One in five refineries at closure risk as global oil demand peaks in 2032

An estimated one in five of the world's oil refineries faces increasing risk of closure as global oil demand peaks and enters structural decline within the next decade, according to new research published today by Wood Mackenzie. For the refining industry, the firm says, hope is not a strategy.

Global refined product demand stands at 105 million barrels per day. Wood Mackenzie forecasts a rise to 108 mb/d by 2032, after which decline sets in. Roughly 20% of existing global capacity sits on what the report terms a "downward escalator," facing falling or negative operating net cash margins and increasing risk of closure. Demand peaks in 2032, but with 2040 only three to four refinery turnaround cycles away, the window for major investment decisions is closing. Despite this, some refinery investments will continue in locations such as India, driven by domestic demand growth and energy self-reliance policy, though it remains capacity added locally into a global market in structural decline.

"The sector has navigated structural change before, from the oil shocks of the 1970s to the investment capacity wave across the Middle East and Asia in the 2000s," said Alan Gelder, SVP Refining, Chemicals and Oil Markets, Wood Mackenzie. "The current pressure is different in kind, not just degree. For the first time, the industry faces sustained decline in end-market demand rather than a temporary supply disruption. Scale, complexity and location determine which assets have genuine options. For those without structural advantages, the absence of a credible adaptation plan is not a deferral. It is a decision."

The demand decline is not uniform

Gasoline faces the sharpest pressure from electric vehicle adoption. Diesel, gasoil and jet fuel are more resilient, as heavy road transport and aviation have no clear decarbonisation pathway. LPG and naphtha benefit from petrochemical feedstock demand, while specialty products including lubricants, bitumen and waxes are largely insulated, as bio-based alternatives do not yet exist at scale.

The current elevated refining margins, driven by the Middle East conflict and damage to Russian refineries, will return to more modest levels when the conflict ends. Refining margins are determined by crack spreads, not the oil price, and long-run average benchmark margins are slim. The sector generates lower returns on capital than upstream operations, making the investment required for adaptation harder to access when the need is greatest.

Five archetypes, sharply uneven exposure

Large-scale, high-complexity refineries, including major assets on the US Gulf Coast, modern export-oriented facilities in the Middle East and the Dangote refinery in Nigeria, are the most competitive. Complex chemical-integrated sites, increasingly common in China and parts of Europe and Asia, can redirect output from declining transport fuels into petrochemicals. These two archetypes have the broadest adaptation options and are best placed to become the integrated energy parks that define the sector's future.

Coastal cracking refineries, the most common OECD configuration, face direct international competition and narrower options. European assets face the most acute regional pressure. Small-scale specialty assets, focused on lubricants, bitumen and waxes, carry limited exposure to transport fuel decline. Small-scale, low-complexity refineries, many of them NOC-owned in developing countries, survive only through subsidies.

Many pathways exist, but not all are equally available

Wood Mackenzie identifies several adaptation strategies, though high capital costs and market uncertainty make many difficult to execute. Petrochemical integration is the primary route for large, complex sites, redirecting LPG and naphtha into olefins, aromatics and polymers; Asian and Middle Eastern operators, backed by state capital, lead here. Bio and circular conversion, producing renewable diesel and sustainable aviation fuel from used cooking oil and recycled plastics, suits EU coastal refineries. Conventional upgrading is most viable for Middle Eastern and Asian refiners with capital, land and export access. Carbon capture and storage is relevant primarily to European and OECD operators. For mid-tier assets, the options are capacity consolidation, a pivot to specialty products, full value-chain integration or diversification into tangential sectors such as power, LNG and ammonia.

"The capital required for the most of these adaptation strategies is substantial, and the sector's return profile makes raising it harder than it appears from the outside," said Chris Barry, Vice President, Downstream Consulting, Wood Mackenzie. "The risk is a mismatch between ambition and balance sheet capacity. Petrochemical and renewable fuels integration may be an attractive growth or diversification opportunity for large, complex, well-positioned assets. For structurally weaker sites, consolidating around local market strength or moving into specialty products is the more defensible route to long-term viability."

A bifurcated future

Oil products remain central to the global economy for several more decades, and well-positioned refineries have a viable future. The sector's long-term shape is bifurcated: world-class integrated energy and molecule parks producing fuels, petrochemicals and speciality products at one end; terminal conversion, repurposing or closure at the other. Sector specialists will survive by monetising local advantages in feedstock access, regulatory environment or state support. For investors and asset owners, the question is not whether a refinery will face pressure, but whether its archetype, location and ownership structure give it the tools to adapt.

Key details:

• Refined product demand: 105 mb/d in 2025, peaking at 108 mb/d in 2032, then declining
• Estimated 20% of existing global refining capacity at increasing risk of closure
• More than 700 refineries worldwide
• India: 40% of global refining capacity additions to 2030
• Sustainable aviation fuels: up to 80% emissions reduction versus conventional jet fuel
• Refinery complexity scored on a scale of 1 to 25; higher scores generally correlate with higher net cash margin
• 2040 is three to four refinery turnaround cycles away

Background

Wood Mackenzie's Horizons series draws on proprietary data from the firm's Refinery Evaluation Model and Product Markets Service. Net cash margin is defined as cash from refining operations after payment of feedstock, fixed and variable operating costs on a per-barrel-of-throughput basis. All demand forecasts and capacity risk estimates reflect Wood Mackenzie's analytical view as of the date of publication.