Four New Trends in the Refining Industry

　　Under the new circumstances of sluggish global economic growth and an accelerating transition in energy structures, the global refining industry in 2016 showed several emerging trends: the refining landscape continued to adjust, industry concentration further increased, refinery gross margins declined, upgrades in fuel quality accelerated, and the role of technological innovation as a driving force strengthened.

　　Refining industry concentration continues to rise.

　　The prolonged sluggishness in economic growth and the slowing pace of oil demand have led to a gradual expansion of global refining capacity in recent years. In 2016, global refining capacity reached 4.579 billion tons per year, representing a 2.34% increase from the 4.474 billion tons per year recorded in 2015—the highest annual growth rate since 2010. Most of the newly added refining capacity in recent years has been concentrated in Asia and the Middle East. Meanwhile, refining capacity in the Asia-Pacific region continues to expand, while the U.S. refining industry has experienced significant growth thanks to the "shale revolution." In contrast, Europe’s refining sector continues to shrink, maintaining a pattern of divergent development across different regions.

　　Looking at regional breakdowns, the Asia-Pacific region remains the world’s largest refining capacity hub, with an annual output of 1.383 billion tons—nearly 66 million tons higher than the previous year, accounting for 33.9% of global total capacity. North America’s refining capacity reached 1.103 billion tons per year, up by 21 million tons from the prior year, representing 22.9% of the global total. Meanwhile, Western Europe’s refining capacity stood at 671 million tons per year, a slight decline of 4 million tons compared to the previous year, making up 13.1% of the global share. In contrast, the Middle East saw its refining capacity grow to 464 million tons per year, increasing its global share to 10.1%. Moving forward, the global refining industry is expected to continue shifting its development focus toward regions that boast both market and resource advantages. By the end of 2020, an additional 250 million tons per year of new refining capacity is projected to come online, primarily concentrated in the Middle East, China, and other parts of the Asia-Pacific region.

　　Global refining capacity has already begun to exceed demand, especially as several large-scale refining projects in the Middle East and Asia come online. This will lead to even fiercer market competition in the Asian region, further exacerbating the overcapacity issue. However, due to the impact of low oil prices, many project investment plans are unlikely to proceed as scheduled, making cancellation or postponement highly probable.

　　The global refining industry continues to evolve toward larger-scale operations, with industry concentration steadily increasing. Currently, there are 615 refineries worldwide—19 fewer than the previous year—and the average refinery capacity has reached 7.44 million tons per year. Compared to 2010, the number of refineries has declined by 7%, yet their average size has grown by 11.7%. Refineries continue to shift toward even larger-scale facilities. Notably, 30 refineries now boast capacities exceeding 20 million tons annually, with 20 of these located in Asia and the Middle East. India's Reliance Industries Limited, through its Jamnagar Refinery Complex, has achieved a total refining capacity of 62 million tons per year, making it the largest refining hub in the world. In China, Sinopec’s Zhenhai Refining & Chemical, Maoming Petrochemical, and PetroChina’s Dalian Petrochemical have each surpassed an annual refining capacity of 20 million tons, placing them among the world’s largest refineries. Meanwhile, two massive projects—the planned 40-million-ton-per-year Zhejiang Petrochemical facility and the 20-million-ton-per-year Hengli Petrochemical project—are currently under construction and development.

　　Operating rates slightly rebound as refining gross margins decline.

　　In 2016, despite global crude oil prices remaining low due to the rapid growth of global refining capacity, the pace of oil product demand slowed down. As a result, global refinery utilization rates experienced a slight decline, and refining margins began to shrink. That year, the global refinery utilization rate stood at around 81.1%, down 1 percentage point from the 82.1% recorded in 2015—though during the golden era of the refining industry in 2005, utilization rates had soared as high as 86%. In recent years, U.S. refineries have consistently performed exceptionally well, operating at nearly 89%; meanwhile, Asia-Pacific refineries, after hitting a nearly 10-year low in 2014, have since rebounded, with their utilization rate climbing to 82% in 2016. The EU region saw its utilization rate hover around 81%, while China’s refinery utilization rate in 2016 reached approximately 78.5%, marking a 2-percentage-point increase from the previous year—largely driven by a notable recovery in independent refinery operations. Nonetheless, China’s national average utilization rate still lagged significantly behind the global average, highlighting that structural overcapacity remains a pressing issue.

