The refining industry is at a crossroads. Demand for transportation fuels is halting in developing economies and industry growth is shifting to the East. At the same time, emphasis on alternative fuels is creating excess supply, particularly of gasoline-like substitutes. Global supply and demand balances are shifting, and the global economic recession has accelerated this trend. In addition, emphasis on greenhouse gas (GHG) reduction will not only drive further demand destruction but may translate into significant taxes at the refinery level in some geographies.

In 2002–03, the industry entered what came to be known as the Golden Age of Refining. The main driver for growth in margins was an uptake in demand for transportation fuels without a corresponding growth in refining capacity, coupled with a tight crude supply environment. All these factors combined to drive prices up, particularly for light products, and consequently lifted refining margins. However, as crude prices rose to an unprecedented level, demand started to show signs of weakness and refining margins began to erode.

The coup de grace to the Golden Age of Refining was the global financial crisis and the consequent recession that has destroyed demand even more than the ultrahigh prices that preceded it. After demand dropped and margins collapsed, the industry quickly retrenched in three ways: It reduced run rates, cut costs and working capital, and canceled investment. However, history shows that the best players will move beyond retrenching. What those players do depends on where the industry is heading. And that, in turn, will depend on the answer to a series of questions:

• How will the current economic recession affect demand in the short, medium, and long terms?
• What shape will GHG legislation take? Which regions will be affected most?
• Are the changes we have seen in consumers’ driving behavior just a reaction to the economy, or a fundamental shift in consumer sentiment?
• How will vehicle fleet efficiency evolve? What demands will the government place on auto manufacturers? What incentives will the government give consumers to change their transportation choices?
• What is the future of biofuels? Will mandates be expanded or contracted? Can new technologies offer low-cost biofuels?
• Where are crude supply and crude prices heading?
• What will happen with refinery capacity? Which refineries are at risk of being marginalized?
• Will there be structural shifts in the balance of supply and demand? How will different regions be positioned?
• Will refining margins come back if and when crude prices rise again?

We work with leading downstream players to find answers to the toughest questions they face and to help them position themselves to succeed. Read more for a sample of case studies.