Europe's refiners ramping up precautions against coronavirus as run cuts loom

London — European oil refineries are ramping up precautionary measures as the coronavirus pandemic spreads around the continent and leads to national lockdowns.

Operations, for the time being, remain largely unaffected although many in the industry see run cuts and even closures on the horizon.

"Sooner or later they should shut down," a products trader said Tuesday.

Analysts agreed that refineries will need to curtail their throughput as demand slows.

"Run cuts are expected in Europe due to the demand effect from the coronavirus outbreak," S&P Global Platts Analytics said in a note. However, "refiners have not explicitly announced the degree of these cuts".

The reason refiners are putting off run cuts for the moment is because the recent sharp falls in crude prices has supported margins. But, as one crude trader said, "what margin exists does not matter if there is not a buyer for products".

Spain, which has been in lockdown since last weekend, has reduced all private travel to a minimum, while public transport and flights have been halved for a two-week period.

Italy has introduced unprecedented measures to combat COVID-19, banning residents from leaving their homes except for the most essential activities.

"Globally, we are looking at a pretty significant reduction in short-term oil demand, probably down 3-4 million b/d for several months," according to Stephen George, chief economist of energy consultancy KBC, who also saw the potential for "a general trimming of runs across the board in Europe".

Maintenance

Meanwhile, some refineries have been bringing forward planned seasonal maintenance or extending and adding to existing turnarounds, according to Platts Analytics, which said refineries in Italy, Germany, the Netherlands and Romania were among those doing works earlier than planned.

Shell's Pernis refinery is likely to advance its works to April from May, according to trading sources. Meanwhile, Romania's Petromidia started its maintenance in March.

"This trend of advancing turnarounds will likely continue with the current economic environment of lower demand due to the coronavirus effects," Platts Analytics said.

COVID-19 has had also the opposite effect on some planned turnarounds.

Italy's Sannazzaro, which was expected to start maintenance mid-March, has delayed works to prevent spread of the coronavirus and has also reduced runs, a source said. Only a week ago, owner Eni expected the maintenance to proceed as planned. But the originally planned maintenance would have added 1,300-1,400 workers at the site.

Meanwhile, out of 700 outsourced employees, only 50 turned up at the Sicilian refinery of Milazzo Tuesday after a worker was said to have tested positive to coronavirus, according to a source close to the refinery. Production, however, has not been affected, the source said.

For the moment, coronavirus did not appear to be affecting planned ongoing maintenance in Portugal and Spain.

Repsol's refinery at Coruna has been undergoing maintenance due to conclude later this month, while in Portugal, Galp is carrying out upgrade work at Sines and hydrocracker maintenance due to conclude in the second quarter.

Measures to prevent spread and cover demand

Meanwhile, refineries across Europe are ramping up safety measures to control the spread of the virus but also to ensure demand is covered.

Repsol, which operates five refineries in Spain, said it had enacted a plan two weeks ago across its sites to minimize health risks and ensure continuity of service.

Cepsa, which operates two refineries on the mainland told S&P Global Plants it was meeting all the demand from its clients and has carried out a wave of measures to ensure business as normal during the next two weeks.

BP, which operates the Castellon refinery, said it will keep the complex running to ensure then supply of gas and fuel and supplies to its service stations, which will remain open.

Turkey's energy regulator EPDK has suspended the obligation for refiners and product distributors to blend 3% of ethanol with gasoline in order to free up ethanol for the production of disinfectant products. The suspension will free up 20,000 cu m of ethanol for disinfectant production.

Separately, a spokesman for Socar Turkey, owners of the 212,000 b/d STAR refinery said coronavirus had not affected operations and all necessary precautions were being taken, with non-core staff working from home.

In France, ExxonMobil, which operates two refineries, said it had "implemented appropriate restrictions on business travel and in some locations, employees can work remotely...[to ensure] the safety and health of our entire workforce".

KMG has introduced at its two Romanian refineries "new rules and measures", including have been introduced "testing the body temperatures, temporary setting of spaces for customers" as well as increased disinfection at its service stations.

Ineos said it was postponing all non-essential work at its sites as of Monday, March 16.

As one trader noted, "refiners know that demand is about to fall off a cliff" as too many countries have been locked down and run cuts become inevitable.

The International Energy Agency has already revised its forecast for 2020, expecting global runs to decline, whereas previously it said global runs were expected to expand this year.