London — ExxonMobil is considering closing its 116,000 b/d Slagen refinery in Norway to convert the site into a fuel import terminal, the company said April 8, marking a potential further casualty of Europe's surplus refining capacity as the region's fuel demand shrinks and competition from new markets continues to grow.
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A consultation process has been initiated with employees "as part of an extensive review of the long-term economic viability of the facility," Exxon said in a statement.
"If converted to a terminal, Slagen would import high-quality fuel products for further distribution through existing infrastructure to ensure ongoing, reliable fuel supply for Esso customers," the company said, adding that the timing of a potential conversion is subject to consultation with employees and the relevant authorities.
If a decision to shut the refinery goes ahead, Exxon said the plant would remain in operation during the course of the conversion.
Opened in 1961, the Slagen refinery processes mainly North Sea crudes, with its petroleum products output covering more than half of Norway's total consumption. About 60% of the refinery's production is exported, according to Exxon, making the refinery one of Norway's largest onshore export businesses. It is a major exporter of low sulfur fuel oil in the region.
"Refineries in Europe operate in an increasingly challenging market, characterized by falling demand and strong competition, leading to overcapacity in the market. In Norway, demand has decreased for road transportation fuels," Exxon said.
In 2007, the refinery installed a plant for blending biodiesel which currently supplies fuel with up to a 7% blend of a bio-component. In 2016, the plant began upgrading heavy fuel oil to boost the value of Slagen's product portfolio.
Located on the west bank of the Oslofjord about five miles south of Horten, Slagan's marine terminal consists of a pier with loading and discharging berths on both sides able to dock vessels with a maximum draft of 19m (62 feet).
European refiners have been shutting, or converting, plants to biofuels over the last year as the pandemic exacerbated structural pressure from shrinking fuel demand, growing competition from new plants in Asia and tough environmental legislation. With the pandemic accelerating the push for low-carbon energy, many refiners are now looking to biofuel or hydrogen projects in order to adapt to the energy transition.
In its latest medium-term oil report last month, the International Energy Agency warned that the outlook for the refining sector remains dire despite a recovery in oil demand, as overcapacity is likely to persist due to new plants in Asia and the Middle East while more fuel demand is being met by biofuels.
European oil demand peaked around 2005 and most of the region's top economics have banned sales of new conventional cars from 2030 to accelerate the electrification of passenger vehicles.
Last week, Repsol halted the crude distillation unit at its 150,000 b/d Puertollano refinery. In February, Finnish refiner and biofuels producer Neste warned that reference margins are expected to remain "very low and volatile" in early 2021 as input costs rise and the pandemic continues to depress sales of regular fuel. Neste permanently shut its 55,000 b/d Naantali refinery last month, Gunvor has shut its 115,000 b/d Antwerp refinery and Total is converting its 101,000 b/d Grandpuits plant to biofuels.
In the UK, Petroineos is looking to mothball two units at its Grangemouth refinery, which have been offline throughout the pandemic.
Sweden's Preem has abandoned a residue oil conversion complex project and started a conversion of Lysekil in a move that will make it the biggest producer of renewable fuels in Scandinavia.
The head of Italy's Saras -- owner of the biggest refinery in the Mediterranean -- recently estimated some 3 million-4 million b/d of global refinery capacity needs to close to rebalance the market.