IEA expects 2020 global refining throughput decline on 'sharply' reduced demand

London — The International Energy Agency said Wednesday that it expects global refinery throughput to decline by 7.6 million b/d this year to 74.3 million b/d "on sharply reduced demand for fuels."

This level, "last observed in 2010", has been attributed to the COVID-19 containment measures.

Second-quarter throughput is likely to "plummet" by almost 17 million b /d, due to "widespread run cuts and shutdowns in all regions," the IEA said. Refinery runs need to drop below 60 million b/d "to avoid product inventory builds," the IEA said.

The IEA expects that, along with 250 million barrels of storage space available in the US, "it is possible that there could be as much storage capacity available in the rest of the world" to house the expected product stocks build-up in Q2.

However, in the second half of 2020, the agency expects refining activity to recover "slowly" as the global market moves into deficit. It also expects runs to be lower than demand levels while there is destocking from the Q2 "product overhang."

The IEA said that, while the 2020 events are "truly unprecedented," a somewhat similar development occurred in the early 1980s due to a global economic recession, which had "profound and long-lasting consequences for the refining sector and the oil industry in general."

But the COVID-19 related demand shock is "much faster and more profound," the IEA said.

Refineries will use different options to reduce throughput, such as reduced utilization rates, hot or cold circulation mode, depending on the units, or complete stoppage of the equipment.

But the IEA noted that "shutting down refinery units is not as simple as pushing a button or pulling a plug. The more complex the unit, the longer the process takes." In addition, "many industrial accidents occur during the restart phase, if precautions were not observed during the shutdown," the report said.

The US refineries have experience with "abrupt falls in refining activity" especially in the hurricane-prone regions of the Gulf Coast. But OECD Europe is likely "to be one of the worst hit regions in terms of refining activity."

OECD Asia, by contrast, is expected "to boast the highest utilization rates anywhere" in Q2.

Meanwhile, the IEA also revised its Q1 throughput higher for China.

Steep fall in demand has resulted in run cuts in India and the Middle East, shutdowns in Africa, and expected run cuts in the FSU. Utilization rates are down in Brazil, the IEA said, with "lower impact on the refining activity" in the Pacific coast countries of Latin America, which are mostly net product importers.