February 20, 2012 at 1:45 pm #1933
Frost & Sullivan: Europe’s refineries face ‘further turmoil’
LOS ANGELES, 01/30/2012
By Eric Watkins OGJ Oil Diplomacy Editor
The pending bankruptcy of refiner Petroplus is only the start of further problems for nearly 40% of the European Union’s 104 refineries now in need of refurbishment, according to a new consultancy report.
“Demand for crude oil products is increasingly volatile, and many refineries do not have the flexibility to accommodate this more rapidly changing demand,” said energy consultant Enguerran Ripert of Frost & Sullivan.
“Beyond the structural issues, many owners need access to credit lines, which in the case of Petroplus amounted to $EU 2.4 billion, to carry on doing business in the short term,” Ripert said.
European refineries’ capacity utilization consistently decreased from an average of 90% in 2005 to less than 75% in January 2012. In Ripert’s view, this change reflects “the much tougher” competitive environment, but also a trend toward “flexible demand-supply” of crude oil products.
Road transport fuel, and in particular gasoline which Europe has a lot of capacity for, is being replaced by diesel and kerosene.
Meanwhile, heavy oils, bitumen, waxes, and petroleum coke are no longer in such high demand, making way for liquefied petroleum gas, naphtha, and other smaller chains alkanes.
The misalignment between demand and supply capabilities leads Europe to be a net exporter of gasoline to the US, and a net importer of diesel from Russia.
“Although this movement of refined goods is not an issue in itself, it does reflect the inability of refineries to adapt to local demand quickly and profitably in their current state,” Ripert said.
“This growing requirement for diesel and kerosene despite the latest economic turmoil cannot be met profitably due to cost and capacity reasons intrinsic to the current fleet of refineries,” he said.
Since any investments, such as hydrocracking units to increase diesel production, need bank funding due to the high cost, the ability to make these investments lies with the banks which hold much of the debt.
“But with higher capital ratios imposed on banks, and attractive spreads between ECB lending rates and local government bonds, banks prefer to avoid lending to the refining sector, or any other relatively high risk sector,” Ripert said.
Tougher times ahead
Refineries will have tougher times ahead of them due to such banking issues, along with the increasing probability of another European recession, the uncertainty around ETS and carbon taxes, the rigid and costly labor laws, and tightening regulation on sulfur content.
The average size of refineries in Europe is less than 140,000 b/d, with slightly over half of them dealing with less than 100,000 b/d.
According to Ripert, the majority of these refineries were built more than 20 years ago when the demand dynamic was more stable and crude oil prices were less than half their 2012 levels.
“In a context where demand patterns change more rapidly, a lower number of much larger refineries is needed to offer both flexibility in product output, and lower costs,” Ripert said.
In a world where labor flexibility is limited and the relocation of physical assets is extremely difficult, Ripert said that many more refiners will be sure to sell assets at highly discounted prices in the coming years or slowly erode their assets.
“Building a new facility will have a shorter payback period than the purchase of a cheap old one,” he said.
In all, despite the need for an increase in crude oil processing capacity in Europe, a large portion of the existing capacity needs to be replaced, and this readjustment comes at a time when the banking support structure is not ready to support it fully.
“The larger groups with a high involvement in exploration will be the ones able to weather the continuing losses,” Ripert said, adding that many of them will either “decide to sell downstream assets” or “will continue to make losses.”
Contact Eric Watkins at firstname.lastname@example.org.
February 20, 2012 at 1:47 pm #4707
Here is Update from F&S via OGJ on EU refineries (news link forwarded by CRU contact).
F&S Article Does good job tying in EU financial problems (Petroplus example) to daily cash needs & refinery upgrade project finance. Also the big impact due loss US gasoline export market and its impact on EU utilization and EU higher diesel demand levels having to go imports. The potential loss of 40% of its smaller 104 refineries where most are in need of upgrade for more crude flexibility & higher product quality at time tough competition from expanded Russia & Pacific export refineries.
Some things not mentioned were big reduction of regional North Sea crude supply, drastic reduction in population (EU Depopulation Demographics) and shift of not just EU but World back to Diesel economy from US supported Gasoline export market which supported higher global utilizations.
June 1, 2012 at 2:29 pm #4621
Nearly 850 jobs are at risk after administrators failed to find a buyer or cash to keep the Coryton oil refinery open.
The plant, which supplies 20pc of fuel in London and the South East, was plunged into administration earlier this year by Swiss owner Petroplus
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