The European refining sector is enjoying bumper returns, but will still need to trim excess capacity again this year
European refiners are enjoying a rare bout of strong margins, but are realistic enough to know that the respite will be brief.
Lower crude prices since the middle of last year have strengthened European margins and led refiners to boost output. Crude runs in the EU 16 — the 15 pre-2004 accession members plus Norway — have been nearly 900,000 b/d higher than a year earlier since October. But refiners regard it as only a temporary reprieve and are pressing ahead with restructuring plans. Europe's refining capacity is likely to fall appreciably this year.
Europe has at least 1.5mn b/d of excess refining capacity, Total's refining and chemicals president Philippe Sauquet says. "Only the best and most efficient units will survive," he says. Total's European refining margin indicator almost tripled to $27.60/t ($3.80/bl) in the final quarter of 2014 from a year earlier. The firm has reduced its refining and petrochemicals capacity by 5pc since 2011, out of a 20pc target by 2017, and is accelerating the pace of restructuring this year. It is halving the capacity of its 222,000 b/d Lindsey refinery in the UK. And it will reveal plans for its French plants within the next three months, with the 160,000 b/d La Mede refinery looking the most vulnerable.
Italian firm Eni's refining margin indicator rose to about $5/bl in the fourth quarter, a fivefold increase from a year earlier. But its refining business was loss making for the whole of last year again because of "structural headwinds". It expects throughputs to be slightly higher this year than the 500,000 b/d it ran in 2014, "to capture short-term opportunities in the current scenario".
Eni has cut its capacity by 30pc since 2012. It shut its 80,000 b/d refinery in Venice in 2013 for conversion into a biofuels facility and has similar plans for its 105,000 b/d Gela plant in Sicily, which it has already closed. Eni wants capacity cuts to total 50pc. Its 84,000 b/d Livorno and 84,000 b/d Taranto refineries look to be at risk. The firm will present its updated three-year strategy this month.
Kuwait's KPC aims to sell its 80,000 b/d Europoort refinery in Rotterdam, but will probably have to convert it into a storage facility. And Libyan state-owned Tamoil's 72,000 b/d Collombey refinery in Switzerland is up for sale. Five potential buyers have until the end of the month to make a firm bid, but Tamoil is prepared to shut the refinery.
One for all
Spain's Repsol is among the companies that are unlikely to shed any refining capacity. Its refining business had a "sound" fourth quarter, boosted by high utilisation rates and firm refining margins. Repsol expects the current quarter to be "even better", thanks to the state of the market and improved efficiency, mainly as a result of reduced energy costs. The company enjoys additional flexibility from the interconnection of its five refineries, which it operates as one integrated system.
Austria's OMV is working to integrate its three refineries. The firm is in a stronger position after reducing its refining capacity by a third in 2011-14. It sold a 45pc stake in German refining consortium Bayernoil — which operates the 210,000 b/d Neustadt-Vohburg refining complex — and completed the modernisation of its 84,000 b/d Ploiesti refinery in Romania last year. OMV's indicator refining margin rose to $5.19/bl in the fourth quarter from $1.16/bl a year earlier.
Poland's PKN Orlen says even its 263,000 b/d Mazeikiai refinery in Lithuania broke even last year, excluding one-off special items, thanks to stronger margins and cost cutting. The firm has been restructuring the loss-making plant, but it is also counting on refining margins remaining steady this year.
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