European Refining Capacity Is Under Pressure, Oil Lobby Says

Pressure to lower European refining capacity through plant closures is set to continue even though crude processing recorded “decent” margins in 2012 after three unprofitable years, according to the French oil lobby.

“European demand for oil products is dropping by 1 or 2 percent a year so the pressure on refining isn’t over,” Jean-Louis Schilansky, head of the Paris-based Union Francaise des Industries Petrolieres, said in an interview. Eight European refineries shut down or cut capacity in the past five years while another four are at risk, he said.

Against a backdrop of lower capacity to produce products such as diesel and jet fuel, European refining margins rose to an average of 34 euros ($46) a ton in 2012 from 14 euros the previous year, according to UFIP. The group, which represents companies like Total SA and Exxon Mobil Corp., estimates margins of about 30 euros are needed to break even.

The improved results come as political debate intensified at home about the future of Petroplus Holding AG’s Petit-Couronne refinery in Normandy. The plant went into administration after Petroplus filed for insolvency in January 2012. French unions have been fighting to find an acquirer and a court is expected to rule on the fate of 470 workers shortly.

“We aren’t against the plant being taken over by someone who has the economic justification to do so,” Schilansky said. “This hasn’t happened yet.”

LyondellBasell Industries NV, Petroplus and Total have stopped refining at sites in Berre, Petit-Couronne, Reichstett and Dunkirk, leaving France with eight working plants, compared with 24 in 1977. UFIP has estimated that French refining lost 2 billion euros between 2009 and 2011.

Record Low

French demand for oil products fell 2.6 percent to 75.3 million tons last year, close to a record low reached in 1985 of 75.1 million tons, the trade group said. France imported 20.5 million tons of diesel while gasoline exports reached 4 million tons. Most new cars sold in France run on diesel.

Even though last year’s refining margins were “decent,” Schilansky noted that 2013 started poorly with European levels at 17 euros a ton last month compared with 14 euros a ton in December, less than half the 2012 annual average.

“2013 could be difficult,” he said.

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