European refiners to see more consolidation post COVID-19: conference

London — More consolidation was expected in the European refining system post COVID-19 as operators had already been facing flat or falling demand and rising competition from new refineries in Asia, according to delegates at the S&P Global Platts European Refining Virtual Conference Sept. 3.

"There will be some consolidation in the refining system in Europe," according to Adi Imsirovic, research associate at the Oxford Institute for Energy Studies.

As a result of the coronavirus pandemic, "we have lost 9 million barrels of demand," Imsirovic said, adding the immediate impact for a few simple refineries was that they "are worried about survival".

In the past few months, commodity trader Gunvor announced its intention to potentially mothball its refinery in Antwerp, while France's Total is likely to close its Grandpuits refinery near Paris and possibly transform it into a bioplastics plant.

Switching to biofuel plants and production of renewable fuels is one of the opportunities for European refiners, with Finland's Neste, Total and Italy's Eni already producing biodiesel at some of their plants.

While that was an opportunity, those "who enter first in this business will survive", according to Spyros Kiartzis, manager of new technologies and alternative energy sources at Greece's Hellenic Petroleum.

There were challenges, such as technological limitations and access to raw material, Kiartzis said.

In addition, the overall conversion capacity "is substantially smaller" than the original, said John Cooper, director general of FuelsEurope.

For refineries to "reinvent themselves and start producing green fuel" they will need help from the government, for which "there is a great opportunity", Imsirovic said. European refiners have "little or no government support" as opposed to the big refineries in Asia, Imsirovic said.

Combining refineries with petrochemical operations was another way to help put European refiners on an equal footing with petrochemically integrated big Asian refineries, according to the delegates at the conference.

"We have to identify high value markets, integrate with petrochemicals, find niche markets," Hellenic Petroleum's Kiartzis said, noting that European refiners have to compete with economies of scale and refiners with much bigger capacity.

Carbon cost

However panelists noted that European refiners have an additional cost of some $2-$3/b due to carbon regulations which do not impact refineries in Asia.

According to Hellenic Petroleum's Kiartzis, the "carbon market is crucial, but should be equal to all players".

Due to the cost of carbon, European refiners were in a "very disadvantageous position compared with others", said Oxford Institute's Imsirovic.

Uncertainty in the wake of COVID-19 was posing further challenges, he said, adding the "key for survival" will be flexibility, including use of the cheapest feedstock and petrochemical integration. Such options, which could be the way forward for bigger refineries, might not be applicable to simple refineries, said Imsirovic.

But if inefficient refiners shut down, "we won't be able to cover our internal demand in 5-10 years," Hellenic Petroleum's Kiartzis said.

Furthermore the integration with petrochemical plants requires raw materials, such as naphtha, and "if you do not have enough refining capacity you cannot integrate".