Viewpoint: European refineries suffer underinvestment
Falling demand for fuels has been dissuading many European refiners from investing in their plants, with the result that assets are deteriorating and some closing altogether. But extraordinary margins are still achievable in the short term for those that can stay online.
Argus reported 14 separate incidents in which a European refining unit had to close because of a fire, leak, power outage or other accident in 2023 — up from 12 in 2022. Underinvestment has been exacerbated by circumstances. European costs are uncompetitive against those in the Middle East or Asia. European oil demand is declining, but growing in those other regions.
Ageing units have been undermaintained since 2020 because of the Covid-19 pandemic and then a reluctance to miss out on resurgent margins by halting units for upkeep. A prolonged heatwave in summer 2023 added further mechanical stress. The EU's ban on Russian crude has pushed some units to run lighter slates than for which they were designed.
The inevitable conclusion of long-term underinvestment and underperformance is permanent closure. This trend has been seen for decades and resumed in late 2023, after extraordinary margins for most of 2022 and 2023 led to a pause. UK-Chinese joint venture Petroineos announced in November that it is beginning the process of converting the 150,000 b/d Grangemouth refinery in Scotland into an import terminal in 2025.
"Refinery margins are forecast to normalise over the medium term, resulting in a reversion to loss-making for our business," Petroineos told Argus.
Six European refineries have closed since 2020. Grangemouth will increase that to seven and Shell's 147,000 b/d Wesseling refinery in western Germany will make it eight if they both close in 2025. Those eight mean a total loss of 935,000 b/d of capacity.
Italian retreat
Italian refineries look most vulnerable. Eni told workers as long ago as 2021 that its 84,000 b/d Livorno refinery would stop refining crude by 2022, to focus on base oils and biofuels. It has not happened yet, perhaps because conventional refining margins have been so unexpectedly high.
Oil traders said the Eni-KPC 241,000 b/d Milazzo refinery in Sicily is comparatively unprofitable too.
The majors keep edging away from European refining through divestments too. TotalEnergies, Shell and ExxonMobil have exited eight European refining assets between them since 2020. Most recently, ExxonMobil sold its 25pc stake in the southern German Miro refinery in October 2023, and Shell its 37.5pc stake in Germany's Schwedt to UK-based Prax.
In the shorter term, European refiners are likely to keep reaping extraordinary profits by historic standards. Falling regional capacity and frequent outages are helping the margins of those who manage to stay online.
"If we have outages, then, all of a sudden, [refined product] prices start to increase," BP interim chief executive Murray Auchincloss said on the company's third quarter earnings call.
Without political rapprochement with Russia, diesel supply lines will remain long and unreliable, keeping margins high in Europe. The forecast recovery of European gross domestic product (GDP) growth in 2024 could add demand and push margins still higher. TotalEnergies' chief executive Patrick Pouyanne noted its refineries are already "running to make diesel" because the loss of Russian supply has kept diesel margins at historic highs despite weak demand.
If production does not have room to rise to match a demand recovery, margins respond more strongly.
But if new refining capacity opens in other regions as planned, European refiners may face stiffer competition, hurting their margins and vindicating plans to close units. The key examples are Oman's 230,000 b/d Duqm and Nigeria's 650,000 b/d Dangote refinery, which could start up fully in 2024. Kuwait's 615,000 b/d Al-Zour refinery could avoid mishaps and begin shipping diesel west as expected too. But the only thing seemingly reliable about new refinery openings is that they will not happen on schedule.
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Canaries' bio-marine fuel demand hit by ETS exemptions
Canaries' bio-marine fuel demand hit by ETS exemptions
London, 28 June (Argus) — Spanish energy firm Cepsa has delayed plans to supply marine biodiesel blends in the Canary Islands as increased demand for conventional bunker fuels and EU regulatory exemptions weigh on market fundamentals for the blended products. Cepsa's international marine fuels sales manager, Francisco Diaz Castro, told attendees at the Maritime Week Las Palmas conference last week that the firm remains committed to supplying marine biodiesel in the Canary Islands but is delaying it in response to a sharp rise in conventional bunker fuel demand in recent months, underpinned by vessels re-routing around the southern tip of Africa to avoid the risk of Houthi attacks in in the Red Sea. Vessels have been stocking up on bunker fuels before and after sailing around Africa's Cape of Good Hope to avoid stopping along the way. Latest data from the Spanish transport ministry show sales of conventional bunker fuel out of the Canary Islands last month increased by 3pc compared with April and by 41pc on the may last year (see table) . This demand growth has pushed suppliers to retain barge availability for conventional bunker fuels, reducing capacity to supply marine biodiesel blends. Market participants told Argus that another reason marine biodiesel demand in the Canary Islands has not picked up is EU regulatory exemptions for vessels sailing between the islands and mainland Spain. According to article 12 (3b) of the EU's Emissions Trading System (ETS) directive, "an obligation to surrender allowances shall not arise in respect of emissions released until 31 December 2030 from voyages between a port located in an outermost region of a member state and a port located in the same member state, including voyages between ports within an outermost region and voyages between ports in the outermost regions of the same member state, and from the activities, within a port, of such ships in relation to such voyages." Argus understands that this exemption applies to all vessels covered under the scope of the EU ETS, but would not apply if the vessel is sailing from an outermost region, such as the Canary Islands, to a different EU member nation, for example the Netherlands. A similar exemption for FuelEU Maritime regulations may be applicable as well, subject