　　In 2016, global refining gross margins failed to maintain the upward momentum seen in 2015, instead experiencing a decline. The global average margin stood at $7.96 per barrel, down 6.2% from $8.49 per barrel in 2015. All regions reported varying degrees of decline: North America’s margins dropped sharply by 29%, falling from $11.49 per barrel in 2015 to just $8.12; European refineries saw their margins plummet by 25%, reaching only $5.70 per barrel; and Asian refineries also faced a significant drop, with margins sliding by 25% to $5.94 per barrel.

　　The industry believes that while recent low oil prices have boosted refinery gross margins, in the medium to long term, weak global economic recovery, slowing growth in oil product demand, and escalating overcapacity are likely to keep refineries far from replicating the stellar performance of 2005—when the industry enjoyed an impressive 86% utilization rate and record-high gross margins exceeding $10 per barrel. In particular, refineries outside the U.S., though benefiting temporarily from lower oil prices, face an uncertain outlook for sustained profitability in the mid-to-long term.

　　Stratas Advisors, the energy consulting firm, forecasts that refining profits will rebound across most regions globally in 2017. However, it also warns of deepening regional disparities, with widening gross profit gaps between areas: North America and the Middle East are expected to see rising margins, while Europe and Asia will experience declining margins. In 2017, projected refining margins by region are as follows: $8.88 per barrel in North America, $6.41 in Asia, $7.2 in Europe, and $6.41 in the Middle East. By 2025, North American refining margins are forecast to climb to $12.66 per barrel, while the Middle East is expected to reach $8.95 per barrel. Meanwhile, refining margins in Europe and Asia are anticipated to continue their downward trend, falling to just $2 per barrel in Europe and $4.26 in Asia.

　　Clean fuel standards accelerate upgrades

　　In recent years, several major countries around the globe have been accelerating the pace of upgrading their fuel standards. Reducing sulfur content in gasoline and diesel to below 10 μg/g has essentially become an international trend. As of January 1, 2017, the United States adopted the Tier III fuel standard, lowering the sulfur limit in clean gasoline from 30 μg/g to 10 μg/g. Meanwhile, the European Commission has also mandated that EU member states produce gasoline with sulfur levels approaching zero. Currently, Japan restricts gasoline sulfur content to no more than 10 μg/g. Meanwhile, developing countries in regions like Asia are rapidly aligning their clean fuel standards with global benchmarks. For instance, India announced it would implement the BS4 clean fuel standard—equivalent to Euro IV—with a sulfur limit of no more than 50 μg/g, effective April 1, 2017. By 2020, India plans to leapfrog to the BS6 standard, equivalent to Euro VI, which caps sulfur content at just 10 μg/g—directly skipping the intermediate BS5 standard.

　　Currently, China's fuel quality standards are already ahead of most developing countries, with some provinces and cities even reaching the level of developed nations. Starting from January 1, 2017, the National V standard has been implemented nationwide, and by January 1, 2019, the National VI standards for automotive gasoline and diesel will take effect across the country. Beijing officially began enforcing the Beijing VI standard on January 1, 2017. The Beijing VI standard aligns closely with the world’s strictest automotive fuel specifications currently available, maintaining the sulfur content at a stringent 10 μg/g while further tightening controls on key environmental indicators such as olefins, aromatics, benzene, and vapor pressure in gasoline. Overall, China’s fuel quality standards are steadily upgrading: gasoline sulfur levels will drop to 10 μg/g, with olefin, aromatic, and benzene content continuing to decline to 15%, 35%, and 0.8%, respectively. Meanwhile, diesel sulfur levels will be reduced to 10 μg/g, and polycyclic aromatic hydrocarbon content in diesel will continue to fall to 7%. By the time China’s National VI fuel standards are fully implemented in 2019, major technical benchmarks are expected to meet or exceed the Euro VI quality requirements—indeed, gasoline olefin levels and diesel polycyclic aromatic hydrocarbon content may even surpass Euro VI standards. At that point, China’s fuel quality standards will have collectively reached globally advanced levels.

　　In addition to further reducing sulfur content standards in automotive gasoline and diesel fuels, lowering the sulfur levels in marine fuel oils is also emerging as a key component of upgraded fuel quality standards being promoted by several countries and international organizations. To strengthen its management of emissions from seagoing vessels, the International Maritime Organization (IMO) officially announced in October 2016 that, starting January 1, 2020, the global limit for sulfur content in marine fuel oils would be tightened to 5,000 μg/g—replacing the current 3.5% cap—and effectively eliminating the market for high-sulfur marine fuels altogether. Furthermore, the IMO has mandated that, since January 1, 2015, the sulfur content of marine fuel oils used by ships operating within Emission Control Areas (ECAs—currently including the Baltic Sea, North Sea, North America, and the U.S. Caribbean regions) must be reduced to 1,000 μg/g.

