European oil refinery closures get serious
With European oil refining capacity in surplus and demand falling, Total is closing a refinery in France and other majors are likely to follow
Refinery shut-downs in western Europe now involve the majors: Total said last month that it will permanently close its Dunkirk, France, refinery in response to the "structural decline in petroleum products demand". There are forecasts that, with few prospective buyers emerging, other major companies will also be forced to close facilities already carrying for-sale signs.
Total's focus for disposals will now be on its European refineries outside France, because the company gave French labour unions – which had called a strike in February – an undertaking not to close or sell any other refinery in the country for five years. The firm is said to be considering the sale of its 220,000 barrels a day (b/d) Lindsey refinery, on Humberside in the UK, towards its target of cutting 0.5m b/d of capacity by the end of next year. Total's other European refineries are at Antwerp, Leuna (Germany), Rome and Vlissingen (the Netherlands), and it has five facilities in France besides Dunkirk.
The Dunkirk refinery, of 137,000 b/d capacity, stopped operating in September and, Total says, lost more than €130m ($176m) in the year. It will be dismantled over the years to 2013. Meanwhile, Total will set up a refining-operations support centre and a training centre at the site, and use of the tank-farm will continue. The company says these operations will provide 240 jobs, equivalent to two-thirds of the work-force, and that all employees will be guaranteed a job – but unions say contractors will be badly affected.
Until recently, refineries put up for sale by the majors – which generally do not skimp on maintenance – have been snapped up by the smaller specialist refiners, usually at prices that do not reflect past investments. But now the companies that had been buyers are closing capacity themselves – Petroplus, for example, which built-up its European network through acquisitions from Shell, BP, ExxonMobil and ConocoPhillips, has closed its Teesside, UK, refinery, after failing to find a buyer.
Refining in Europe has always been costly and refining margins are rarely large, but logistics have favoured transporting crude to the market instead of refined products. Some say this trend is reversing, and that operators of new, large refineries in Asia can deliver products to Europe at prices competitive with home production.
India's Essar, for example, is rapidly expanding its 210,000 b/d refinery at Vadinar, Gujarat, with the aim of gaining a foothold in the European market. The firm has been negotiating with Shell since November over the acquisition of three refineries – the flagship 240,000 b/d facility at Stanlow, UK, and Hamburg-Harburg and Heide in Germany, with a combined capacity of 100,000 b/d – and would like to close them and use the sites as import terminals.
Similarly, PetroChina has plans to build up its international sales and has been talking with the UK's Ineos over an investment in the 200,000 b/d Grangemouth refinery, in Scotland. PetroChina confirmed last month that "preliminary work" for a bid is under way. Also for sale are Shell's 78,000 b/d refinery at Gothenburg, Sweden; Eni's 85,000 b/d facility at Livorno, Italy; and – from last month – Chevron's 210,000 b/d refinery at Pembroke in the UK.
If Asia's new refiners succeed in their sales drive, more closures seem inevitable. Europe's refining capacity is in surplus – according to BP's Statistical Review of World Energy, capacity in the EU in 2008 amounted to 15.8m b/d, while products consumption totalled 14.8m b/d (see Figure 1). Refinery throughputs in that year amounted to 13.5m b/d, giving a utilisation rate of only 85%.
Products consumption and throughputs both declined sharply last year and some say motor-fuels demand has peaked – biofuels are reducing the demand for petroleum streams, and hybrid and electric cars are becoming more capable. Total describes the decline in products demand as "structural and permanent".