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How can smaller refineries compete in an industry dominated by mega-refinery/petrochemical facilities?

Apr-2025

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Mike McBride, Honeywell UOP, mike.mcbride@honeywell.com

It can be challenging for smaller refineries to compete in today’s environment. Developing threats in some regions include new global mega-complexes, declining demand for conventional refinery products largely driven by a societal desire for more sustainable transportation fuels, and continued industry consolidation as many seek to achieve economies of scale and adapt to changing market conditions.

Smaller refiners can indeed compete in today’s environment. Start by understanding the facility’s competitive position within the markets in which the refinery competes. Then develop a view on what the markets might look like over the next five, 10, and 15 years. Refresh SWOT (strengths, weaknesses, opportunities, and threats) analysis coupled with a good, innovative focus on competitive strengths and opportunities with a realistic focus on today and tomorrow. Then, develop an approach to improve competitive positioning to ensure a robust business for the long haul. Some opportunities for smaller refineries to improve competitive positioning may include:
• Access to local fats, oils, greases, biomass, or municipal wastes available through local farms, timber industry or municipalities may enable the addition of biorefinery capability.
• Access to the premium gasoline market. Premium demand and spreads have been quietly increasing to the point where many sites are constrained on premium production capability. Many automotive firms are responding to Corporate Average Fuel Economy (CAFE) standard improvements through the proliferation of turbo-driven engines. This will increase if, as projected, the EV adoption rate slows. The demand for premium gasoline is likely to increase in many markets, which provides opportunities through the addition of incremental octane production (for example, expand alkylate and reformate production).
• Competitor shuttering. Many regional markets have a delicate balance of supply and demand with the high cost of importing products from other regions. A competitor shuttering its asset may provide the opportunity to serve its abandoned market.
• Changing gasoline-to-diesel (G/D ratio). US gasoline demand is expected to decline more rapidly than diesel, whereas in the EU, this is reversed. Sites have some cut point, severity, and catalyst reload flexibility to respond to demand shifts. However, at some point, the spreads get big enough to support a hydrocracking investment in the US and perhaps FCC expansion in the EU. The refiners who are first to market on these opportunities will shore up their competitive positioning, especially if these opportunities can be coupled with a crude expansion to capture the market as competitors shutter.
• Access to advantaged crudes. Regional discounts in crude oils can arise from newer discoveries, pipeline constraints, or production volumes that limit market access. Many sites have found value in revamping/expanding capabilities to process discounted, higher TAN crudes, heavier crudes, or even much lighter, shale-derived crudes,
• Access to petchem markets – notably propylene or aromatics. These can be trickier options for smaller refiners who have never played in these markets. However, there is a need in NA for benzene, and FCC-based propylene is an easy opportunity for sites with pipeline access. Diversifying your product portfolio into higher margin petrochemicals could be an option.

Apr-2025
Jeremy Mayol, Johnson Matthey, Jeremy.mayol1@matthey.com

Smaller refineries are already facing and will continue to face considerable challenges and fierce competition from mega-refineries that benefit from economies of scale, lower production costs, and preferential access to feedstocks. However, smaller refineries can adopt several strategies to survive and thrive, as follows:
• Specialisation and diversification: Focus on high-value fuels and niche markets like biofuels and specialised petrochemicals, where competition is lower and margins are less volatile. Diversification can help stabilise earnings, especially during periods of weak gasoline or diesel cracks.
• Leverage of geographic advantage and integration into local chains: Strategically position themselves to serve local markets, minimising competition in global refined product markets and avoiding high logistical export costs.
• Operational flexibility: Leverage their size to be more agile and responsive to market fluctuations. They can leverage opportunities in both feedstocks and products. On the feedstocks side, they can capitalise on their flexibility to process cheaper, discounted crudes. This can be especially relevant for refineries with a fluid catalytic cracking (FCC) unit, which can convert heavy, high-metal feedstocks into high-value products. These refineries can leverage specialty additives to flexibly process high metal-content feeds while maintaining similar FCC catalyst addition rates and product yields. On the products side, small refineries can take advantage of their size to rapidly adjust production to market demand and economic conditions. Specialty FCC additives associated with addition systems support this strategy. For example, FCC olefins additives enable FCC margins maximisation by responding swiftly to market shifts.
• Operational efficiency and technological innovation: Investing in advanced technologies like digital tools to be more efficient, less energy-intensive, and reduce production costs can help smaller refineries stay competitive. Digital tools provide real-time data insights to optimise operations and boost profitability.
• Energy transition: Transition to processing alternative raw materials such as used oils or plastic waste, enhancing their environmental competitiveness in regions where low carbon regulations are being implemented. Alternative feedstocks are especially well-suited for processing in smaller refineries, as they are often available regionally in limited quantities, and transporting low-energy-density feedstocks is not cost-effective. Johnson Matthey licenses multiple technologies that can support operators pivoting towards alternative feedstocks such as biomass, municipal solid waste, captured carbon dioxide, and green hydrogen.
• Regulations and subsidies: Taking advantage of regulations that favour local players over imports, and government subsidies for the energy transition and energy independence, can provide another competitive advantage to smaller refineries.

By adopting these strategies, smaller refineries cannot only survive but thrive in a market dominated by mega-refineries.

Apr-2025