Shortly after Istvan Zsoldos, MOL presented the difficulties being experienced by the European refining industry were expanded upon by Cooper and reinforced with statistics collated by Wood Mackenzie.
European refinery challenges
The main weakness highlighted during the presentation was the European refined product market. As supply vastly outstrips demand on the continent, average greater Europe refinery utilisation needs to decline further and would need to be at approximately 65% by 2018 according to Cooper. However, he did state that road demand for diesel is on the up, and this reinforced the trend highlighted and discussed by Zsoldos.
US versus Europe
A gasoline surplus is expected by Wood Mackenzie for years to come due to the tight oil phenomenon in the US. This will most likely benefit West Africa and Latin America as they will gain a solid and cheap supply of products, however, the US is likely going to steal these important trade nations away, resulting in a significant European gasoline surplus. Also, the US is going to benefit from discounted crude and cheap natural gas which will combine to give the US a structural refining industry advantage, that it appears, Europe will struggle to compete with.
The worldwide gasoline surplus is also going to impact trade volumes for Europe as Wood Mackenzie expects it to fall dramatically between 2012 and 2018. The major areas of adjustment will be North America and the Middle East, the two areas that are now secure points of trade.
Russia and the Middle East versus Europe
Cooper continued to discuss the challenges and competitive relationships between Europe and two other strong players in the refining industry.
Russia has an export taxation situation, a surplus of pretty much all oil and gas fuels and an oil product tax level of 60%. However, it doesn’t appear to be all bad for the nation. At the moment hydrocracking projects are on the up as distillates are also being noted as fuels of the future in the country. These expansions and revamps are being made possible, according to Cooper, due to the refining industry being essentially subsidised by the very high tax regime. So, the levels look high to begin with, but the money comes back round to the industry in the end, something Europe doesn’t benefit from to this extent. Russia are also a threat to Europe as even if domestic demand drops off, the levels of subsidisation will allow consistent levels of production and export to continue.
When it comes to the Middle East, it is the influx of high complexity refineries that are going to be Europe’s downfall. The levels of efficiency and complexity in facilities such as Jubail, as well as their size are going to mean that Europe’s product production and scale will be dwarfed and beaten.
Alas, due to the above, Cooper could do nothing but draw the conclusion that more European refineries are at the risk of closure over the coming decade. He also said that if Europe’s refineries do not simplify themselves and ditch the FCCs so that more distillates are produced, then there is more business on the way for refiners in the US, Russia, Middle East and Asia, as they will be battling over who can supply the European diesel deficit.
Written by Claira Lloyd
Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/25112013/europe_verus_the_world/