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Too many refineries, not enough product demand will lead to closures, OPEC says

Vienna — OPEC on Tuesday said it expects 2.1 million b/d of refining capacity to be shuttered through 2025 due to overcapacity, and another 5 million b/d of further closures will be needed by 2040.

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In its World Oil Outlook, OPEC projected some 7.95 million b/d of new crude distillation capacity to come online in the next five years, more than 70% of it in Asia and the Middle East. This is an upward revision from last year's outlook which forecast 7.8 million b/d of new capacity.

The refinery additions will outpace incremental refined product demand by about 4 million b/d, OPEC estimated, up from last year's estimate of 2.5 million b/d.

Plants in the Middle East, the US and Canada may be able to increase their product exports, but refineries in Europe are likely to come under pressure, the report stated.

"The excess supply of refining capacity will necessarily lead to increasing competition in the downstream market and, consequently, to refinery closures," OPEC said in the outlook. "Given the long-term slowdown in required refining capacity, it will become increasingly difficult to justify building large new refineries."

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It added that new capacity additions after 2030 could come primarily from debottlenecking and upgrades, instead of building new plants.

Total refining capacity, including condensate splitters, is projected to increase by 16.5 million b/d between 2019 and 2040, mostly in developing regions, the outlook stated.

-- Herman Wang, herman.wang@spglobal.com

-- Edited by Nurul Darni, newsdesk@spglobal.com