The COVID-19 pandemic has significantly disrupted the global refining market, with supply and demand experiencing unprecedented fluctuations during 2020 and 2021. At the same time, the industry is also facing longer-term challenges related to technological advances, evolving regulations, and increasing concerns about climate change.
As the world transitions to the next normal, this report examines the future of the industry through the lens of three potential scenarios: Energy Transition (Reference Case), Delayed Transition, and Accelerated Transition. Based on McKinsey pricing, supply-and-demand, and market-balancing tools, our analysis takes current trends into account and offers an outlook on market fundamentals, refining margins and spreads, and refining yields and value pools fundamentals.
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Energy Transition (Reference Case)
The Reference Case reflects a scenario in which future policies and trends follow existing patterns. Under this scenario, all hub margins are expected to recover in line with utilization, but US and European margins would decline over the long term, with average margins approximately $2 per barrel lower in 2031–35 than in recent history. Margins in Asia would remain more stable, but still lower than recent history, in the long term.
In Europe and the United States, utilization would recover by around 2025 but then fall off, leading to about five million barrels per day (MMB/D) of closures by 2035 (of which ~2.5 MMB/D have already been announced). Overcapacity would suppress Asian utilization in the short term, but Asia would be more resilient in the long term due to slower demand decline.
The global refining value pool would decline approximately 35 percent from 2015–19 levels by the 2030s in this scenario, with the 2031–35 global average at $100 billion. Value pools in the 2030s would continue to grow only in Asia and the Middle East.
Delayed Transition
In the Delayed Transition scenario, economic recovery from COVID-19 takes precedence over emissions reduction, and the energy transition proceeds at a slower pace.
Under this scenario, global liquids demand would continue to grow through 2035, and hub utilization would remain strong. All hub margins would recover to historical levels and follow utilization trends, with margins in Asia more stable than in other regions due to Asia’s stronger demand growth.
By the 2030s, the global refining value pool would grow by about 16 percent compared with 2015–19 levels, with the 2031–35 global average at $181 billion. Asia and the Middle East would be the primary drivers of these increases.
Accelerated Transition
The Accelerated Transition is based on a scenario in which the sustainable energy transition proceeds at an accelerated pace. This scenario includes the potential impact of ten accelerated shifts, including increased use of biofuels, electric vehicles, and recycling.
In this scenario, global liquids demand would peak in 2024 at 101 MMB/D. All hub markets would be affected by declines in demand almost immediately, particularly Europe and the United States. By 2035, we expect to see about 16 MMB/D of closures in addition to the ~2.5 MMB/D of closures that have already been announced. As in the Reference Case, Asian utilization would be suppressed by overcapacity in the short term but less volatile in the long term due to slower decline in demand.
Overall, hub margins would not recover to historical levels in any geography, although closures could result in brief periods of high margins in some regions.
By the 2030s, the global refining value pool would decline across all regions, falling to 74 percent compared with 2015–19 levels. The 2031–35 global average would be approximately $40 billion.
The outlook for the global refining market varies across regions and scenarios, but declining demand overall is likely to lead to closures and put downward pressure on industry profits. Still, the industry will remain a powerful force around the world: although it may shrink in some regions by the 2030s, it is likely to maintain at least 90 percent of 2019 capacity.
Download Global downstream outlook 2035, for key charts from the report.
