MOSCOW (MRC) -- A high carbon tax could erode up to 60% of Asia’s total refining earnings by 2027, says Wood Mackenzie, a Verisk business (Nasdaq:VRSK), at the Global Energy Summit Focus Week, as per Hydrocarbonprocessing.
According to Wood Mackenzie’s Emissions Benchmarking Tool, the refining industry accounts for only about 3% of global energy sector emissions. This refers to Scope 1 and 2 emissions from process operations required to convert crude oil into refined products within the refinery.
Wood Mackenzie research director Sushant Gupta said: “Asia is the largest contributor to refinery emissions globally. The energy transition will manifest itself in three main challenges for refiners.
"Firstly, reduced market size for refined products which leads to poor refinery margins and refinery closures. Secondly, the transport fuel demand is hit the hardest, which accounts for more than 50% of refinery production. Refiners will have to re-configure and shift to petrochemicals. And lastly, a possibility of a high carbon tax on refining industry as part of broader decarbonisation efforts. While a carbon tax might sound like a good idea, the reality is that a global uniform carbon tax or policy is unlikely, which will make it difficult for refiners to pass on the costs of carbon to its customers. The inability to pass through carbon costs could have material impact on refinery margins.
"At US$30 per tonne (t) carbon price, we estimate the average impact on refining margins would be US$0.55 per barrel of oil equivalent (bbl). This rises to USD2.10/bbl at USD100/t of carbon price. For 2027, we estimate that 60% of Asia’s total refinery earnings could be wiped off in a USD100/t carbon price scenario."
Vice president Alan Gelder said: “Only highly competitive sites that generate significant cash will survive the energy transition, as their cash generation capabilities will provide funds for investment in decarbonisation as well as rewarding investors. "Environmental sustainability has to be a key priority for refiners. They will need to find their own unique decarbonisation solution and yet still remain economically viable."
Some early responses in the short term to decarbonising the refining sector include process optimisation such as improving furnace efficiency, low temperature waste heat recovery and fluid catalytic cracking (FCC) unit optimisation. The industry could also consider switching combustion fuel from fuel oil or coke to cleaner fuels such as natural gas or green hydrogen. A switch from burning fuel oil to natural gas can reduce emissions by up to 30%. In addition, a switch to cleaner feedstocks could also be an option.
For deeper decarbonisation, refiners will have to consider low carbon technologies such as electric heating, carbon capture and storage on FCCs, hydrogen and gasifier units and biomass gasification. They will also have to consider the use of renewable power and green hydrogen.
As per MRC, Singapore's manufacturing sector continues to suffer from a sharp rise in COVID-19 cases, with the country's manufacturing business activity index (PMI) declining for the second straight month in September. Data from the Singapore Institute of Purchasing and Management on Monday showed a slight decline in the September manufacturing PMI to 50.8 from August. At the same time, the overall PMI remains above 50.0, which still speaks of the growth of the manufacturing economy. Singapore is doing better than other countries in Southeast Asia, which are also dealing with increased cases of COVID-19. September business activity indexes in Thailand, Malaysia and Vietnam were at the border of the 50.0 mark.
Ethylene and propylene are the main feedstocks for the production of polyethylene (PE) and polypropylene (PP), respectively.
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,396,960 tonnes in January-July 2021, up by 7% year on year. Shipments of all grades of ethylene polymers increased. At the same time, PP shipments to the Russian market were 841,990 tonnes in the first seven months of 2021, up by 29% year on year. Supply of propylene homopolymers (homopolymer PP) and block-copolymers of propylene (PP block copolymers) increased, whereas supply of statistical copolymers of propylene (PP random copolymers) subsided.
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