Diversification
for Manufacture of refined petroleum products (ISIC 1920)
Diversification is exceptionally relevant and critical for the 'Manufacture of refined petroleum products' industry. The sector is confronting an unprecedented energy transition, leading to projected declining demand for its core products (MD01 'Declining Demand & Revenue Erosion'). The high capital...
Strategic Overview
The 'Manufacture of refined petroleum products' industry faces significant existential threats from declining demand for fossil fuels (MD01) and increasing regulatory and social pressure (MD01). Diversification is not merely a growth strategy but a critical survival imperative, enabling refiners to mitigate asset stranding risk (MD01) and develop new revenue streams. By strategically investing in adjacent or entirely new energy sectors, companies can leverage existing capital-intensive infrastructure and expertise, transforming their business models to align with the global energy transition.
This strategy focuses on moving beyond traditional hydrocarbon processing into areas such as renewable energy generation, sustainable aviation fuels (SAF), advanced biofuels, and hydrogen production. These new ventures can capitalize on established logistical networks (MD06) and deep engineering capabilities inherent to the refining sector. Successful diversification will enable companies to reduce their exposure to volatile commodity markets (MD03) and geopolitical disruptions (MD02), fostering long-term resilience and securing a 'license to operate' in a decarbonizing world.
Effective diversification requires substantial capital investment (IN05) and a willingness to navigate technological and market uncertainties (IN03, IN04). However, the potential for significant returns from emerging markets, coupled with the necessity to address mounting stakeholder demands for sustainability (CS01), positions diversification as a primary and urgent strategic pathway for the industry.
4 strategic insights for this industry
Mitigating Asset Stranding Risk through Repurposing
Existing refinery infrastructure, including distillation units, hydrogen production facilities, and logistical assets (pipelines, storage), can be partially or fully repurposed for the production of biofuels, Sustainable Aviation Fuels (SAF), or green/blue hydrogen, thereby mitigating the risk of stranded assets (MD01). For instance, co-processing of bio-feedstocks in existing hydrotreaters reduces the need for entirely new capital-intensive plants.
Capitalizing on Engineering Expertise for New Energies
The refined petroleum products industry possesses deep engineering, process control, and project management expertise. This core competency is highly transferable to developing and operating complex facilities for renewable energy, advanced biofuels, carbon capture, utilization, and storage (CCUS), and hydrogen production, reducing the learning curve and project risks in these new areas.
Leveraging Established Distribution and Trading Networks
The industry's extensive global trade networks (MD02) and distribution channels (MD06) for liquid fuels can be adapted for new energy products, particularly liquid biofuels and SAF. Furthermore, experience in commodity trading (MD03) and risk management (FR01) provides a competitive advantage in nascent energy markets, such as hydrogen or carbon credits.
Strategic Response to Regulatory and Social Pressures
Diversification into lower-carbon and sustainable products directly addresses increasing regulatory mandates (e.g., renewable fuel standards, carbon pricing) and strong societal expectations for decarbonization (MD01 'Regulatory & Social Pressure', CS01 'Cultural Friction'). This proactive stance can improve social license to operate, attract ESG-focused investment, and reduce reputational damage (CS01).
Prioritized actions for this industry
Invest in integrated Sustainable Aviation Fuel (SAF) and advanced biofuel production facilities, leveraging existing refinery infrastructure for co-processing and dedicated units.
SAF and advanced biofuels offer a direct drop-in replacement for conventional jet fuel and diesel, leveraging existing distribution channels (MD06). Co-processing reduces initial capital expenditure by utilizing existing hydrotreating units, mitigating asset stranding risk (MD01). The aviation sector has strong decarbonization commitments, creating significant future demand.
Develop green or blue hydrogen production capabilities, targeting industrial clusters and heavy-duty transport, potentially integrating with existing refinery hydrogen loops.
Hydrogen is a versatile energy carrier with growing demand for industrial decarbonization and heavy transport. Refineries are already large hydrogen producers and consumers, providing a clear pathway for transition. Green hydrogen (electrolysis via renewables) offers significant decarbonization, while blue hydrogen (SMR with CCUS) is a viable transitional solution, addressing MD01 and IN02.
Form strategic partnerships or acquire stakes in renewable energy generation projects (solar, wind) to secure long-term clean power supply for diversified operations and reduce Scope 2 emissions.
Securing renewable energy supply is crucial for green hydrogen production and reducing operational emissions. Partnerships mitigate the high capital costs (IN05) and provide immediate access to expertise in a new sector. This reduces reliance on volatile energy markets (MD03) and strengthens ESG credentials (CS01).
Explore opportunities in chemical recycling of plastics, leveraging existing petrochemical expertise and market access to participate in the circular economy.
Many refineries have integrated petrochemical complexes. Chemical recycling provides a pathway to produce high-value feedstocks from plastic waste, addressing environmental concerns (CS06) and creating new revenue streams in the circular economy. This utilizes existing knowledge of complex chemical processes (IN02).
From quick wins to long-term transformation
- Conduct comprehensive feasibility studies for SAF co-processing within existing hydrotreaters to identify quick capacity additions.
- Establish pilot green hydrogen production using electrolysis powered by renewable energy PPAs (Power Purchase Agreements).
- Identify and evaluate potential strategic partners for renewable energy projects or advanced biofuel technology providers.
- Begin commercial-scale SAF/biofuel production by modifying existing units or building dedicated modules.
- Scale up green hydrogen production to supply internal refinery needs and initial external industrial customers.
- Invest in or acquire minority stakes in renewable energy assets to gain operational experience and secure power supply.
- Pilot advanced chemical recycling technologies at a small commercial scale.
- Transform entire refinery complexes into integrated bio-refineries or energy hubs producing a range of low-carbon fuels and chemicals.
- Establish large-scale hydrogen production and distribution networks, becoming a major supplier in emerging hydrogen economies.
- Achieve a significant percentage of revenue from diversified, low-carbon energy products and services.
- Develop fully circular value chains for petrochemical products, integrating chemical recycling at scale.
- Underestimating capital expenditure and operational complexities of new technologies.
- Over-reliance on unproven technologies or unfavorable regulatory frameworks (IN04).
- Lack of internal expertise and talent for new energy ventures; difficulty in attracting new talent.
- Failure to secure off-take agreements or market demand for new products.
- Delay in divesting from declining conventional assets, leading to stranded investments (MD01).
Measuring strategic progress
| Metric | Description | Target Benchmark |
|---|---|---|
| Diversified Revenue Percentage | Percentage of total revenue derived from non-traditional refined petroleum products (e.g., biofuels, hydrogen, renewable energy). | Achieve 20% by 2030, 50% by 2040. |
| Low-Carbon Product Volume (tonnes/year) | Total volume of SAF, advanced biofuels, and hydrogen produced annually. | Increase SAF production by 10x by 2030; achieve 100,000 tonnes/year hydrogen by 2035. |
| Carbon Intensity Reduction (CI) | Reduction in carbon intensity of overall product portfolio (Scope 1, 2, 3 where applicable) compared to a baseline year. | Reduce CI by 30% by 2030 (based on 2019 baseline). |
| Renewable Energy Capacity (MW) | Total installed capacity of renewable energy assets owned or partially owned by the company. | Secure 1 GW of renewable power by 2030. |
| R&D Investment in New Energies | Percentage of R&D budget allocated to clean energy technologies, advanced materials, and carbon capture. | Allocate >50% of R&D to clean energy by 2027. |
Other strategy analyses for Manufacture of refined petroleum products
Also see: Diversification Framework