23 September 2013

Changes create challenges, challenges create opportunities

No such a thing as exact market outlook exists. It is much easier to be wise after the event! Technological environment is developing at a fast pace. Oil will hold its significance in energy field for long and one thing is for sure: there will be continuing demand for cleaner traffic fuels and energy efficiency.

It is necessary to think about important trends taking place in the energy markets, for building preparedness to face the challenges and opportunities in the future of our company. When the big picture is thought thoroughly enough, strategy formulation can then rely on a well formulated basis. Our current intelligence work has revealed many trends and changes in our business environment.

Feedstock issues change market dynamics both in fossil and renewables. Shale revolution has been the single most visible and ground breaking phenomenon in the industry over the past years. Growing availability of shale oil and gas will inevitably impact global oil market dynamics and crude trade routes and improve US refineries' competitiveness. Indirectly change will create new business opportunities in businesses supporting and surrounding energy industry. Changes will be significant first in the US and much slower globally - but will without a doubt be substantial.

Russian refining industry development is a notable factor in our business environment. Refinery upgrades in East Europe bring increasing flow of high quality fuels into the market and at the same time refining capability cuts intermediate feedstock streams out of already complex refineries' reach. Over capacity in the Atlantic region will remain and we see that the competitive environment pushes further closures in European capacity. Marginal refineries will be closed, not sure which ones, though. Stricter emission legislation closes or reduces certain markets such as HFO use in marine bunker fuel. On the other hand this change increases middle distillate demand. Economic growth and increasing transportation fuel demand in Asian market opens up new opportunities. The US market has been favorable for renewable diesel. New renewable applications are in sight as demand and technological competencies develop.

Growth requires smart choices

Oil companies have varying strategies to align with market changes. Oil majors are streamlining their strategies to upstream in favorable market conditions, which open up possibilities to new type of market players in mid and downstream. Asian and Middle East NOCs continue to invest in refining capacity and have international integration interest. At the end, a market outlook is a complex web of possible competitive game changers in emerging technologies, legislative requirements, feedstock availability, and product quality. It requires professional intelligence, strong foresight, and agility from a company to make smart decisions and succeed.

Leena Suoninen
Manager, Business Intelligence