IEA revises down global refinery throughput on reduced Russian runs

The International Energy Agency has revised lower its global refinery throughput estimates for this year following Russia's invasion of Ukraine, in its latest monthly report March 16.

The IEA said a 1.1 million b/d reduction in Russian refinery throughput "is not expected to be fully offset by increases elsewhere."

Hence the IEA expects global refinery intake to rise by 2.9 million b/d this year to 80.8 million b/d, or 860,000 b/d less than its previous estimate.

As a result global runs "will not recover to pre-pandemic levels this year, and will be below 2017 levels," the IEA said.

Russian refineries are gradually reducing throughput as international buyers shun Russian exports while domestic demand is being impacted by the increased cost of borrowing, according to S&P Global Commodity Insights.

A number of refineries, including Kuybishev, Novoshakhtinsky, Salavat and Tuapse, have reduced crude intake, with more expected to follow. Smaller refineries in southern Russia that export via the Azov Sea were said to be reducing processing as they cannot export their output after shipping there was suspended late-February.

While refineries elsewhere are expected to increase processing, "the net impact on global crude runs is nonetheless a downward revision," the IEA said, as some of the spare capacity is "not practically usable."

Out of 101 million b/d nameplate capacity globally, 20 million b/d is estimated to be excess crude distillation capacity, but its use is hindered due to bottlenecks in secondary units and long-term idled capacity which "has not been utilized for the best part of the last decade, either due to armed conflicts, or for financial and operational reasons."

Tight product markets

Meanwhile, "despite a downgrade to demand, product markets remain tight with further stock draws expected throughout the year," the IEA said, adding that shortages are expected "as financial sanctions and voluntary customer action could reduce imports from Russia."

The IEA assumes a 2.5 million b/d reduction in Russian oil exports, 40% of which would come from refined products.

International buyers are increasingly avoiding purchases of Russian-origin products, including feedstocks such as fuel oil, VGO and naphtha, as well as finished grade products such as diesel. Shell was one of the first energy companies to stop all spot purchases of Russian oil and products. BP, France's TotalEnergies, Italy's Eni and Saras, Spain's Repsol and Cepsa, Portugal's Galp, Finland's Neste, Sweden's Preem, Poland's PKN and Norway's Equinor have also suspended all new purchases of oil and oil products from Russia.

"Filling the product gap will be a major challenge for refiners, as they scramble to source alternative feedstocks and are faced with limited operable refining capacity," the IEA said.

A potential loss of 1 million b/d of Russian diesel exports "would be difficult for refiners to replace," as the middle distillate markets "were already tight," the IEA said, adding that Europe relies on Russian imports for 10% of its diesel consumption.

In order to address this, of the 63 million barrels total in the recent IEA strategic stock release, 17 million barrels is product inventories, "predominantly middle distillates."