The size of the global refining industry varies dramatically across different energy transition scenarios by 2040. Assumptions on electric-vehicle penetration, policy commitments, and rationalization behavior are key drivers of the difference in outcomes.
While the COVID-19 pandemic and the conflict in Ukraine have triggered extreme volatility and uncertainty in the refining product and fuel markets, the transition to a low-carbon economy continues to bring significant challenges and opportunities to the refining sector. Increasing national and industry climate commitments and technological improvements, as well as changing consumer preferences, will shape the outlook for refining in the next two decades.1
In this article, we explore what the refining industry could look like across a spectrum of potential outcomes for the energy transition. The potential scenarios around the size of the refining industry and its profitability are based on McKinsey Energy Insight’s proprietary market balancing, oil pricing, and refining margin models.
Global liquids demand is expected to peak in the next decade across energy transition scenarios
Global liquids demand is expected to peak in the next five to ten years, depending on the pace of technological innovation and the net-zero ambition levels of governments.1 In the Current Trajectory (CT) scenario, the current trajectory of technology improvements, particularly in electric-vehicle (EV) battery technology, continues, supported by the climate policies and targets announced at the end of 2021.
In the Further Acceleration (FA) scenario, improvements in battery costs and more stringent government targets in transport advance the peak several years earlier. Biofuels, H2-enabled synfuels, and carbon capture, utilization, and storage (CCUS) make more meaningful contributions to demand and emissions-reduction targets by 2040. Beyond previously announced legislation, this scenario assumes that recently proposed net-zero pledges (as in the United States [US] and China) are also achieved in time.
In the Fading Momentum (FM) scenario, the global transition away from fossil energy is delayed in the next decade by prolonged disruptions in global supply chains and muted government ambition. Oil demand does not peak until the early 2030s and most of the developing world is still reliant on fossil oil through the 2040s.Read More…
Source : mckinsey
