IEA Sees New ’Zombie’ Oil Refineries as Trading Grows

Traders are increasingly taking control of failing refineries in Europe, betting they can make profit from plants that lose money for conventional oil companies, the International Energy Agency said.

The refineries, often acquired for almost no fee, will increase output quickly when margins from fuel sales surge and keep run rates down at other times, Antoine Halff, the head of the IEA’s oil industry and markets division, said at a conference in Singapore today. Conventional oil companies maintain higher processing rates during periods of weaker demand, he said.

Vitol SA, the largest independent oil trader, is among companies investing at a time when oil producers such as Eni SpA and Total SA say the region has overcapacity. Seventeen refineries representing about 16 percent of Europe’s capacity closed in the past six years, according to the Paris-based IEA.

“We may see the emergence of a new breed of zombie refineries” as trader involvement in the industry increases, Halff said. The IEA advises 29 energy-consuming nations.

Falling Profit

European refiners’ profit this year will be the lowest since 2011 as they face more competition, Wood Mackenzie, a consulting company, said in August. Demand for oil products has dropped for seven years, according to the IEA, while challenges from U.S., Russian and the Middle Eastern supplies intensified.

Trading firms have yet to prove they can operate refineries at a profit, Robert Campbell, head of oil products research at Energy Aspects, said at the Singapore conference.

“They could run at lower rates with an eye on opportunity,” Campbell said. “In Europe they see a market that’s protected and think they can do better than the majors did.”

Vitol owns stakes in refineries, storage tanks and pipelines in Germany, Austria and Switzerland including the Cressier refinery. Gunvor Group, a smaller competitor to Vitol, bought two former Petroplus refineries located in Ingolstadt, Germany and Antwerp, Belgium in 2012.

Total, Europe’s biggest refiner, plans to adapt its refining capacity in France to cope with a drop in fuel demand, the company’s chief executive officer, Christophe de Margerie, said in August. Eni, Italy’s largest oil company, began negotiations in July to shut as much as half of its refining capacity.

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