Total La Mede crude refining to cease: Update 3

Adds strike details at La Mede in fourth paragraph

Total will cease crude refining at its loss-making 160,000 b/d La Mede refinery and convert it into a 500,000 t/yr biofuels facility, the company confirmed today in its French refinery strategy plan.

La Mede will cease crude refinery operations by the end of 2016. But the 222,000 b/d Donges refinery will remain a crude refinery, and Total today pledged investment of €400mn ($416mn) to "capture profitable new markets with low-sulphur fuels that meet the evolutions of EU specifications". It will construct a 2.6mn t/yr VGO desulphurisation facility and develop hydrogen production. Donges has insufficient desulphurisation capacity at present, so a proportion of its fuels are exported outside of the EU because they do not meet specifications.

Total also said the 105,000 b/d Feyzin, 240,000 b/d Gonfreville and 93,000 b/d Grandpuits refineries "demonstrated their ability to withstand the deteriorating economic environment in 2013 and 2014 and generate ongoing income streams".

The company will invest €200mn in converting La Mede and cut 178 jobs. La Mede workers have been on strike since 04:00 this morning, and have successfully stopped all products from leaving the plant. Strikes are likely to continue tomorrow, Total said.

The move to convert La Mede into France's first biorefinery was widely-expected, despite excess biofuel capacity in Europe. The biorefinery will produce biodiesel from used oils as well as from renewable feedstock. French union CFDT said today that the biorefinery would also produce 55,000 t/yr of biopropane and bionaphtha.

La Mede will join the company's Dunkirk facility — once a 156,000 b/d refinery — which is earmarked to become a 200,000 t/yr second-generation biofuels joint venture, BioTfuel.

Total expects to complete the Dunkirk refinery conversion next year. The company aims to begin producing biofuels from organic waste from 2017, although commercial-scale production is unlikely before 2020. BioTfuel's start-up date has slipped a number of times from an original date of 2012, with costs rising to €180mn ($190.5mn) from €112mn.

Total promised the French government in the wake of its 2010 decision to close the Dunkirk refinery that it would not shut any more plants in France until 2015.

In Europe, Total's focus since the restructuring has been on adapting its refining and chemicals production capacity to changes in demand.

Refineries in Europe have long been struggling because of sluggish demand, global overcapacity and competition from overseas refineries. Total has a long-standing target to reduce its refining and chemicals capacity in the region by 20pc in 2012-17. With the closure of La Mede, as well as its plans to halve the capacity of its 222,000 b/d Lindsey refinery in the UK, sell its 17pc stake in the 208,000 b/d Schwedt refinery in Germany, and shut the steam cracker at the Carling chemicals plant in France, this target has largely been reached.

But further refinery closures in Europe seem inevitable even after Total's planned closures. In its 2014 World Oil Outlook published in November, Opec said it estimated a further 2.4mn b/d of European refining capacity would close by 2019. And the IEA expects economic expansion, rather than lower energy prices, to drive demand growth for refined products, making further consolidation likely in Europe as growth stalls on the continent and imports rise.

Total currently has five operational refineries in France; the Feyzin, La Mede, Donges, Gonfreville and Grandpuits refineries.

The company's total French refining capacity is 820,000 b/d. France makes up around 40pc of the firm's global refining capacity of 2.2mn b/d.

Refinery throughput in France was 639,000 b/d last year, down by 1pc compared with 2013. The utilisation rate in France was 77pc last year, 78pc in 2013 and 82pc in 2012. France made up 36pc of the firm's total refinery throughput last year, compared with 38pc in 2013.

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