Recent analysis by Wood Mackenzie finds that, based on forecasted 2030 net cash margins, 121 out of 465 screened refineries are at some risk of closure. This represents a cumulative 20.2 million b/d of refining capacity, or 21.6% of global 2023 capacity.

The future viability of refinery facilities will be dependent on a combination of factors.

First, refining margins will start to weaken by the end of the decade as fossil fuel demand declines. In OECD countries, transport fuel demand will start to fall from 2025, while the unwinding of free allowances for carbon emissions will also impact European net cash margins from 2030 onwards.

China will see liquid demand peak by 2027 and start to fall as the country actively electrifies its road transport. Non-OECD countries will enjoy continued demand growth beyond 2030, but their refiners will not be immune as global demand for transport fuels falls.

Although petrochemical integration can help make refineries more profitable, integrated sites account for nearly half of the global capacity at risk by 2030. Asia Pacific and Chinese facilities in particular benefit little from petrochemical integration, as petrochemical yields are often limited and mainly focused on aromatics, which is suffering from chronic oversupply.

Second, in the future carbon taxes could make up a significant portion of operating costs, depending on a given site’s specific emissions. Location will be a key factor in this respect, as in the absence of international agreement on carbon pricing, rates will vary by region.

WoodMac considered the total cost of Scope 1 and 2 emissions for refineries in the analysis, and found Europe to be most heavily impacted. Increasing carbon prices and the phasing out of free allowances, combined with a lack of planned decarbonisation investment, results in 11 sites in Europe that are considered at high risk of closure.

Third is ownership. WoodMac’s ownership ranking reflects the importance of an asset’s non-commercial factors, such as social value, on its continued operation. In general, most capacity at risk is owned by national oil companies (NOCs), independents and joint ventures (JVs). Of the three types, the future of NOC refineries is considered more secure than independent refineries and JVs, since host governments are likely to support an asset even if it is unprofitable.

Although refineries owned by international oil companies (IOCs) tend to be at lower risk, the high cost of carbon emissions in Europe mean IOC-owned facilities make up a significant portion of sites under threat in the region. Standalone sites with high emissions will typically be the first to face closure or be sold.

Fourth is the strategic value of an asset. For NOC refineries, the host government’s view on its role in the wider economy will be an important factor. Changes in a country’s net trade position if a site closes are taken into consideration, as well as an assets contribution to security of domestic supply.

Fifth are environmental investments. As stakeholder pressure grows and governments increasingly commit to the energy transition, taxes, allowances and regulations for heavy-emitting sectors including refining will be adjusted accordingly. Given that their products are inherently emissions-intensive, refiners will need to pursue broad-based strategies to limit exposure to transition risk.