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Russian-crude seller Gunvor makes another purchase move

Gunvor is to buy Germany’s Ingolstadt refinery, in the latest move by companies with access to Russian crude into Europe’s largest refined products market

Less than a month after completing its acquisition of the Antwerp, Belgium, refinery from bankrupt Petroplus, oil trading company Gunvor – a large seller of Russian crudes – signed an agreement to buy the Ingolstadt, Germany, refinery, also from Petroplus. With Russia’s state-controlled Rosneft already holding stakes in four German refineries, the latest acquisition raises the share of Germany’s refining capacity owned by companies with access to Russian crude to 16%.

Gunvor said it will re-start the 110,000 barrels a day (b/d) Ingolstadt facility, which was shut down soon after Petroplus went into administration in January, as soon as possible and will operate it on a long-term basis. Petroplus’s marketing assets in Germany are included in the acquisition. In May, Gunvor re-started the 107,500 b/d Antwerp refinery – the first refinery acquisition for the fast-expanding trading company.

Gunvor describes Ingolstadt as “one of the best performing European refineries with a strong regional footprint in [prosperous] Bavaria”. According to Petroplus, in its last quarterly report before insolvency, Ingolstadt showed a “benchmark” (gross) refining margin of $8.49/b for the first nine months of 2011 – the highest of the company’s five refineries. The price to be paid by Gunvor has not been made public.

Ingolstadt was built by ExxonMobil and acquired by Petroplus, for $627.5 million including inventories, in 2007. The refinery can produce a high yield – nearly 50% of output – of middle distillates, while its fluid catalytic cracking unit gives a considerable output of naphtha, as well as gasoline. Petroplus claimed a Nelson complexity rating – an industry measure of efficiency – of 7.3. Crude is received through the TAL pipeline from Trieste, Italy.

Ingolstadt’s facilities give it a substantial capacity to process Russia’s medium-gravity high-sulphur Urals crude, of which Gunvor is a large seller. The company was a relatively small trader until five years ago, since when it has expanded rapidly. Gunvor says it sold 1.26m b/d of crude in 2010, of which Russian oil accounted for “less than 40%”. It now has a strategy of buying assets – storage and tanker capacity, before the refinery acquisitions – to become vertically integrated.

The first move by a seller of Russian crude into Germany’s over-2.4m b/d oil products market came in 2010, when Rosneft signed to become BP’s 50:50 partner in Ruhr Oel by buying the 50% held by Venezuela’s PdVSA. The Ruhr Oel venture owns 100% of the Gelsenkirchen refinery, 37.5% of the PCK Schwedt refinery, 25% of the Bayernoil refinery and 24% of the MiRO refinery, giving the venture a net 465,000 b/d in the four facilities.

Gunvor is not the first oil trading company to have made moves into refining, but the Ingolstadt purchase will give Gunvor the lead in capacity

Rosneft therefore has 232,500 b/d of capacity in Germany, and the company indicates that Ruhr Oel processed approximately that volume of Urals crude in 2010. The four highly-upgraded facilities, with a combined capacity of nearly 1m b/d, could process up to 470,000 b/d of Urals, Rosneft says. Rosneft’s capacity amounts to 11% of Germany’s total refining capacity of 2.091m b/d, according to the BP Statistical Review of World Energy, with Gunvor’s Ingolstadt acquisition lifting the Russian-crude sellers’ total to 16%.

Despite acknowledging on its website that it is “the single most important oil trading company in Russia”, Gunvor states it is not a Russian company – it is registered in Cyprus and has offices in Geneva, Amsterdam and Singapore. Its Asian operations, based in Singapore, are targeted for long-term growth, in support of which a $635m credit facility was arranged in June. The firm said the lending received commitments from 28 banks and was 35% over-subscribed.

Figure 1: Oil refineries in Europe
Figure 1: Oil refineries in Europe

And elsewhere

The trend for sellers of Russian crude to buy into European refining capacity was started by private-sector Lukoil, which has made acquisitions in Italy and the Netherlands. In 2008, the company bought a 49% holding Erg’s 320,000 b/d Isab refinery at Priolo, Sicily, and in 2011 it bought an additional 11%. In January this year Lukoil agreed to buy another 20% for €400m ($503m) excluding inventories, giving it 80%, and it has the right to acquire the remaining 20% by October next year.

