Refining Dynamics in the GCC and Implications for Trade Flows
This comment analyses the recent refining dynamics in the GCC and their implications on local and global petroleum products markets and trade flows. The authors argue that the recent expansion plans in the GCC will have important implications on global petroleum products trade flows, constituting an additional source of competition for Asian and European refineries that could weigh down on refining margins, especially in Europe. While this represents a challenge for GCC refineries, it can also open up new opportunities for regional NOCs to build their trading capability in products markets and diversify their export base by increasing the export share of petroleum products and opening new markets. However, in the medium to long-term, the refining sector in the GCC will continue to be shaped by local dynamics, particularly by the ability of some of the countries to expand and upgrade their refining capacity and, more importantly, by the evolution of domestic demand. In the absence of any serious energy pricing reform that could rationalize the growth in demand for refined products, the race between expanding refining capacity, satisfying rising demand, and maintaining exports will continue; it is the outcome of this race which will ultimately determine the region’s position in global products markets in the next decade.