(MENAFN- The Peninsula) European refiners, in a desperate battle for survival, are investing in costly upgrades or trying to close plants that bleed the most money, but industry experts say their efforts fall short of what is needed to make the industry profitable.
Some 1.8 million barrels per day (bpd) of capacity has shut since 2008, with the loss of Coryton in Britain, Harburg in Germany and Berre l'Etang in France, to name a few, but the industry is still struggling to make decent returns. "2015 will be a very difficult year for global refining, especially in Europe," said David Wech, managing director at JBC Energy, speaking at the 2014 Platts European Refining Summit in Brussels on Tuesday.
Patrick Pouyanne, president of the refining and chemicals division at Total, said Europe needs to cut refining capacity by at least another 10 percent by 2020 to restore a utilisation rate of 85 percent, the level at which the market is seen as balanced.
"At least 10 refineries have to be shut down by the end of 2020," or cuts of 1.5 million to 2 million bpd. "It's difficult, but this is the reality of the market in Europe."
Total and Eni are reviewing refining activities in their home markets of France and Italy but face strong opposition to closures from trade unions. Following the closure of its Dunkirk plant in September 2009, Total promised not to shut any more plants in France for the next five years. In August this year, its chief executive said it did not plan to shut any refinery completely but might reduce capacity.
Eni also said in August that it wanted to cut its refining business by more than half, with Gela, Livorno and Taranto understood to be at risk.
Meanwhile, Hungarian oil and gas company MOL is looking to downsize further following the closure of its Mantova plant in Italy at the start of this year.
Its Sisak refinery in Croatia is currently idled, but the Croatian government is fighting against a permanent closure.
France had cut refining capacity by about 24 percent between 2007 and 2013 but that gasoline demand had fallen further than production. Some European refiners, rather than be forced to the wall, have fought back by making expensive investments to boost high-value middle distillates production. Unfortunately, this year Europe has been flooded with diesel from the United States and Russia, keeping margins under pressure. As a result, refineries that upgraded have not yet reaped the benefits. This has not deterred majors such as Total and ExxonMobil, however, which both have billion-dollar projects underway to reduce the output of low value, high-sulphur products in favour of middle distillates.
They will face stiff competition from the likes of new plants Jubail, Yanbu and Ruwais in the Middle East and Paradip in India, all expected to ramp up over the next 12 months.
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