More refining capacity than usual will shut for maintenance in Europe this autumn, in part because of the pressing weight of high product stocks.
Refiners are crowding some turnarounds into lower-demand autumn months after postponing them earlier this year. Lockdown measures prevented some contractors from crossing borders in the spring, while strict health and safety precautions simply proved unworkable for some plants. Private equity firm Klesch's 100,000 b/d Heide refinery in northern Germany will carry out maintenance work on three units in September, having pushed back the programme from May. Norway's Equinor could carry out work on a crude unit at its 200,000 b/d Mongstad refinery, also postponed from the spring.
European refineries have run at an average of 83pc of capacity in the September-November maintenance period over the past five years, including discretionary and unexpected shutdowns, as well as turnarounds. This means 2.1mn b/d is typically off line in the EU-16 — the 15 pre-2004 accession EU countries, plus Norway — in those months for all reasons. But 3.7mn b/d is already off line going into the autumn maintenance season this year. Run rates were at just 70pc of capacity in July as a result of low demand and high stocks (see graph). And the figure is unlikely to rise much before maintenance begins towards the end of the third quarter. Any substantial increase in run rates beyond the maintenance season will depend largely on a recovery from the Covid-19 economic downturn.
Some refiners are delaying work until next year, possibly to maximise revenue in the short term. Poland's PKN Orlen has postponed maintenance at a crude unit at its 325,000 b/d Plock refinery from August until 2021. Turkey's Tupras has put off maintenance on a catalytic cracker at its 227,000 b/d Izmir refinery until 2021 from the fourth quarter of this year. And Total has pushed back work at its 210,000 b/d Leuna refinery in eastern Germany, saying the pandemic has disrupted preparations. The firm has yet to confirm a new date.
There are incentives to keep bitumen and base oils units operating, because these markets have actually been tightened by lower overall refinery run rates. Portugal's Galp has cancelled a shutdown of bitumen and base oils units at its 110,000 b/d Porto refinery in August, and Algeria's state-owned Sonatrach has done the same for its 140,000-150,000 t/yr bitumen plant at Arzew.
Spring forward
The maintenance season was still heavier than usual in spring this year, despite postponements related to the first wave of Covid-19 infections. This may provide a clue as to how refiners will respond to persistent low margins over the rest of this year. Argus identified up to 11 turnarounds across Europe at one point in April. Several were brought forward, extended or suspended because of unrewarding margins or logistical challenges. Capacity shut for maintenance exceeded average levels by 250,000 b/d in April and by 150,000 b/d in May, according to data from modelling firm Oil Analytics.
Refiners faced gasoline prices at intermittent discounts to North Sea crude in Europe at various points from mid-March. But diesel was still in demand from trading firms and consumers looking to build stocks while storage space was available and the outright price was comparatively low. This kept refining margins from collapsing in April and early May. But diesel margins began to fall sharply in mid-May as accumulated stockpiles refused to drain, which together with further gasoline market weakness, helped push refining margins to lows not seen since the early 2000s (see graph). Most European product margins remain at a fraction of their typical seasonal levels.
