What to Watch for in the Downstream in 2018

What to Watch for in the Downstream in 2018
Expert panel offers 2018 outlook for refining, petchems, LNG and more.

For many in the downstream oil and gas industry, 2017 was a year of growth, solid financial returns and even some surprises. What can we expect to see in 2018? To answer that question, a panel of keen industry observers have offered their perspectives on how and where the industry’s landscape might change this year. Check out their predictions below.

More Digitalization/IoT Opportunities

Clearly, after such a good year in 2017, it may be challenging for US refiners to repeat such favorable results next year. In Deloitte’s oil and gas executive survey, conducted in the summer of 2017, only a small minority of downstream executives saw further increases in refined product exports in 2018.

Rising crude oil prices, stemming from the continuation of the OPEC/non-OPEC production restraint agreements, could squeeze refinery margins, as there is often a lag between crude oil prices and refined product prices. And then, when product prices do respond, that could somewhat slow demand growth. In preparation for a longer-term business environment in which demand efficiency and alternatives to petroleum based fuels seem to be becoming more prominent, refiners should be expected to focus on efficiency and cost reduction, increasingly taking advantage of the new possibilities opened up by digitalization and Internet of Things (IoT) connectivity. –Andrew Slaughter, Executive Director – Deloitte’s Center for Energy Studies

‘Future-Proofing’ European Refineries

European refiners have been finalizing their strategies for the implementation of new bunker fuel specifications in 2020. A number of new capital projects have been launched, and further new projects are under consideration even though they won’t all be completed by 2020. Coking and residue hydrocracking complexes will help to future-proof European refiners by further reducing low-value high sulphur residue production and boosting distillate yields. While absolute demand for transport fuels will plateau in the early 2020s and then start to decline after 2030, the additional supply of distillates, which remain significantly short in the European market, will keep European refining output aligned with regional demand for at least the next decade. –Stephen George, Chief Economist, KBC Advanced Technologies Ltd.

Western Canada Pipeline Bottlenecks?

A trend going forward is the future of pipelines serving Canada’s Oil Sands. By mid-2018, we should know more definitively if TransMountain and Keystone XL are on track. If not, there could be a bottleneck in Western Canada that will impact certain North American refiners.

To complement Mexico-related trends, strong investment in storage and transport capacity for fuel is expected since current pipeline and storage capacity is both saturated and de-facto controlled by PEMEX.

We’ll also be watching preparations for the International Maritime Organization (IMO) bunker fuel specs that will be in place in 2020. This will be a major disruption.

Also, new digital solutions are emerging – ranging from more automation in refineries to enhancing the customer experience at retail.

With the growth in Permian crude oil production, we’ll see potential pipeline bottlenecks.

We should also see continued advancements in electric vehicles and autonomous vehicle technology, but this is a longer-term trend beyond 2020. –Clint Follette, Partner and Managing Director, Boston Consulting Group

A Petchems Breather?

For 2018 we will see more of the same trends especially in the U.S. as the wave of new ethylene plants come on-line. ExxonMobil and ChevronPhillips (facilities in Baytown, Texas) will be up 1H 2018 while we still wait for Formosa and Sasol as well as Shintech. Natural gas liquids (NGL) production will continue to grow per the U.S. Energy Information Administration (EIA) Short Term Energy Outlook, thus providing continued support for these projects.

With the next wave of investment for ethylene plants being contemplated, the world’s demand response will be monitored closely. With many U.S. derivatives destined for overseas markets, will they slowly or quickly drive marginal players out? Expected higher oil prices in 2018 will also support additional NGL exports out of the U.S. to mitigate the ethylene plants relying on naphtha-based feedstocks. The higher that crude goes the more NGL exports we may see to Europe and Northeast Asia.

In closing we may see the global petrochemical industry taking a breather at the end of 2018 to assess how this new capacity will sort itself out. If the impacts are too negative, then rationalization may occur with delays to new U.S. investments. –Larry Schwartz, Principal, LS Consulting and former NGL fundamentals advisor with BP

A Downstream Talent Gap

A small part of the boost in opportunities would be with the amount of Distributed Power Generation coming on-line which is feeding directly from midstream assets and power plants being developed close to recovery points has created some hybrid midstream/downstream types of roles specifically in engineering and operations and maintenance. It is not only distributed power assets, but also new power plants and an increasing amount of natural gas combined cycle plants that we are seeing be developed at a rapid rate. There is some debate in the market about the influence that the depressed pricing markets for upstream had slowed down production allowing for the midstream market to “catch-up” in their efforts to build assets to serve the upstream market has few new wells had gone on-line over the past few years.


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