Question
-
How can smaller refineries compete in an industry dominated by mega-refinery/petrochemical facilities?
Apr-2025
Answers
-
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
SPONSORS