A recent analysis by energy consultancy Wood Mackenzie has identified that more than a fifth of the world’s oil refining capacity is under threat of closure, driven by weakening gasoline margins and mounting pressure to reduce carbon emissions. Out of 465 refining assets assessed, approximately 21% of global refining capacity in 2023 is classified as being at risk of closure based on factors such as net cash margins, carbon emission costs, ownership structure, environmental investments, and strategic value. Europe and China emerge as regions with a significant number of high-risk refining sites, collectively accounting for about 3.9 million barrels per day (bpd) of refining capacity facing potential closure.
Notably, Europe hosts 11 high-risk sites that represent 45% of all vulnerable plants identified in the analysis. The closure trend in Europe has been accentuated by competition from newer facilities in the Middle East and Asia, compounded by the impact of the COVID-19 pandemic on demand dynamics. As gasoline margins are projected to decline amid shifting market conditions and regulatory pressures, refineries may face escalating operating costs that could render closure as the sole viable option.
The emergence of Nigeria’s expansive Dangote oil refinery further intensifies competition, potentially disrupting the longstanding gasoline trade from Europe to Africa valued at $17 billion annually. The Dangote refinery, with a capacity of up to 650,000 bpd, commenced operations in January and presents a formidable competitor to European refineries already grappling with closure risks. Additionally, the analysis highlights seven high-risk sites in China, predominantly small-scale independent refineries known as ‘teapots’, which face regulatory challenges and competition from larger integrated facilities.