　　On December 31, 2015, China released the mandatory national standard "Marine Fuel Oil" (GB 17411-2015), which came into effect on July 1, 2016. The new standard significantly lowers the sulfur content requirements for marine fuel oil, with the strictest limit now set at no more than 0.1%. Additionally, China’s revised "Air Pollution Prevention and Control Law," implemented on January 1, 2016, mandates that inland waterway vessels must use regular diesel fuel as their marine fuel. Furthermore, starting from January 1, 2016, ships operating within designated emission control areas in the Pearl River Delta, Yangtze River Delta, and Bohai Sea Rim (including Beijing-Tianjin-Hebei region) are permitted—under certain conditions—to adopt measures such as using fuel with a sulfur content of no more than 5,000 μg/g during port stays. These measures exceed current emission control standards. By January 1, 2019, all vessels entering these emission control zones will be required to use marine fuel oil containing no more than 5,000 μg/g of sulfur. Globally, reducing the sulfur content in marine fuel oil has become an overarching trend across most regions.

　　Technological innovation supports the sustainable development of the refining industry.

　　As a technology-intensive industry, the refining sector will see technological innovation play an even more critical role in enhancing corporate economic efficiency, reducing production costs, and improving product quality. The annual conference hosted by the American Fuel & Petrochemical Manufacturers (AFPM, formerly known as NPRA) is the world's most significant gathering dedicated to refining expertise. Leading oil companies, refiners, and technology developers all send representatives to this event, which has long been regarded within the industry as a key indicator of global refining technology trends—largely reflecting the cutting-edge directions in the field. By analyzing recent conference papers, we find that the primary areas covered include FCC, hydrocracking/hydroprocessing, catalytic reforming, alkylation, heavy oil upgrading and processing, crude oil supply and demand, unit optimization, and safety management. Among these, advancements in FCC, hydroprocessing/hydrocracking, high-octane gasoline component production, and heavy oil upgrading and processing continue to be the focal points driving today’s refining industry.

　　FCC technology advancements are primarily evident in areas such as catalysts, processes, and plant operations. BASF has recently developed a new boron-based technology platform (BBT) designed specifically for processing residual oils. Compared to conventional metal deactivation technologies, the BBT catalyst boasts superior metal tolerance and enhanced catalytic performance, effectively minimizing the adverse effects of impurity metals like nickel and vanadium. This leads to significant benefits, including reduced hydrogen yield, increased yields of naphtha and light cycle oil (LCO), and lower coke production. Laboratory ACE evaluation results show that, compared to baseline conditions, hydrogen yield is reduced by 27%, while naphtha and LCO yields rise by 0.75%, and coke yield drops by 22%. Currently, two U.S. refineries have already adopted the first-generation catalyst, Borocat, developed based on this technology platform, and several other refineries are now conducting pilot tests.

　　Recent advancements in hydrogenation technology are primarily evident in areas such as catalysts, process optimization, equipment upgrades and modifications, and tailored solutions. A specialty company has developed the STAX proprietary kinetic model and advanced catalyst system design optimization technology specifically for hydrogenation catalyst research and development. The STAX technology can be applied to high-pressure/high-pressure hydrogenation units used in ultra-low-sulfur diesel production, enabling the layered placement of different catalysts—three distinct layers within the reactor—for optimal performance. For low-pressure/medium-pressure hydrogenation units, the same technology facilitates the strategic two-layer arrangement of various catalysts. Leveraging this cutting-edge support, the company has successfully introduced the first-generation nickel-molybdenum catalysts, KF 870 and KF 880, designed for hydrocracking pretreatment and medium-to-high pressure/high-pressure middle-distillate hydrotreating applications, respectively.

　　Key technological advancements in clean gasoline production are primarily seen in areas such as alkylation, the production of high-octane gasoline components, and gasoline blending. In China, Shandong Huifeng Petrochemical successfully commissioned the world's first plant utilizing Alkyclean solid acid alkylation technology in August 2015. This facility boasts an alkylation oil production capacity of 100,000 tons per year and has been operating continuously for over a year now, demonstrating excellent reliability and stability. Notably, the Alkyclean technology eliminates the need for toxic and corrosive hydrofluoric or sulfuric acid, significantly reducing health and safety risks for plant operators. Additionally, it avoids the energy-intensive processes required for liquid acid regeneration or post-treatment, while also minimizing waste generation and environmental pollution. As a result, this innovative technology was honored with the "Green Synthesis Route Award" at the 2016 U.S. President's Green Chemistry Challenge Awards. This breakthrough technology represents a transformative leap forward compared to conventional alkylation methods, positioning itself as a promising mainstream solution for clean gasoline production.