to member states asking for the exemption of the specific ports and routes for the vessels. Such an exemption could apply until 2029. Argus understands that requests from member states for this exemption will be published in the coming months. An exemption from FuelEU Maritime regulations could also be applied to routes connecting islands with a population under 200,000 people. This specific exemption would therefore not apply to Tenerife and Gran Canaria but may apply to other parts of the Canary Islands with smaller populations. By Hussein Al-Khalisy and Dafydd ab Iago Canary Islands liquid bunker sales t Month Las Palmas Tenerife Total Sales % m-o-m % y-o-y May-24 282,447 49,749 332,196 3 41 Apr-24 255,262 68,782 324,044 27 38 Mar-24 189,868 64,654 254,522 0 3 Feb-24 207,564 47,344 254,908 -6 0 Jan-24 219,962 51,894 271,856 16 27 Dec-23 187,889 47,306 235,195 4 1 Nov-23 181,218 45,940 227,158 5 -2 Spanish Transport Ministry Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Libya’s oil minister asks PM to clarify who's in charge
Libya’s oil minister asks PM to clarify who's in charge
London, 28 June (Argus) — Libya's sidelined oil minister Mohamed Oun has called on Tripoli-based prime minister Abdelhamid Dbeibeh to clarify who is in charge of the ministry. The question of who runs the oil ministry has been unclear since Oun returned to work on 28 May after a temporary suspension was lifted by a state watchdog. During his absence, Oun was replaced by oil ministry undersecretary Khalifa Rajab Abdulsadek, who represented Libya at the latest Opec+ meeting on 2 June. Dbeibeh has continued to recognise Abdulsadek as oil minister since Oun's return to work. In a lengthy statement defending his record, Oun complained that Dbeibeh has cut off all communication with him and that it is impossible to carry out his duties under such conditions. "The presence of a legitimate minister and an illegal minister" is creating confusion in the sector, Oun added. Dbiebeh was seen as a key player behind the initial removal of Oun. Argus understands that Oun's suspension was part of an attempt to clear the way for state-owned NOC to move ahead with key oil and gas projects the he opposed. But the move received pushback from powerful figures including the head of Libya's presidential council and the country's central bank governor, leading to Oun's suspension being lifted. "I don't expect this issue to be resolved any time soon. Dbiebeh is unlikely to want to get into a fight given his weakening position over the past few weeks," Jalel Harchaoui, a Libya specialist at the UK's Royal United Services Institute, told Argus . Although the position of oil minister in Libya has been largely relegated to a nominal role — and much less powerful than the chairman of NOC — Oun has successfully used his role to galvanise public opinion against deals and policies promoted by the government and NOC. Libya remains politically fragmented, with rival governments based in the east and west of the country, and control of Libya's oil sector is coveted by a wide array of factions tussling for power. The north African country produces just above 1.2mn b/d of crude and wants to boost this to around 2mn b/d, but this will only be possible if it can advance long-stalled projects. By Aydin Calik Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Strikes disrupt bitumen at France Port Jerome refinery
Strikes disrupt bitumen at France Port Jerome refinery
London, 28 June (Argus) — Bitumen truck flows from ExxonMobil's 236,000 b/d Port Jerome refinery in northern France have been disrupted since 19 June by strike action at the neighbouring Gravenchon petrochemicals plant, according to market participants. Protesters outside the refinery entrance have blocked trucks, with the strike action linked to the petrochemical plant that is threatened with closure. Bitumen traders said they had been informed by ExxonMobil that a meeting will be held on 2 July between the company and its workers, and that the strike action is unlikely to stop before then. There has been less of an effect on cargo flows from Port Jerome. Four bitumen cargoes have loaded for export since the refinery's restart in May after an early March fire. The latest shipments have been to Bristol, southwest England, on the 6,165dwt An Hai Wan that arrived there on 25 June and to Galway, Ireland, on the 6,384dwt Bithav due in on 30 June. Port Jerome accounts for around 20pc of France's refining capacity and produces in excess of 600,000 t/yr of bitumen. ExxonMobil has yet to comment on the latest developments at Port Jerome/Gravenchon. By Fenella Rhodes Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Japan’s KHI delivers LPG-fuelled LPG, NH3 carrier
Japan’s KHI delivers LPG-fuelled LPG, NH3 carrier
Tokyo, 28 June (Argus) — Japanese shipbuilder Kawasaki Heavy Industries (KHI) has delivered an LPG-fuelled LPG and ammonia carrier to domestic shipping firm Nippon Yusen Kaisha (NYK Line) and LPG importer Astomos. KHI announced on 28 June that it built the 86,700m³ very large gas carrier (VLGC) Gas Amethyst at its Sakaide shipyard in Kagawa prefecture, and has delivered it to NYK Line and Astomos. NYK Line and Astomos will hold the vessel under a joint ownership. The ship is equipped with a dual fuel engine, which can burn LPG and conventional marine fuel. The VLGC can reduce sulphur oxide emissions by more than 95pc and CO2 emissions by over 20pc by consuming LPG, as compared to burning heavy oil. The VLGC can also be retrofitted to consume ammonia as shipping fuel. The vessel is designed to carry LPG and ammonia at the same time, given prospects of future demand growth of ammonia as a carbon neutral fuel. Japanese companies have accelerated efforts in seeking alternative fuels for shipping to achieve decarbonisation. Shipping firm Mitsui OSK Line (Mol) conducted a joint study with domestic shipbuilders to develop ammonia-fuelled mid-sized ammonia and LPG carriers , targeting commissioning of the first vessel by 2026. Mitsubishi Shipbuilding plans to build two methanol-fuelled coastal roll-on roll-off vessels and deliver them within the April 2027-March 2028 fiscal year. Mol, KHI and their partners have been developing a hydrogen-fuelled multi-purpose ship . Shipbuilder Japan Marine United in May delivered an LNG-fuelled Capesize bulk carrier to domestic shipping firm Kawasaki Kisen Kaisha. By Nanami Oki Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
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