José de Sá: Full Potential Refining in Developing Economies

Over the next decade, a combination of changes in the oil industry will put increasing pressure on refineries. For Latin America and Africa, however, these challenges could reveal opportunities to secure market access. José de Sá, a partner with the Oil & Gas practice, discusses the need to improve project efficiency and build better capabilities in order for the two regions to thrive during turbulent times.

Read the Bain Brief:& Full Potential Oil Refining in a Challenging Environment

Read the transcript below.

JOSÉ DE SÁ: The upstream sector is going through a severe crisis that will force the reinvention of itself, especially when it comes to deepwater. This very crisis, though, has helped the downstream sector experience some relatively good times up until now. A new storm is forming on the horizon and one that will impact downstream directly.

The combination of a mix of crudes that's heavier and sour, of stricter regulations in fuels and emissions, and more than anything else, the intense build-up of capacity in the next decade, will put a lot of pressure on this business.

This combination of the upstream and downstream scenario, though, creates very interesting implications for two specific regions: Latin America and Africa, the only two regions that will remain as net exporters of crudes and net importers of derivatives. With the oversupply of crudes around the world, there will be a fight to secure market access, and these two regions have an opportunity right there to secure a room for their region of crudes, especially the more challenged deepwater crudes.

The issue here is that the two regions have a less than desirable track record on project efficiency, marred by delays in the build-up of capacity, and a cost per barrel of capacity that is more than double what is best-in-class around the world. This automatically raises a red flag as at this cost the refining assets will be destroying more value downstream than they are creating for the upstream activity.

It's time, then, for the two regions to understand what is missing in terms of product capabilities, operational capabilities, or even organizational capabilities that, through their absence, are preventing these technical capabilities from shining. Nevertheless, the opportunity is there. And as the storm quickly approaches, no matter what the course is, the time has come to take decisive action.

Read the Bain Brief: Full Potential Oil Refining in a Challenging Environment

INTERACTIVE FEATURE Which Oil Refineries Will Thrive? Bain examined 200 refineries, the types of crude they can handle, and their refining capacity to find those best positioned to thrive.