Pressure for refinery closures in Europe is stepping up as competition from the US, the Middle East and Russia accelerates, with industry players predicting around a dozen closures in the next few years. Higher energy and personnel costs kill competitive edge.
But many in the industry fear this will not be enough to save a sector in desperate need of cheaper energy sources to bring back their refineries to profitable levels.
The competitiveness of European refineries has been severely hit in recent years by overcapacity, falling demand, new capacity coming on stream in the Middle East and surging competition from US oil product exports.
Fourteen refineries have closed in Europe since 2007, bringing the total in 2013 to 87, with the highest number of closures taking place in France, where refining capacity has shrunk since 2008 by 30% to 1.4 million b/d.
“On the global picture there are many things pointing to a worse refining outlook for European refiners,” said Jonathan Leitch, senior analyst with Wood Mackenzie. “We knew that new refineries in the Middle East would be coming on so that’s not a shock but I don’t think we could understand quite how much the increase in US domestic crude production was going to help US refiners.”
Since summer 2008, The US has benefited from a boom in shale gas production, which has led to cheaper feedstocks for its refining industry and left the EU struggling to remain profitable globally.
Industry players say that more closures will be inevitable in the coming few years, with refining margins plunging to Eur15/mt ($2.78/b) so far in 2014, down from Eur18/mt in 2013 and Eur36/mt in 2012.
“European refining will not escape a new wave of restructuring,” Jean-Louis Schilansky, head of France’s oil industry lobby UFIP, told Platts.
“In France, a third of capacity has already closed, which is more than other European regions,” he said, adding this did not mean France would necessarily escape more closures.
While France’s refining capacity stands at 1.4 million b/d, demand is currently closer to 1.5 million b/d.
“This situation is related to the gasoline/diesel demand unbalance but it’s also because three refineries have closed,” Schilansky said. “In France we have switched from an overcapacity issue to one of competitiveness.”
Despite having some of the most efficient refineries globally, the EU has been struggling to halt a backslide in net profit margins against Asia and the US, as higher energy and personnel costs and smaller-scale plants take away their competitive edge.