The energy transition threatens companies involved in the downstream refining sector whose revenue is dependent on the continued sale of carbon-intensive fuels and products.
In response, some companies are adjusting strategies, but others are banking on business as usual. Stakeholders must be aware of companies’ refining strategies given the increasing cost-competitiveness of low-carbon energy sources[i], the acceleration of electric vehicle (EV) sales[ii], and firmer policy action on climate[iii][iv]. These factors expose the industry and investors to potential asset stranding and value erosion.
In this note we look at how recent changes in crude supply and demand have impacted the refining sector, and what risks are likely ahead. For stakeholders – be it in policy or capital management – it is critical to be aware of the disparate transition risks presented to the refining industry, the exposure companies with downstream operations may have to these, and the consequent impacts to investors and wider society.