In earlier parts of the series, we looked into the upstream sector’s business dynamics such as crude oil price and its drivers, proved reserves, reserve replacement ratio, and costs of exploration and production. Now we will switch to the downstream business segment of integrated energy companies. We will start by analyzing the distribution of the global refining capacity.
Refining in the Asia-Pacific region
In 2014, global refining capacity stood at 96 MMbpd (million barrels per day), of which 34% were located in the Asia-Pacific region. China contained 15% and India held 5% of worldwide refining capacity in 2014. So, 20% of global refining capacity is located in these two countries alone.
It is interesting to note that neither China nor India produce the amount of oil required by their refining capacities. Thus, they import large quantities of oil. India imports mainly from the Middle East, Africa, and Europe, whereas China sources crude oil largely from the Asia-Pacific region. In this context, it is imperative to note that Europe is a significant importer of crude oil while the Middle East is the largest exporter.
Refining hubs: Europe and the US
Europe and Eurasia contribute 25% to the world’s refining capacity. The Russian Federation is the largest capacity contributor to the region, holding 7% of global refining capacity. The remaining capacities are quite dispersed in the region. Exxon Mobil (XOM) has 32% of its refining capacity located in Europe. Similarly, BP (BP) has 45% of its capacity located in Europe.
North America holds 22% of global refining capacity. The United States possesses 18% of worldwide capacity. Chevron (CVX) has almost half of its refining capacity located in the United States. Royal Dutch Shell (RDS.A) has 38% and 34% of its total refining capacity based in America and Europe, respectively. The iShares U.S. Oil & Gas Exploration & Production ETF (IEO) has ~28% exposure to oil and gas refining and marketing companies.