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European Oil Refiners on ‘Alert’ as Margins Slump in Past Weeks

Jan. 9 (Bloomberg) -- European oil refiners are on “high alert” after margins plunged in recent weeks, forcing them to cut production at some plants, the head of a French lobby said.

“The situation is extremely preoccupying,” said Jean-Louis Schilansky, head of the Paris-based Union Francaise des Industries Petrolieres, which represents refiners in France including Total SA and Exxon Mobil Corp. “We’re in a state of high alert. There could be consequences if this continues.”

Schilansky declined to say which companies may have cut production at refineries because of the tumbling margins.

European margins have fluctuated between minus 4 euros ($5) a ton and zero this month after averaging 14 euros last month and 29 euros in November, according to data on UFIP’s website.

The drop complicates a decision by the French state, under pressure from unions, on how to prevent the closing of Petroplus Holdings AG’s Petit-Couronne refinery in Normandy. In the past three years, LyondellBasell Industries NV, Petroplus Holdings AG and Total have decided to stop refining at plants at Berre, Reichstett and Dunkirk because of lower European demand.

The fate of Petroplus’s Petit-Couronne will be decided by a court that has set a Feb. 5 deadline for bids for the 154,000-barrel-a-day refinery. Petroplus filed for insolvency last year.

Debate about the future of Petit-Couronne comes “within a very difficult context,” Schilansky said in an interview. The industry is already “suffering” from European overcapacity.

Union Pressure

The court has repeatedly pushed back a deadline for bids after rejecting two that weren’t sufficiently documented. Unions representing workers at the plant have put pressure on the government to find a buyer amid joblessness at a 14-year high.

French refinery operators “have no interest in seeing operations at Petit-Couronne continue,” according to Charles Foulard, a representative of refinery workers at the CGT union.

Industry Minister Arnaud Montebourg, who pushed for Libyan investors to take over the plant, yesterday said France wasn’t suffering from overcapacity and the country shouldn’t have to import fuel products that it could make domestically.

Europe’s average rate for refining last year was 34 euros a ton, more than the 30 euros considered by the organization as a break-even level. It was 14 euros in 2011 and 21 euros in 2010.

The region’s refiners are struggling to compete with plants in the U.S., run using relatively cheap natural gas, Schilansky said. Energy costs for a refinery in the U.S. are about three times lower than at an equivalent plant in Europe, he said. A shale gas boom in the U.S. has pushed gas prices lower.

To contact the reporter on this story: Tara Patel in Paris at

To contact the editor responsible for this story: Will Kennedy at

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