Refinery underinvestment exposed by oil crisis, Aramco exec says

• Regions such as Europe show vulnerability
• Lower demand views led to plant closures
• Issue ‘not only crude, the issue is product’

The oil supply crisis triggered by the Iran war has exposed years of underinvestment in refining capacity and made markets more vulnerable to disruption, a senior Saudi Aramco executive said.

Spending on the “energy transition” and assumptions that demand for crude would fall had led to reduced outlays on facilities that convert oil into everyday products, according to Musaab Al Mulla, the state energy giant’s vice president of market analysis and sustainability.

“Between 2020 to 2023, you are talking about 3 million barrels per day of [refineries closing] globally, and now we realise if we had those refineries, you may have definitely mitigated the impacts of the crisis today,” Al Mulla told the S&P Global Energy Middle East Petroleum and Gas Conference in London this week.

The world is grappling with the loss of millions of barrels of oil per day due to the virtual closure of the Strait of Hormuz. Iran effectively shut the vital waterway after the US and Israel began attacks on February 28.

Around 20 percent of global oil flows, or 20 million barrels, passed through the narrow waterway each day before the conflict. Reopening the strait has become a critical point of contention in negotiations for a peace deal.

Attacks on energy infrastructure have also hit production.

Al Mulla argued that while much of the focus has been on oil supplies, the conflict had exposed refining as another vulnerability.

“The issue is not only crude, the issue is product,” he said.

Further reading:

• Hormuz crisis fuels Libya oil comeback
• Iraq urgently needs to find ways of getting its oil to market
• Saudi Arabia overtakes UAE on the GCC’s road to renewables

While global refining capacity has continued to grow thanks to major additions in countries such as China, Al Mulla said the crisis had shown regions such as Europe were vulnerable.

“In Europe, there will be [a] need for more refining, more chemicals, if they really want to localise the supply chain within Europe and not to be dependent on the other regions in the world,” he said.

The International Energy Forum and S&P Global Commodity Insights estimated that 3.8 million bpd of gross refining capacity closed between 2020 and mid-2022.