The economic downturn has had a pronounced impact on demand and the price of refined products. Despite this, all indications are that demand for energy and refined products will increase over the next five years. In response, refiners will need to increase capacity and/or refining agility, either of which will benefit automation suppliers. Automation expenditures by the refining sector are expected to grow at a compounded annual growth rate (CAGR) of nearly five percent over the next five years, according to a new ARC Advisory Group study.
After a challenging 2008 and 2009, which saw plummeting demand and a collapse in once lofty oil prices, the industry looks ahead as the global economy begins to come out of the recession and oil prices recover somewhat. Oil majors adjusted to the downturn by stepping back from some large projects. Refiners still plan to make major investments in coming years to build capacity for an inevitable increase in demand over the long term, but the question is when and where.
“The global economic downturn accelerated changes that have been under way for years. Developing regions want to build new refiners, while refiners in North America and Europe face shrinking margins and under-utilization of their assets. However, in a truly global business, there are often no clear winners and losers,” according to vice president Dick Hill
, the principal author of ARC’s Automation Expenditures in Refining Worldwide Outlook
Meeting Future Demand Requires the Right Strategy
Increased demand over the long term will continue to drive significant growth in capital investments and automation expenditures in the global oil & gas industry. In the recent past, however, the oil majors slated the majority of investments for oil and gas exploration and production, rather than for refinery projects. National oil companies from emerging and growth countries see huge demand ahead for energy and refined petroleum products in their domestic markets. In addition, many see the opportunity to develop world export businesses for their refineries. This will drive huge expenditures in large and complex capital projects in the refining segment.
According to estimates, demand for petroleum products will increase substantially as the economies in developing regions improve and per capita energy consumption increases. Today’s global refining utilization is far below normal. However, if new refining capacity comes on line too far ahead of increased demand, this could cause a return to the “boom and bust” era in the refining sector. Currently, refiners in North America and Europe feel the pressure of reduced margins. The uncertainty of the shape, timing, and location of the recovery curve fuel risk for refiners.
Asia, Middle East, and Latin America to Lead Growth
Regionally, the highest growth rates will occur in Asia and Latin America. Automation shipments to Asia will exceed 30 percent of the world market by 2013. Despite having an overall growth rate second only to Asia, Latin America will remain a relatively small portion of the overall market. The Middle East is a major contributor to the size of the overall EMEA market. The Middle East alone will grow at a rate comparable to Latin America. North America and Western Europe will trail the market for expenditures, but combined, will still represent a large share of the world investment in automation.