Chemical Engineering May 2020 - 14

Newsfront
COVID-19 Shutdowns Slash
Demand for Refined Products
Demand for refined products has dropped sharply, challenging petroleum refineries with
compressed margins, but a deal was struck on global production cuts
IN BRIEF
DEAL STRUCK ON
PRODUCTION
'DOUBLE WHAMMY'
PANDEMIC RESPONSE
PREVIEW OF THE
FUTURE?
CRUDE-TO-CHEMICALS
IMO UPDATE
INNOVATION AND
DIGITALIZATION
T
he large-scale shutdown of economic
activity related to the global
pandemic response has caused
demand for refined petroleum products
to plunge dramatically, placing refiners
around the world into a difficult situation.
Refinery production cuts are common, while
some plants have been idled.
" In countries where stay-at-home orders
and social distancing measures have been
issued, gasoline demand is down by 50%
and aviation fuel demand is down 70% or
more, " says Steve Sawyer, director of refining
for Facts Global Energy (FGE; London,
U.K.; www.fgenergy.com). " Diesel demand
has kept up a little better because trucking
deliveries are still being made, but despite
that, diesel has fallen by 30% at least. " Sawyer
adds " Really, demand for all hydrocarbons
coming out of a refinery are down. "
Sawyer says April demand for refined products
could be 23 million barrels per day (bbl/d)
lower than the corresponding value from April
of last year. " May could maybe be a bit better,
but if you're in a deep hole, and you take one
step up, you are still in a deep hole. " Weak
demand will persist into June, and what happens
after that depends in large part on what
happens with the public health crisis, he says.
Deal struck on production
The sharp decline in the demand for refined
products coincided with oversupply of crude
oil that was precipitated by disagreements
between Saudi Arabia and Russia in March
over reductions in crude production. In April,
a largely unprecedented coordinated effort to
stabilize global crude oil prices took shape,
as Russia, Saudi Arabia and the other nations
of the so-called " OPEC-Plus " group
(Organization of Petroleum Exporting Countries;
www.opec.org, plus allies) finalized a
deal on cuts to oil production on April 12.
During a virtual meeting of the OPEC-Plus
oil ministers, the group agreed to a reduc14
tion
in oil production of 9.7 million bbl/d from
May 1 to June 30, and called on other oil
producers to contribute to the effort. The
OPEC-Plus agreement says the cuts will
taper to a 7.7 million bbl/d reduction from
July to December 2020, and a 5.8 million
bbl/d reduction in 2021.
The U.S. also became involved, with
President Trump pushing Saudi and Russian
leaders for a deal on production cuts
and stepping in to help Mexico meet its production
cuts. U.S. Energy Secretary Dan
Brouillette announced April 10 that the U.S.
would open its Strategic Petroleum Reserve
to store as much oil as possible. " This will
take surplus oil off the market at a time when
commercial storage is filling up and the market
is oversupplied. "
Despite the agreement, downward pressure
on oil prices was expected to continue,
and crude oil storage facilities are forecast to
be stretched. Following the announcement,
WoodMackenzie (Edinburgh,
U.K.; www.
woodmac.com) vice president for macro oils
Ann-Louise Hittle said the agreed-upon reduction
would support crude oil prices over
the second quarter. However, while the announced
cuts will offer some degree of relief
to the oil industry, they are insufficient
to match the demand destruction that has
been observed because of the pandemicrelated
shutdowns, she says.
Further, FGE's Sawyer says there are questions
surrounding how the agreement will be
implemented in practice, including those of
compliance, and inventory levels. Ultimately,
all oil market projections beyond the next
couple of months depend on the trajectory
of global oil demand, which remains at the
mercy of COVID-19, FGE says.
As of press time, crude prices remained
depressed, with West Texas Intermediate futures
trading at $18.27/bbl, for example, and
crude inventories rising, according to the U.S.
Energy Information Agency (EIA).
CHEMICAL ENGINEERING WWW.CHEMENGONLINE.COM MAY 2020
http://www.fgenergy.com http://www.woodmac.com http://www.opec.org http://WWW.CHEMENGONLINE.COM
Chemical Engineering May 2020

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