Downstream Market: Overview
Downstream refers to the final stage of the oil & gas company, where natural gas and crude oil are refined, processed, and transformed into final fuel products like diesel, gasoline, jet fuel, petrochemicals, lubricants, and other consumer products. It comprises refining, distribution, and marketing activities that openly connect with industries and consumers. The global downstream market is poised for notable growth owing to the expanding petrochemical demand, growing industrialization and urbanization, and an increase in transportation and aviation. Petrochemicals are essential inputs for packaging, plastics, healthcare, and electronics. As consumer product industries progress, mainly in the Asia Pacific, petrochemical refining is becoming an indispensable growth driver for the downstream operators. Rapid urbanization in developing economies drives up energy consumption, particularly of diesel, gasoline, and jet fuel.
According to the UN reports, approximately 68% of the world’s population will live in cities by 2050. This will majorly expand refined product demand. Furthermore, the aviation industry’s rebound after the COVID-19 pandemic has doubled the demand for jet fuel. Likewise, the growth of logistics and e-commerce networks is surging demand for gasoline and diesel, impacting downstream progress.
Nevertheless, the global market faces limitations due to factors such as decarbonization pressure and environmental regulations, high operational and capital costs, and a shift towards EVs. Governments across the globe are tightening standards for emissions. Policies encouraging the adoption of EVs, green hydrogen, and biofuels may limit long-term demand for refined fossil fuels. Additionally, maintaining and building distribution networks and refineries requires significant investment. Small companies often struggle to compete with oil giants.
Additionally, growing adoption of electric vehicles directly decreases the demand for diesel and gasoline. With EVs anticipated to account for 62% of the worldwide car sales by 2035, this is a vital limitation. Still, the global downstream industry benefits from several favorable factors like renewable and biofuels refining, integration of digital technologies, and strategic associations and mergers & acquisitions. The move towards sustainable fuels offers opportunities in bio-jet fuel, renewable diesel, and ethanol blending.
Several refineries are repurposing facilities to accommodate green fuels. IoT, blockchain, and AI are allowing smart refineries, optimized distribution, and predictive maintenance, improving reliability and cost-efficiency in the downstream value chain. Acquisitions, joint ventures, and mergers are transforming the downstream outlook. Associations between NOCs and private players offer fresh growth avenues.