refinery sales closures europe reuters
Refinery sales/closures – Europe (Reuters)

2.5 million barrels/day for sale

750 000 barrels/day shut down


To stay in the business
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


Some probing questions
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?


Conclusion
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!!



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