The firm aims to ‘do better, not more', eyeing further synergies between refining and chemicals
Total's president for refining and chemicals, Bernard Pinatel, recently spoke to Argus about the company's downstream strategy, including potential investment plans. Translated and edited highlights follow:
How do you expect European refining margins to develop this year and into 2020, after three years of improvement?
Margins have improved for two reasons in the past three years. The first has to do with the work that has been done to reduce capacity in Europe, to which Total contributed greatly. Capacity has been cut by 11pc in the region in the past 5-6 years. For our part, we have reduced our European capacity by 20pc. The second has to do with demand. Oil product demand received a boost from lower crude prices from 2015. This environment is the same today, and there is no reason for these supply and demand fundamentals to change in the short term.
The capacity that has been cut will not come back, while new projects in the Middle East and Asia-Pacific are scheduled to start up after 2020. And these projects can sometimes face delays. Not much new capacity has come on line in the past five years, and we have this increase in demand, which has continued to grow, even as crude hit $60/bl. Refining margins are seasonally a little lower, as is often the case in winter. But there will be a rebalancing when the maintenance season begins.
What matters is to continue to concentrate on the only things that we can control. We cannot control feedstock and oil product prices, but we can control our costs, our production capacity and our energy efficiency. If we are good — and I always say a refinery has to run like a Swiss watch — then we end up with assets that withstand cycles, assets that are robust. This is what Total has been working on since 2012, through rationalisation and leveraging synergies between refining and petrochemicals.
Where is Total looking to reduce costs further downstream?
Total's downstream goal is to do better, not more. Our rationale is obviously not to increase capacity, but to modernise refineries on the back of structuring investment and operational excellence. A large part of our success downstream is down to integration. We have six platforms globally, where refining and petrochemicals are integrated. This brings synergies, allows us to optimise capital expenditure, cut fixed costs, absorb upstream and downstream cycles and capture margins. This is the backbone of our strategy.
Total plans to invest €350mn ($431mn) to work on energy efficiency, which counts in terms of competitiveness and durability. We have specific projects pencilled in at some of our refineries, beyond our operational investments, which all have an energy efficiency component. Digitalisation is also something that Total is working on, we call it "Refinery 4.0". This will enable us to optimise availability rates and margins, because we will be able to better understand and anticipate — through data analysis — plant malfunctions.
Total's goal is still for all refineries to break even, even if margins fall to $20/t. We invested nearly €3bn in the past to allow our European system to pass this test. Donges did not, but once its €400mn investment is complete, it will.
Does Total plan to invest more in refining after Donges and Antwerp, possibly at the Leuna plant in Germany?
Total plans to invest a fair amount of money at Leuna. It is a relatively new refinery — built in 1997 — geared to run on [Russian medium sour] Urals crude. Let's not forget that it forms part of an ecosystem, because Leuna is also a chemical platform. It is an integrated site, but the chemical and petrochemical parts are not Total's.
We have a project to raise the capacity of Leuna's partial oxidation unit to increase fuel oil processing and debottleneck the plant's visbreaker. The work will start during the full turnaround in 2020. This investment will consolidate the site. But Total's big investments are in petrochemicals.
How do you expect European diesel demand to evolve, following the introduction of the International Maritime Organisation's (IMO) 2020 sulphur cap and given diesel's reduced share of the automotive market?
I will start with the IMO sulphur cap, as it is a short-term issue, while the diesel issue is more long term, as the renewal of the car fleet will take 15 years.
To comply, shipowners can choose 0.5pc bunker fuels, scrubbers, LNG or marine gasoil. They will not go for the same options, which does not worry Total, because as an integrated group, we will be able to supply the whole range of fuels to our clients. For our refining activities, it means less high-sulphur fuel oil (HSFO) and increased demand for middle distillates. Some demand will tip towards marine gasoil, and there will be a call on middle distillates — they are often blended to make 0.5pc fuels.
This will translate into stronger diesel margins, so the balance for Total will be a positive one. Looking into the sulphur cap, we realised that through our reconfiguration work — investing in Antwerp, closing La Mede, which was producing a lot of fuel oil, and halving Lindsey — we could address the issue serenely. Total is working on a 0.5pc sulphur bunker fuel. We created a new business unit last year — Total Marine Fuels Global Solutions — which will be a one-stop shop for shipowners.
On diesel demand as a road fuel, the issue is more of a long-term one. You know that Europe is short of diesel — it imports 20pc of its requirements. [A drop in the share of diesel-fuelled cars] will contribute to rebalancing the gasoline-diesel imbalance in Europe, but not sufficiently, as it remains important.
What are Total's investments in the petrochemical sector?
Our motto is "integration". Refining and petrochemicals are not separate, they work together. We also look at low-cost advantaged feedstock, such as gas. Integration and cheap feedstock are two elements that Total is taking into account. Through the €1bn that we spent at Antwerp, we built a new unit to convert gas produced by the refinery into feedstock for its cracker — a perfect example of integration.
In the US, at the Port Arthur site, our joint venture with [Austrian group] Borealis and [Canada-based] Nova brings the best of three worlds. Total brings integration to the table, while Borealis supplies technology, and Nova the market position in polyethylene. Total's integration will enable the construction of a second 1mn t/yr ethane steam cracker. This will be extremely competitive, as it will benefit from the existing Port Arthur infrastructure.
We have other development projects at our 440,000 b/d Jubail refinery in Saudi Arabia, where capacity increased from 400,000 b/d after debottlenecking. We plan to add a cracker, petrochemicals and polymers, to benefit from integration once again. Total last year unveiled more than $700mn in investment to raise cracker capacity at Hanwha Total Petrochemical in South Korea, so that it can process cheaper propane from the US. And the site's polyethylene capacity will increase, through our Advanced Double Loop technology.
Is there a risk of over-investment in the petrochemical sector?
The petrochemical markets are growing. There is a volume growth effect, which results from global demographic growth. Emerging countries want to consume — cars, ready-made products — which will push qualitative demand higher. And energy efficiency is boosting polymer use, because these are light materials, and Total is at the forefront on this. The automotive and aerospace industries, as well as the construction sector, are looking for lighter plastic products. Total estimates that polymer demand will increase by 3.5pc/yr.
With current output of 100mn t/yr of polyethylene, the most used polymer, this represents global growth of around 3.5mn t/yr. Crackers have a capacity of about 1mn t/yr, in contrast. Around 10 new crackers are due to start up on the US Gulf coast. Demand will have absorbed this new capacity in three years. Our US cracker will launch in late 2020-early 2021, exactly when the first wave of new capacity will have been absorbed.
To what extent do discussions over recycled plastics and the reduction of single-use plastic packaging concern Total?
Packaging accounts for a little under half of plastic use, at around 45pc. It is not everything, but it is important. Total's scenario is based on the hypothesis that recycled plastics will represent 25pc of total demand in 2040. When the EU says 55pc of plastic packaging will have to be recycled in 2030, if we consider that packaging represents 45pc of total demand, we get to 25pc of recycled plastics. But when the global 25pc target of recycled plastics is reached, we will continue to see growth in demand, because of the reasons mentioned earlier.
Total invested in a new 75,000 t/yr polymerisation plant in Thailand to develop polylactic (PLA) polymers in a joint venture with [Dutch firm] Corbion. [PLA is a renewable and biodegradable polymer, used mainly in food packaging, disposable tableware and textiles.] We have developed a range where recycled plastics are boosted with new plastics to give them the same property as new plastic. And Total has launched a polystyrene recycling pilot, and is looking to structure the supply chain — from collection to uses — with big actors.
