PETALING JAYA: Despite implementing massive capacity additions, Asia-Pacific’s oil and gas refiners have been largely unsuccessful in reducing imports and, ultimately, offsetting demand growth, according to international management consulting firm Bain & Company.
Based on the firm’s latest report - Full Potential for Oil Refiners in a Challenging Environment - it stated that over the next few years, global refiners would have to cope with several long-term challenges.
These include a global supply of crude that is becoming more difficult to refine, new refineries coming online that could boost capacity beyond demand for refined products, and more stringent regulations that will force developing markets to catch up with their developed counterparts.
Some segments and refiners, the firm said would be impacted by these global trends more so than others, adding that this would create competitiveness differentials for the different groups of refiners.
“These global trends will affect the entire refining sector, but when we looked at key competitiveness factors – market, operating conditions and quality of asset portfolio – we found that some countries are better positioned than others to thrive over the next decade,” said Francesco Cigala, a partner in Bain’s Oil & Gas Practice based in Kuala Lumpur.
According to Bain’s analysis, Asia-Pacific independents, Middle East national oil companies (NOCs), and the Commonwealth of Independent States lead the pack. Africa and Latin America NOCs and EU Independents are quickly falling behind, it noted.
Consumption of refinery products is shifting from developed to developing markets, especially China and others in the Asia-Pacific region, favouring the refiners there. As a result, Bain said NOCs in the region are investing to transform their portfolios in a more competitive direction.
“Refiners in the Asia-Pacific are well positioned to withstand the shift in the flows of crude feedstock and refined products around the world, but we anticipate continued pressure amid ongoing changes in the sector. This means that even the most favoured players will have to work hard to maintain their full potential,’’ Cigala added.
Bain recommends that leading refiners focus on eight critical capabilities across four strategic areas:
· Market access. Access to large and growing markets, especially those in the Asia-Pacific region.
· Operating conditions. Three elements of operating conditions require special attention: feedstock strategy; operational efficiency; capital expenditure project excellence
· Assets. Some refiners will need to take a more strategic approach to portfolio strategy, one that balances scale, complexity and location.
· Capabilities and enablers. Most critical are: a robust operating model and organisational framework that reduces costs and raises effectiveness; an understanding of the external agenda, specifically how to manage regulators and stakeholders; and a vision for the future that captures the promise of digitalisation.
Cigala noted: “As oil costs stabilise, refineries are in for tough times. It’s important for refiners around the world to tackle competitiveness in a structured way, which is where a full potential agenda can create a strategic advantage.”