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Pandemic hastens threat of closure for struggling oil refineries – Oil &

July 3, 2020
in Industry
Pandemic hastens threat of closure for struggling oil refineries – Oil &
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LONDON/NEW YORK  – The collapse in oil demand from the COVID-19 pandemic is hastening the reckoning for those refiners already struggling as new capacity overtakes demand, posing an existential threat to many, particularly Europe’s ageing plants.

Pandemic hastens threat of closure for struggling oil refineries- oil and gas 360

Source: Reuters

Even before the pandemic struck, which at its height destroyed over 20% of global oil demand, analysts expected global refining capacity would have to rationalise, particularly in Europe. (Graphic: BP’s Quarterly Refining Market Margin (RMM), here)

Reuters Graphic

According to consultants WoodMac, 1.4 million barrels per day, or around 9%, of refining capacity is under threat of rationalisation in Europe in 2022-2023.

WoodMac declined to name specific refineries, but in a list sent to its clients and seen by Reuters, BP’s 377,000 bpd Rotterdam refinery, Total’s 102,000 bpd Grandpuits refinery in France and Petroineos’ 200,000 bpd Grangemouth refinery in Scotland were among 11 plants mentioned.

The three companies did not immediately reply to a Reuters request for comment.

Last week, energy trader Gunvor said it was considering mothballing its loss-making Belgian refinery. (Graphic: European refinery closures, here)

Reuters Graphic

Goldman Sachs expects global refinery utilisation rates in 2021-2024 to be 3% lower relative to 2019, heightening competition and eventually leading to permanent plant closures in developed markets.

It adds a “risk weight” to capacities beyond 2021, forecasting a 6 million bpd net capacity increase over the next five years, around 2 million bpd below the International Energy Agency’s forecast.

“[Excess] capacity now looms very large over the industry, posing an immediate threat to the outlook for older and more exposed operations,” the IEA said in April.

European refining has seen several waves of rationalisations, most recently in the wake of the 2008-2009 financial crisis.

(Graphic: World Refining Capacity Evolution, here)

Reuters Graphic

“In 2023 it could well be that two-thirds of the refineries in Europe don’t make any money, or lose money on a cash basis,” Alan Gelder VP Refining, Chemicals and Oil Markets at WoodMac said.

Strong labour unions are making refinery closures in many European countries difficult. Two of Europe’s biggest refiners, Total and Eni, have managed to shutdown some capacity in the past decade, and to turn some sites into biofuel operations.

Total, having already converted its La Mede refinery into making biofuels, is considering a second biofuel facility in France.

Capacity on the U.S. Coast, Japan and some older, less sophisticated sites in Asia is also under threat, WoodMac says.

“On the U.S. east coast, refiners that process lighter sweeter grades, like Trainer and Bayway, might be in trouble,” Kevin Waguespack, refinery consultant at Baker O’Brien said.

He added that the lack of access to cheap crude in the northeast was the U.S. region’s “Achilles heel”.

“Less competitive European refineries have been in trouble and the pandemic will put another nail in the coffin for them,” said John Auers, a refining…



Read More: Pandemic hastens threat of closure for struggling oil refineries – Oil &

Tags: closurehastensoilpandemicRefineriesStrugglingthreat

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