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Kuwait's Rotterdam refinery for sale or shut-down

Kuwait Petroleum International wants to cancel planned investment in the Netherlands

Kuwait Petroleum International (KPI) said it is cancelling a planned investment at its Rotterdam, Netherlands, refinery and will try to sell the facility. If the refinery cannot be sold, it will be converted into a storage terminal or the site will be closed completely.

For several years KPI had been planning an investment, named Project Orange, at the 88,000 barrels a day (b/d) refinery, which is wholly-owned by the company and located at Europoort on the western part of the Rotterdam complex. The $1.4 billion project, which was to have received a package of government support, would have added a large lubricants hydrocracker and a new vacuum unit. With the project cancelled, KPI has contacted banks to discuss a sale, according to a Reuters report.

While the EU is reckoned to have a huge surplus of refining capacity - utilisation last year ran at only 79% of capacity - KPI's decision brings the industry closer to a high-profile closure at Europe's largest hub. Rotterdam oil movements have been rising and operators benefit from being in the hub, but the KPI facility is by far the smallest of the main Rotterdam refineries.

The other Rotterdam facilities are Shell's 400,000 b/d refinery at Pernis, BP's 377,000 b/d unit at Europoort and ExxonMobil's 191,000 b/d refinery at Botlek, all with the capability of processing the wide variety of crudes flowing into the port. There is also Koch's 80,000 b/d condensate unit, which can process blends of crude and condensate, located within Vopak's Europoort storage terminal. South of the Rotterdam complex there is the 148,000 b/d Vlissingen refinery, on the Westerschelde river, owned by Total (55%) and Lukoil (45%). 

The KPI refinery runs mainly on Kuwaiti crudes and is of low complexity - there is no conversion unit. Consequently it produces a high yield of heavy fuel oil. A sharp reduction in the allowed sulphur content of ships' bunker fuel, due to come into force in Sulphur Emission Control Areas in January, has led other refiners to make investments to increase their output of distillate fuels. 

KPI has only two refineries in Europe, the other being the Milazzo facility in Sicily, Italy. The 200,000 b/d refinery, owned 50:50 by Eni and KPI, has catalytic cracking, middle distillate hydrocracking and residue hydrocracking units, giving it a conversion ratio of 60% according to Eni.

Despite Europe's overcapacity, unwanted refineries are still finding buyers. The Klesch commodity-trading group was due in October to close its acquisition, from Murphy, of the 135,000 b/d Milford Haven facility in Wales, UK, which its owner had been about to close. Klesch already owns the 90,000 b/d Heide, Germany, refinery, which it bought in 2010 when Shell was planning to close it. The company says it expects to acquire a third European refinery in a few months.

New player Varo Energy, owned jointly by Vitol and private-equity investor Carlyle, has bought refining capacity in Switzerland and Germany, and has plans for growth in European refining, storage and pipelines. Trading company Gunvor and Russia's Lukoil have also acquired refineries in recent years. 

Eni and Total are expected to lead Europe's capacity cuts in future months. Eni said in the summer that it wanted to end refining at three of its six facilities in Italy, converting them into import terminals or bio-refineries. Total, with five refineries in France giving a combined capacity of 829,000 b/d, is expected to announce cuts next year, when its five-year moratorium on closures expires.

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