In 2009, Lukoil bought a 45% holding in the Total-operated Vlissingen refinery in the Netherlands, with Total retaining 55%. Total gives the capacity of the refinery as 150,000 b/d, giving Lukoil an equity capacity of 67,500 b/d, but the facility can process additional volumes of feedstocks. Vlissingen, on the River Scheldt, has a large hydrocracker of 68,000 b/d capacity, allowing it to run large volumes of crudes such as Urals.

Gunvor is not the first oil trading company to have made moves into refining, but the Ingolstadt purchase will give Gunvor the lead in capacity. Vitol, the world’s largest oil trader, owns the 80,000 b/d Fujairah refinery in the United Arab Emirates and – acquired in 2010 – a gasoil hydrotreating unit and bitumen plant in Antwerp, giving the firm a total capacity of about 100,000 b/d.

This will rise when Vitol completes its acquisition, announced in May, of Petroplus’s 68,000 b/d refinery at Cressier, Switzerland, which was also shut down when the company went into administration. Vitol is buying Cressier in a venture, named Varo, with AtlasInvest – an investment company owned by Marcel van Poecke, who was one of the co-founders of Petroplus in 1993.

Another larger trader, Trafigura, made its first refinery investment in April. The company is to take an interest of up to 24% in the Nagarjuna refinery, being constructed at Cuddalore on India’s east coast, and will also construct a storage terminal at the site. The 120,000 b/d refinery, due to start commercial operations in the first half of next year, will be able to process a slate of 100% heavy and sour crudes, while making products to the latest European standards. Trafigura’s partners in the refinery are Tata’s Petrodyne and Tamil Nadu state.

No respite for Europe

With three of Petroplus’s five refineries being re-started by their new-entrant buyers, Europe’s overcapacity problems continue. EU refined products consumption peaked in 2006 and by 2010 had declined by 8.0%, while EU refining capacity declined by only 3.9% over the same period, according to the BP Statistical Review of World Energy. In 2010 EU refineries operated at a desperately low utilisation rate of 83%, with more than 2.6m b/d of unused capacity.

The collapse of Petroplus in January was followed by an improvement in European refining margins, according to International Energy Agency data, and the firming continued into April aided by the usual seasonal stock-build in motor fuels. But the willingness of new entrants to buy shut-down capacity seems set to reverse the improvement. Ailing refineries outside Europe are also finding new owners – in recent months, ConocoPhillips’ 185,000 b/d Trainer refinery in Pennsylvania, US, was acquired by the Delta airline, and the Carlyle group is in talks with Sunoco over taking a majority interest in the nearby 330,000 b/d Philadelphia refinery.

With three of Petroplus’s five refineries being re-started by their new-entrant buyers, Europe’s overcapacity problems continue

The future for Petroplus’s two other refineries, Coryton in the UK and Petit Couronne in France, is still unresolved but Coryton’s prospects were looking gloomy at presstime. The facility had been kept in operation through a tolling agreement put together by the administrators, PwC, but in June it appeared that no more crude would be supplied and the refinery would have to close. With a crude capacity of 175,000 b/d and a total capacity (including other feedstocks) of 220,000 b/d, Coryton is a large and efficient refinery, but PwC said prospective buyers had been deterred by the economic environment and the challenge of raising $1bn of funding for the facility.

There were reports that Shell, together with storage company Vopak and fuels marketer Greenergy, were planning to bid for Coryton to operate it as an import terminal. However, according to a union official, a Russian company is still interested in acquiring the facility to run it as a refinery.

Talks with prospective buyers of Petit Couronne, a refinery of 162,000 b/d capacity in Normandy, are said to be continuing, with the bid deadline extended to allow legal requirements to be complied with. Klesch, the London-based investment company which bought Shell’s Heide, Germany, refinery in 2010, is known to be interested. Shell, which sold Petit Couronne to Petroplus, is keen for the facility to continue in operation and has proposed a processing agreement under which it will supply 100,000 b/d of crude for six months.

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