By 2035, 21% of global refining capacity may be forced to exit the market
author: Ann
2025-04-21
Recently, Wood Mackenzie released the "Global Refinery Closure Threat Analysis", revealing that the global refining industry faces severe challenges during the transition period. The report pointed out that by 2035, 21% of the world's refining capacity (18.4 million barrels per day) may be forced to withdraw from the market due to multiple factors such as the approaching peak of oil demand, the surge in carbon costs and technological iterations.
Although the current energy price fluctuations have kept refining gross margins high, it is difficult to change the industry's recession trend. It is expected that after global oil demand peaks in the early 2030s, overcapacity will lead to a continuous decline in refining gross margins. In Europe, the popularity of electric vehicles has caused the annual demand for refined oil to fall by 1.5%-2%, and the average annual increase in EU carbon prices of 8%-12% has brought some refineries close to the break-even point. Independent refining units lack the ability to extend chemical products, and the risks are prominent under the rising raw material costs and shrinking demand; even complex refineries are at a competitive disadvantage due to regional carbon price differences. The carbon cost of EU refineries accounts for 5-8 percentage points higher than similar units in Asia.
Although refining assets coupled with chemical plants are resilient, their protective effect is limited. Among the 101 high-risk refineries, only 13 are equipped with steam crackers, and the crackers in the North American shale gas producing areas are facing the impact of raw material price fluctuations and overcapacity. The shutdown of core chemical units will increase the risk of shutdown of related refineries by 40%. In terms of ownership structure, refineries controlled by national oil companies (NOCs) receive fiscal subsidies due to energy security goals, while international oil companies (IOCs) have sold 12% of global refining capacity since 2020 and will continue to divest inefficient units in carbon-constrained areas in the future.
The carbon pricing mechanism is reshaping industry competition. In strict carbon price jurisdictions such as the European Union and the United Kingdom, carbon costs are expected to exceed US$150/ton in 2035, and refiners will need to invest US$1-2 billion in technological transformation. The net cash profit margin of untransformed refineries will be eroded by 5-8 percentage points by carbon costs, losing economic feasibility.
From a regional perspective, Europe and China account for 78% of the world's high-risk capacity, and 60% of Europe's capacity is at medium risk; 28 deep conversion refineries in the Asia-Pacific region contribute 40% of the region's capacity, and low-risk capacity accounts for 30% of the world's capacity; 8 medium- and low-risk refineries in North America rely on regional supply and demand balance, but the lack of chemical supporting equipment still faces long-term pressure.
The capacity reshuffle by 2035 is a multi-dimensional capacity competition. NOCs rely on policies, IOCs rely on technology, and independent refineries need to find regional living space. Whether carbon costs can be converted into technical barriers will become the key to the foothold of refining companies in industrial restructuring.
Although the current energy price fluctuations have kept refining gross margins high, it is difficult to change the industry's recession trend. It is expected that after global oil demand peaks in the early 2030s, overcapacity will lead to a continuous decline in refining gross margins. In Europe, the popularity of electric vehicles has caused the annual demand for refined oil to fall by 1.5%-2%, and the average annual increase in EU carbon prices of 8%-12% has brought some refineries close to the break-even point. Independent refining units lack the ability to extend chemical products, and the risks are prominent under the rising raw material costs and shrinking demand; even complex refineries are at a competitive disadvantage due to regional carbon price differences. The carbon cost of EU refineries accounts for 5-8 percentage points higher than similar units in Asia.
Although refining assets coupled with chemical plants are resilient, their protective effect is limited. Among the 101 high-risk refineries, only 13 are equipped with steam crackers, and the crackers in the North American shale gas producing areas are facing the impact of raw material price fluctuations and overcapacity. The shutdown of core chemical units will increase the risk of shutdown of related refineries by 40%. In terms of ownership structure, refineries controlled by national oil companies (NOCs) receive fiscal subsidies due to energy security goals, while international oil companies (IOCs) have sold 12% of global refining capacity since 2020 and will continue to divest inefficient units in carbon-constrained areas in the future.
The carbon pricing mechanism is reshaping industry competition. In strict carbon price jurisdictions such as the European Union and the United Kingdom, carbon costs are expected to exceed US$150/ton in 2035, and refiners will need to invest US$1-2 billion in technological transformation. The net cash profit margin of untransformed refineries will be eroded by 5-8 percentage points by carbon costs, losing economic feasibility.
From a regional perspective, Europe and China account for 78% of the world's high-risk capacity, and 60% of Europe's capacity is at medium risk; 28 deep conversion refineries in the Asia-Pacific region contribute 40% of the region's capacity, and low-risk capacity accounts for 30% of the world's capacity; 8 medium- and low-risk refineries in North America rely on regional supply and demand balance, but the lack of chemical supporting equipment still faces long-term pressure.
The capacity reshuffle by 2035 is a multi-dimensional capacity competition. NOCs rely on policies, IOCs rely on technology, and independent refineries need to find regional living space. Whether carbon costs can be converted into technical barriers will become the key to the foothold of refining companies in industrial restructuring.
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