European majors put refining strategy in transition

The European majors are scaling back oil refining and focusing on cutting greenhouse gas emissions at their remaining sites, as lower oil demand resulting from Covid-19 sharpens their energy transition plans.

Shell is marketing five of its 11 operated oil refineries. By 2025, the six remaining sites are expected to form the firm's integrated energy and chemical parks in the US, the Netherlands, Germany, Canada and Singapore. But even those six plants will not be immune to significant changes. Shell will halve crude processing capacity at its 500,000 b/d Pulau Bukom refinery in Singapore, with the facility pivoting "from a crude oil, fuels-based product slate towards new, low-carbon value chains". The company is planning for output that is "resilient to the energy transition", such as biofuels, and more speciality products such as bitumen, using more feedstocks that are renewable or recyclable.

Europe has been at the forefront of refinery rationalisation for decades given the maturity of its markets, but the effects of the pandemic and the prospect of an accelerated energy transition are propelling its oil firms to act faster. Conversion to biofuel production increasingly offers an alternative to closure or divestment. And biorefining has performed better financially since the start of the pandemic than oil-processing plants, Total says. The firm has already converted its 160,000 b/d La Mede refinery in France into a 500,000 t/yr hydrotreated vegetable oil plant, and will cease conventional refining at its 93,000 b/d Grandpuits facility near Paris early next year, converting it to a biorefinery by 2024. Most of Total's downstream capital goes to its six large integrated refining and chemicals complexes in France, Belgium, South Korea, the US, Saudi Arabia and Qatar.

BP aims to "high-grade" its portfolio of eight operated refineries, as its energy transition plan envisages cutting refining throughputs from 1.7mn b/d to 1.5mn b/d in 2025 and 1.2mn b/d in 2030. It also aims to boost the use of renewable feedstocks to increase output of biodiesel and biojet, and scale up marketing of advanced fuels. The firm plans to make its 82,000 b/d Lingen refinery in Germany "contribute to net zero" by working with Danish renewables firm Orsted on a green hydrogen project that will use output from Orsted's wind farm in the North Sea to power a 50MW electrolyser at the refinery. This will produce 9,000 t/yr of hydrogen through electrolysis of water, enough to replace around 20pc of the refinery's current hydrogen consumption, BP says. "The project could be expanded to up to 500MW to replace all of Lingen's fossil fuel-based hydrogen," BP says.

Oceans apart

The US majors are assuming a more bullish long-term outlook for oil demand and are not planning any radical shifts in their downstream strategies. "Chemicals integration is probably the overlying factor we look at in terms of refiner assets that we think long-term are going to be very competitive," ExxonMobil senior vice-president Jack Williams says. Almost 80pc of ExxonMobil's 4.5mn b/d refining capacity is integrated with chemicals or lubricant manufacturing. "But medium, low-complexity refineries, in an OECD country, not integrated with chemicals — those are going to be a challenge," Williams says.

Bucking the trend, Chevron bought the 100,000 b/d Pasadena refinery in Texas last year, to integrate with its growing Permian oil production. This deal and a recent acquisition of marketing assets in Australia, "further extend our value chains in those regions", executive vice-president for downstream Mark Nelson says. While not talking about biorefineries, Chevron is not standing still either. It will use existing infrastructure to co-process biofeed as it aims to start producing biodiesel at its El Segundo, California, refinery, in the first half of 2021.

By Konstantin Rozhnov