Petroplus Closures to Boost Oil-Refining Profits: Energy Markets

The closing of three Petroplus Holdings AG refineries in northwest Europe may increase first- quarter profits from processing crude as fuel supplies are curtailed.

Refiners in the region may earn $2.30 a barrel this month, and $2.50 in February from processing Brent crude into products such as gasoline, compared with a loss of 20 cents a barrel in December, according to Roy Jordan, an analyst at Facts Global Energy Inc. in London who worked for more than 30 years as an oil trader at Royal Dutch Shell Plc. (RDSA)

“The Petroplus closures do boost petroleum product margins in the short term,” Francisco Blanch, head of commodities research at Bank of America Corp. in New York, said by phone on Jan. 4. “We’ve always said closures need to happen. Now it’s starting to happen because of the tighter credit situation.”

Profits for European refiners shrank after the 2008 recession reduced demand for fuels, leading to temporary plant shutdowns and facilities being put up for sale or converted to storage sites. Petroplus joins LyondellBasell Industries NV, Eni SpA (ENI) and Total SA (FP) in closing unprofitable plants in Europe.

Petroplus, which spent more than $2.2 billion buying plants since 2006 to become the region’s largest independent refiner, is shutting sites after lenders froze more than $1 billion in credit last month.

“A lot of refining capacity has already been shut and with the start of Libyan production pressuring European physical crude prices, the product cracks should improve,” Olivier Jakob, managing director at Petromatrix GmbH, said by phone from Oberwil, Switzerland, on Jan. 4. “Europe will have to rely on more imports of diesel from the U.S. and India.”

Crack Rises

Gasoil’s crack, or its premium to Brent, rose as high as $16.65 a barrel today from $16.24 at 4:30 p.m. local time yesterday, according to data on London’s ICE Futures Europe exchange. That compares with $15.84 at the start of the year.

Stockpiles of gasoil (ARASGO), which includes heating oil and diesel, in Europe’s Amsterdam-Rotterdam-Antwerp oil-trading hub fell 4.2 percent to 1.94 million metric tons in the week to yesterday, according to PJK International BV, a researcher in the Netherlands. That’s the least since Nov. 3 and is 32 percent below levels at the end of 2010.

Petroplus, based in Zug, Switzerland, said last week it would start “temporary economic shutdowns” at its Antwerp (BEANCRUD) plant in Belgium, Petit Couronne (SHPECRUD) refinery in France and the Swiss Cressier (PECRCRUD) facility in January. The plants can process 337,300 barrels of crude a day, or about 2 percent of Europe’s capacity, according to data compiled by Bloomberg.

The company said yesterday production at its two other refineries, in the U.K. and Germany, had dropped to 45 percent and 55 percent of capacity, respectively.

Berre Shutdown

Lyondell is proceeding with the shutdown of its Berre (SHFRCRUD) refinery in the south of France after failing to find a buyer for the 105,000 barrel-a-day plant.

“Refining operations are being discontinued,” David Harpole, a Houston-based spokesman for Lyondell, said in an e- mailed statement Jan. 4. “Units will be mothballed for up to two years, through Dec. 31, 2013, to preserve the opportunity to sell the refinery should a credible purchaser emerge.”

Processing profits in northwest Europe plunged to 51 cents a barrel in November, compared with $1.52 a month earlier, the International Energy Agency in Paris said in a Dec. 13 report.

Repsol YPF SA halted a crude unit at its Petronor (PEBICRUD) refinery in Bilbao, Spain, for at least two months, while stopping a gasoline-making plant through January because of weaker profits.

Iran Embargo

A potential European Union ban on imports of Iranian crude may erode margins as feedstock costs rise. Brent, trading today at about $113 a barrel, may rally to $125 should the embargo be enforced, Mike Wittner, head of oil market research at Societe Generale SA in New York, said by phone Jan. 4. Futures may rise to $200, Iran’s state-run Fars news agency cited Oil Minister Rostam Qasemi as saying Jan. 1.

Beyond the first few months of the year, the Petroplus halts won’t have a significant impact because of additions to global refining capacity, according to analysts at Bank of America and Barclays Plc.

“In the long term there won’t be a significant improvement in margins because of Europe’s overcapacity,” Amrita Sen, an analyst at Barclays, said by phone on Jan. 3. “The ones being closed are gasoline-driven. Lots of refineries will still have to close.”

Refining Surplus

Refining capacity closures will probably amount to about 1 million barrels a day globally in 2012 while crude distillation unit additions will be double that, according to Blanch of Bank of America. That will further exacerbate the refining surplus later this year as worldwide oil demand is projected to expand by “just” 1 million barrels daily, he said. In 2010, global oil demand rose by 2.7 million barrels a day, or 3.2 percent, according to the IEA.

Integrated oil companies such as Exxon Mobil Corp. (XOM), BP Plc (BP/), and Shell started selling refineries at least five years ago to focus on exploration and production where returns are greater. Brent surged to a record closing price of $146.08 a barrel on July 3, 2008, when gasoline was trading at a $3-a-barrel discount (PVMPPG1M) to crude.

In 2008, Petroplus completed the acquisition of the Petit Couronne and Reichstett (SHRECRUD) plants in France for $785 million from Shell. A year earlier, it purchased the Coryton (BPCOCRUD) refinery in the U.K. from BP for $1.4 billion. The refiner bought the Ingolstadt facility in Germany from Exxon in 2006 for an undisclosed price.

Refinery Profit

Ingolstadt (EXINCRUD) and Coryton were the most profitable of Petroplus’s five facilities in the third quarter, making $6.98 a barrel and $6.68, respectively, according to a company presentation. It closed its Reichstett site in France last year and Teesside facility in the U.K. in 2009.

The company is considering a strategy whereby an oil company, trader or bank would own the crude in Petroplus’s storage tanks until the oil is refined, as a means of mitigating its credit exposure, according to a Dec. 8 analyst presentation.

“If Petroplus fails to obtain the credit it requires and it is not able to sell the three refineries in an unattractive European refining sector then Petroplus as we know it today will shrink,” Jordan of Facts said.

“The banks would prefer to keep Petroplus in business until any outstanding debts are cleared but this probably means focusing on the refineries that are financially viable and closing the others,” he said.

To contact the reporter on this story: Nidaa Bakhsh in London at nbakhsh@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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