Bain: Asia Pacific oil & gas refiners well positioned to add capacity, but fallen short in offsetting demand growth

JAKARTA ( – Oil and gas refiners were spared after much of the upstream sector struggled under the collapse of crude oil prices that began two years ago.  However, those days are rapidly approaching their end as significant challenges on the horizon threaten to separate leaders from laggards and possibly force lower performers from the field, Singapore-based Bain & Company said.

A new report from Bain & Company, Full Potential for Oil Refiners in a Challenging Environment, finds that despite implementing massive capacity additions, Asia-Pacific’s oil & gas refiners have been largely unsuccessful in reducing imports and, ultimately, offsetting demand growth.

Over the next few years, global refiners will have to cope with several long-term challenges, including: 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. Yet, some segments and refiners will be impacted by these global trends more so than others. This creates 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 Dale Hardcastle, leader of Bain’s Oil & Gas practice in Southeast Asia.

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.

Consumption of refinery products is shifting from developed to developing markets, especially China and others in the Asia-Pacific region, favoring the refiners there.  As a result, 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,” said Marco Cioffi, a principal in Bain’s Oil & Gas Practice in Jakarta. “This means that even the most favored players will have to work hard to maintain their full potential.”

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; CAPEX 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 organizational 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 digitalization.

“As oil costs stabilize, refineries are in for tough times,” said Hardcastle. “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.” (*)



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