Bitumen softens the blow of a Covid nightmare

  • Market: Crude oil, Oil products
  • 29/04/21

Italian speciality refiner Alma Petroli has managed to ride the storm of a Covid-induced industry nightmare, saved from financial losses by its reliance on bitumen and ready to proceed with fresh investment, its chief executive Sergio Bovo told Argus.

Bitumen output accounts for 70pc of total production at Alma Petroli's sole refinery at Ravenna on Italy's Adriatic coast, with naphtha and gasoil forming the remainder. The refinery's total production in 2019 stood at 430,000t, falling last year as the first wave of full Covid-19 lockdowns in Italy halted road construction activity while movement restrictions have had a much more far-reaching impact on fuels demand, leading tanks to fill up and the refinery being halted temporarily.

That tough first half of 2020 caused an estimated 10pc drop in the refinery's annual production and, with naphtha and gasoil cracks hit especially hard throughout the year, it was bitumen's revival since mid-2020 that saw it far outstrip the performance of most other products and helped rescue Alma's financial fortunes.

"We experienced a sharp drop in turnover and margins, but bitumen's performance is the reason we're not recording a 2020 loss," Bovo said.

And it is also the reason the firm is not paring back but instead keeping very much on track its ambitious €30mn 2021-25 investment programme, as part of which "we've acquired extensive assets that will allow us to expand utilisation of installed capacity," he said.

The Ravenna refinery has an authorised 550,000 t/yr capacity, and its five-year investment programme will allow it to reach 520,000 t/yr, far above current technical maxima, by improving reliability and flexibility and extending turnaround and processing cycles.

Bovo said 2020 was a difficult year for refiners, "even before the Covid outbreak", as concerns over the impact of IMO 2020 were quickly overshadowed by heightened US-Iran tensions and uncertainty about Opec+ agreement on output cuts, a cocktail that made for considerable oil market volatility.

But even greater drama was to come as the pandemic struck, bringing lockdowns and movement restrictions and slashing oil demand while North Sea Dated crude slumped from nearly $70/bl at the turn of the year to less than $15/bl in April.

"Volatility was very high even before the outbreak, then it became extreme," Bovo said, with refineries across Europe having to slash runs and shut down for long periods.

And a number of European bitumen-producing refineries are closing permanently this year, while others are under threat unless they can profitably switch from high-sulphur fuel oil to bitumen production. But Alma is staking its claim on helping meet future supply shortfalls.

Its decision to go ahead with bitumen capacity expansion has been helped by positive indicators for the Italian construction sector, the sharp rebound of which since the middle of last year helped push up domestic bitumen consumption by 3.6pc to 1.66mn t in 2020, according to Italian industry association Unione Energie per la Mobilita. Bovo expects further demand growth this year, potentially surpassing 5pc, to be followed by another strong year in 2022.

This positive outlook is in part based on the recently formed government of Prime Minister Mario Draghi pledging to prioritise infrastructure investment as the motor to drive the country's post-pandemic revival.

Some problems remain, and one has got progressively worse — sourcing heavy crudes, including the bitumen-rich variety.

While sanctions on Venezuela and Iran, as well as Opec production controls, have helped drive up sour crude values relative to Dated Brent — "from around 60-70pc of Dated Brent two years ago to around 90pc now", Bovo said — actually finding the right bitumen-rich crudes has become a major task.

Alma Petroli now relies on a range of Mediterranean, mainly Italian crudes, with Italian refiners having missed out, Bovo said, on bitumen-rich Albanian Patos-Marinza crude exports that were quickly bought over the past year or two by their Spanish counterparts. Occasionally, "some drops" of heavy south American crudes also find their way to Ravenna.

As Bovo noted: "as bitumen producers we have to be choosy."

Sergio Bovo will be one of the speakers at the Argus Bitumen & Asphalt Live virtual conference taking place 25-27 May. For full details of the conference program and how to register to attend, please visit the event website.


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