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