Earlier this month, Royal Dutch Shell Plc pulled the plug on its Convent refinery in Louisiana. Unlike many oil refineries shut in recent years, Convent was far from obsolete. It is fairly big by U.S. standards and sophisticated enough to turn a wide range of crude oils into high-value fuels. Yet Shell, the world’s third-biggest oil major, wanted to radically reduce refining capacity and could not find a buyer.

As Convent’s 700 workers found out that they were out of a job, their counterparts on the other side of the Pacific were firing up a new unit at Rongsheng Petrochemical’s giant Zhejiang complex in northeast China. It is just one of at least four projects underway in the country, totalling 1.2 million barrels a day of crude-processing capacity, equivalent to the U.K.’s entire fleet.

The Covid19 crisis has hastened a seismic shift in the global oil refining industry as demand for plastics and fuels grows in China and the rest of Asia, where economies are quickly rebounding from the pandemic. In contrast, refineries in the U.S and Europe are grappling with a deeper economic crisis while shifting away from fossil fuels dims the long-term outlook for oil demand. Crude oil forms the major base or source of energy for many countries, many of which in the west are shifting drastically to renewable sources of energy. This alongwith the commitments of many countries to stop selling petrol and diesel-based cars from 2030 onwards add to the falling utility of the oil refining industry.

America has been at the top of the refining pack since the start of the oil age in the mid-nineteenth century, with prominent suppliers of crude like its immediate neighbour Canada. China will dethrone the U.S. in oil refining as early as next year, according to the International Energy Agency. In 1967, the year Convent opened, the U.S. had 35 times the refining capacity of China.

The rise of China’s refining industry, combined with several large new plants in India and the Middle East, is reverberating through the global energy system. Oil exporters are selling more crude oil to Asia and less to the long-standing customers in North America and Europe. And as they add capacity, China’s refiners are becoming a growing force in international markets for gasoline, diesel, and other fuels. That is even putting pressure on older plants in other parts of Asia. Shell also announced this month that they will halve the capacity at their Singapore refinery.

China is set to surpass U.S. in refinery capacity having already overtaken Europe. But while refining capacity will rise in China, oil demand may take years to fully recover from the damage inflicted by the coronavirus in India and the Middle East. That will push a few million barrels a day more of refining capacity out of business, on top of a record 1.7 million barrels a day of processing capacity already mothballed this year. More than half of these closures have been in the U.S., according to the IEA.

Hedi Grati, head of Europe-CIS refining research at HIS Markit, said that about two-thirds of European refiners are not making enough money in fuel production to cover their costs. Europe still needs to reduce its daily processing capacity by a further 1.7 million barrels in five years mainly due to its gradual shift to renewable energy sources which has faced many complexities in the international dialogue forums, caused by the general reluctance of the global north to accept the reality of climate- change.

Chinese refining capacity has nearly tripled since the turn of the millennium as it has tried to keep pace with the rapid growth of diesel and gasoline consumption. The country’s crude processing capacity is expected to climb to 1 billion tons a year, or 20 million barrels per day, by 2025 from 17.5 million barrels at the end of this year, according to China National Petroleum Corp.’s Economics & Technology Research Institute.

Global oil consumption is on track to slump by an unprecedented 8.8 million barrels a day this year, averaging 91.3 million a day, according to the IEA, which expects less than two-thirds of this lost demand to be recovered next year.

Some refineries were set to shutter down even before the pandemic hit, as a global crude distillation capacity of about 102 million barrels a day far outweighed the 84 million barrels of refined products demand in 2019, according to the IEA. The demand destruction due to Covid-19 has pushed several refineries over the brink.

Even China may be getting ahead of itself. Capacity additions are outpacing its demand growth. An oversupply of oil products in the country may reach 1.4 million barrels a day in 2025, according to CNPC. Even as new refineries are built, China’s demand growth may peak by 2025 and then slow down as the country begins its long transition towards carbon neutrality.

The author is a student member of amity centre of happiness