Current economic conditions across Europe are painting a fragmented demand picture for the downstream industry according to Henning Müller
Economic conditions across Europe are creating fragile boundaries for growth in the downstream industry.
Some countries and regions such as Germany and the Benelux are demonstrating some amount of economic growth while other regions, like southern Europe, have unfavourable economic conditions and have, at best, flat demand on the fuel side.
This, according to Henning Müller, partner at McKinsey & Company in the O&G practice, is affecting the downstream industry, including tank storage and refining.
‘Unfortunately with the current economic condition, we do have a picture of growth, but it is a fragile one and it is creating stress, and future refining consolidation is needed,’ he says.
Following the economic crisis in 2008/09 that gripped the world, there has been a significant closure of refining capacity in Europe and Henning Müller says there is around 15 % of refining capacity surplus, which has a tough effect on what is needed for downstream refining.
However, downstream margins in 2015 experienced a temporary bright spot and were at an all-time high – representing a ‘time gap’ for the industry.
While demand for diesel is expected to grow moderately, middle distillates show a more promising growth picture.
‘We have a dieselised market in Europe. However, the focus on CO2 emissions could create further pressure in the use of diesel cars in Europe in the future.
‘Middle distillates and diesel in Europe are being mostly complemented not by increased refining capacity but are being equalised through imports from the Middle East or India.’
These market dynamics and refinery closures have had an overall positive effect for storage, however the magnitude is dependent on specific markets.
For example in the UK, refining closures have been more dramatic compared to the German market, which remains stable. Müller says that in the UK, some refineries are being turned into storage trading hubs, which have become vital to securing petrol and fuel supply in the UK.
Müller adds: ‘There is a new ecosystem emerging in Europe, and new market participants are being given a chance to enter the storage and refining market.’
Müller will be speaking on the second day of the Tank Storage Germany conference on November 17 about the European refining industry in more detail.For more information visit www.tankstoragegermany.com.