　　Technological advancements in the field of residual oil conversion are primarily reflected in suspended-bed hydrocracking technology. Key suspended-bed hydrocracking technologies include ENI's EST technology, Intevep's HDHPlus/SHP technology, UOP's Uniflex SHC technology, BP's VCC technology, Chevron's VRSH technology, and China National Petroleum Corporation's suspended-bed hydrocracking technology. Due to the extreme technical challenges involved, suspended-bed technology has yet to be widely applied on a commercial scale worldwide. Currently, only two industrial-scale demonstration units for residual oil suspended-bed hydrocracking have been put into operation globally: one is the 1.35-million-ton-per-year EST unit at ENI's Sannazzaro refinery in Italy, which began production in October 2013. ENI is currently developing a second-generation nanocatalyst aimed at enhancing the catalyst's cracking performance, while also exploring innovative methods for recovering catalysts from the bottom residue of the conversion process. The other demonstration unit employs BP's VCC technology and is part of the Yanchang Petroleum Group's 450,000-ton-per-year co-processing plant that blends coal and petroleum (with a design ratio of 1:1 for coal to oil). This facility was completed and commissioned in January 2015 in Jingbian, Yulin, Shaanxi Province, and is now undergoing optimization and operational refinement. Additionally, several more units are either under construction or planned for development. For instance, Russia's Mendeleev Group is building a 3.5-million-ton-per-year industrial plant using VCC technology, with commissioning expected in 2018. Meanwhile, Venezuela's Puerto La Cruz refinery is constructing a 2.75-million-ton-per-year facility based on Intevep's HDHPlus/SHP technology. In China, Sinopec Maoming Petrochemical plans to adopt ENI's suspended-bed technology for its upcoming 2.6-million-ton-per-year residual oil hydrocracking unit. Furthermore, Sanlu Environmental Protection, in collaboration with Huashi Energy, has jointly developed a cutting-edge Mixed Cracking Treatment (MCT) technology and successfully built a 158,000-ton-per-year industrial demonstration plant, which commenced feed-in operations in February 2016. Building upon this successful demonstration, they have now developed a full-scale process package tailored for million-ton-level industrial plants, with construction of a 1.5-million-ton-per-year coal tar/coal pitch suspended-bed unit officially starting on December 30, 2016, in Hebi, Henan Province.

　　In addition to continuing to refine and improve traditional mainstream technologies such as FCC and hydroprocessing—both in terms of catalysts and process operations—the refining industry is now increasingly focusing on cutting-edge, interdisciplinary energy integration techniques that combine these conventional methods with emerging energy and network technologies. Many companies have begun investing in research and innovation across diverse areas, including molecular refining, catalytic materials, hydrogen energy and fuel cells, foundational energy materials, and innovative approaches to multi-energy utilization. By leveraging advancements in atom-economic reactions, breakthroughs in molecular management technologies, and the rapid evolution of networking and big-data processing capabilities, the industry is pioneering revolutionary innovations like molecular refining and smart refineries. At the same time, firms are exploring and developing new catalytic material synthesis techniques, such as advanced molecular sieve structures, hierarchical porous alumina, nanoscale metal sulfides, and metal-organic framework materials (MOFs). Meanwhile, research efforts are expanding into promising fields like biomass energy, solar energy utilization, automotive fuel cells, and hydrogen storage and application—all aimed at driving progress in energy diversification, transportation, and sustainable energy storage and usage.

　　Additionally, research has begun from a strategic perspective on future refinery models that can adapt to the shifting energy landscape. These include integrated refinery designs capable of co-processing oil with coal, oil with gas, and even oil, gas, and biomass to produce fuels, generate electricity, and produce hydrogen—enabling seamless energy integration across various forms. Meanwhile, efforts are underway to explore and develop a diversified energy technology system that seamlessly integrates conventional and unconventional energy sources, fossil and non-fossil resources, energy and chemical processes, and multiple energy conversion pathways. In the past two years, the U.S. Department of Energy has funded more than 10 fuel cell projects, focusing primarily on catalyst development, cost reduction, durability enhancement, and improvements in fuel cell stack components. Notably, fuel cell project funding reached $36 million in 2016 alone. Technological innovation in the energy sector will undoubtedly drive and accelerate the sustainable development of the refining industry.