MOSCOW (MRC) -- 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, reported 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 rationalize, particularly in Europe.
According to consultants WoodMac, 1.4 million barrels per day, or around 9%, of refining capacity is under threat of rationalization 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.
Goldman Sachs expects global refinery utilization 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.
“ 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 rationalizations, most recently in the wake of the 2008-2009 financial crisis.
“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 labor 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 US Coast, Japan and some older, less sophisticated sites in Asia is also under threat, WoodMac says.
“On the US 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 US 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 analyst at consultancy Turner, Mason & Co.
“Even before the pandemic, the IMO was going to disadvantage some refiners that made a lot of fuel oil that couldn’t afford to make upgrades,” Auers said.
The International Maritime Organization (IMO) changed the rules on shipping fuel at the start of the year so that all ships can only burn fuel with a maximum 0.5% sulfur, unless they have sulfur-cleaning kits.
Against the backdrop of potentially shut capacity in Europe over the next few years, other regions have been expanding with mega refining projects that are closer to upstream production, as in the Middle East, or closer to big demand centres, like in Asia Pacific.
Data and analytics company GlobalData sees Asia Pacific adding 2.7 million bpd of crude distillation capacity by 2024, 42% of the global total. The Middle East and Africa region is expected to account for 23% and 18% of crude distillation additions by 2024.
As MRC reported earlier, French energy group Total is conducting an audit of a pipeline that supplies its Grandpuits refinery near Paris following leaks in recent years. The audit will look at the cost of replacing the 260-km (161 miles) pipeline.
We remind that Total has recently disclosed that it is evaluating construction of a new gas cracker at its Deasan, South Korea, joint venture (JV) with Hanwha Chemical.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 595,170 tonnes in the first five month of 2020, up by 10% year on year. Deliveries of all ethylene polymers, except for linear low density polyethylene (LLDPE), rose partially because of an increase in capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market was 457,930 tonnes in January-May 2020 (calculated by the formula production minus export plus import). Deliveris of exclusively PP random copolymer increased.