Growth of light product demand to stall in future: McKinsey report

McKinsey copyDemand for light product (gasoline, diesel/gasoil, jet/kero, including biofuels) is expected to level by the mid-2020s, suggests a research report released by McKinsey & Company

The report, titled Global downstream outlook to 2035, forecasts that on current trends, demand will fall by  2.8MMb/d from 2019 levels by 2035; this rises to 11.7MMb/d if the energy transition accelerates.

The projection is more pronounced at a regional level, with light product demand in North America and Europe  expected to fall most sharply, whereas a delayed transition could see demand in Africa increase by 1 MMb/d by  2030.

Underpinning this prediction are six major shifts that affect long-term global energy demand, such as uptake of  electric vehicles, efficiency gains and uptake of low-emission fuels for aviation and marine, increased demand  reduction, and recycling of plastics, cost reductions for renewables and storage, electrification of residential heat, electrification of EU industry on low and medium temperature heat.

Despite observing the major shifts, McKinsey does not believe, that the sector is in crisis. While the industry is set to contract in some regions, it is expected to remain expansive in all scenarios. Even in the case of an accelerated energy transition, McKinsey anticipates a global refining sector producing 94 MMb/d of liquids in 2035.

Tim Fitzgibbon, senior expert at McKinsey, said, “The downstream world is changing rapidly, and refiners must adapt  to build in resilience. First in core refining and retail operations, by embracing digitalisation, and potentially investing  in decarbonisation and better integrating into petrochemicals, and then within the wider portfolio.

“Many refiners can capture pockets of growth by directing investments both into emerging markets and further down the value chain. They should also consider placing big bets on emerging value pools, including new energy  services, new mobility and advanced fuels. These shifts are essential to achieving every penny of potential  profitability as the product and geographical market mix shifts beyond recognition,” he added.

The findings are taken from three scenario outlooks, conceived by McKinsey:

• Energy transition (reference case): the consensus view on the leading drivers of oil demand, including  global trade, rate of car ownership, and electrification of road transport. In this case EVs reach cost parity with ICE  vehicles in next decade, while hydrogen could become competitive for long-haul trucks around 2030

• Accelerated transition: featuring a stronger governmental push for subsidising purchases or banning ICE  vehicles, combined with strong uptake of alternative fuels in aviation and maritime. Stricter regulations for minimal recycling levels and avoiding plastics in packaging

• Delayed transition: characterised by a slower uptake of EVs due to supply delays and limited government subsidies or industry targets. Less recycling and avoidance of plastics in packaging due to long-lasting lower oil price  and lack of regulation

The report details market trends around demand, crude and feedstock supply and refining capacity before going into granular detail on the outlook under each scenario. This includes a look at the implications for stakeholders across  the downstream industry, including refiners, investors and regulators.

Alain Charles Publishing, University House, 11-13 Lower Grosvenor Place, London, SW1W 0EX, UK
T: +44 20 7834 7676, F: +44 20 7973 0076, W: www.alaincharles.com

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