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European refining sector needs further closures

09.19.2013  | 

Europe's refining businesses must slim down further and then pump billions of dollars into what remains, according to the head of European refining trade group Europia.



BRUSSELS -- Europe's oil-refining businesses will have to slim down further and then pump billions of dollars into what remains, the head of one of Europe's leading oil trade associations said Thursday.

Michel Benezit, president of Europia, a trade association for Europe's refiners, presenting a grim outlook for refining in the region, said $21 billion will need to be spent on investment in the continent's refineries and that retaining sufficient refining capacity was key to Europe's energy security.

Since 2008, some 15 European refineries have closed, representing 8% of the continent's capacity. The industry is hobbled by having too many plants set up to refine gasoline and not enough to refine diesel, a technical mismatch with demand that is hard to rectify. Meanwhile, appetite for refined products overall is waning.

Speaking at the Platts European Refining Markets Conference, a meeting of Europe's refiners held each year in Brussels, Mr. Benezit said close attention needs to be paid to industry dynamics and warned against losing the ability to refine in Europe.

"We all know that demand for refined products has declined," he said. Gasoline demand has fallen 17% over the past five years alone, according to Europia's figures.

How many more closures will be required "is anybody's guess" but more than 2% of existing capacity would have to go, Mr. Benezit said.

What remains of the refining sector will need huge investment to deal with efficiency requirements and concentrate on valuable products, he said. At least $21 billion will need to be pumped into the industry by 2020, on top of the nearly $30 billion that has been spent in the last five years.

These combined amounts represent about $1 of capital expenditure for every barrel processed, in an environment where the refining margin -- or profitability -- is typically about $1-$5/bbl.

This week's US oil data from the Energy Information Administration showed that refineries on the US Gulf coast are running at near full tilt, suggesting that refiners there will continue exporting products to Europe. The US, which used to import much of the gasoline it consumed, is now meeting many of its domestic needs by refining oil derived from shale. The US oil boom increases the likelihood of a sustained period of high product availability that could crush margins for all refiners in Europe, according to analysts at JBC Energy.

The development of refining outside Europe in places like the Middle East and China has also introduced competition. These "unequal environment policies" have lower environmental requirements to Europe, Mr. Benezit said Thursday.

Increasing legislation in Europe and the loss of key markets such as the US are also squeezing the industry, he said, along with the development of more fuel-efficient cars.

Dow Jones Newswires

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I think that chinese people will not produce poluting cars for them selves, in a very short of time. they will step head and still floodding our lag.. Anyhow, we have to keep some jobs alives..at any cost. They are the one producing..this why we are the one struggling, isn it??

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