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FEATURE: Neste to close Naantali as refinery closures in Europe gather pace

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FEATURE: Neste to close Naantali as refinery closures in Europe gather pace

Highlights

Naantali to close by end-Mar, Porvoo to focus on renewables

Total shuts down Donges, more consolidation ahead

Refining margins likely to remain weak until Q1 2021

London — Neste's Naantali plant in Finland is the latest refinery in Europe set to close as the coronavirus pandemic accelerates the decline of the downstream sector, exacerbated by the fall in demand for oil products.

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Finnish refiner and renewables fuel producer Neste said on Nov. 30 that it will shut down its Naantali refinery by the end of March next year as part of its restructuring. Operations at the company's Porvoo refinery will be revamped to focus on co-processing renewable and circular raw materials, it added.

European refiners were already facing an existential crisis due to waning demand for fuels along with increased competition from Asian refiners.

But COVID-19 accelerated some of the European refining industry's structural problems, with the potential for further plant closures and consolidation.

This year, refining margins slumped to their lowest level in over three decades, with high-value oil products such as diesel, jet fuel and gasoline at times trading below crude prices.

Gunvor decided to mothball its Antwerp refinery, which stopped processing crude in May, while Croatia's Rijeka temporarily stopped processing in November until January.

Last week, Total decided to halt temporarily operations at its 220,000 b/d Donges refinery due to weak margins.

Petroineos is looking to mothball two units at its UK Grangemouth refinery. Total said it would convert its French Grandpuits refinery "into a zero-crude platform".

Meanwhile, Repsol will halt a crude distillation unit at its Bilbao refinery until market conditions improve, after taking fluid catalytic cracking units offline at Bilbao and Coruna. Also in Spain, Cepsa's La Rabida will keep two units offline and, in neighboring Portugal, Galp has halted processing at Porto for the second time this year.

Neste restructuring

Neste said it does not expect oil products demand to recover to pre-pandemic levels, which is why it had to change its business model and ensure the competitiveness of its oil product business.

"With these measures, Neste aims to improve its productivity, resource efficiency and adaptiveness to market changes," it said in its statement.

The Finnish company has emerged as one of the key producers of sustainable aviation fuel, with current capacity of 100,000 mt/year of sustainable aviation fuel.

It is aiming to produce some 1.5 million mt/year of SAF by 2023.

"The demand for fossil oil products will continue to decline, and the share of renewable energy solutions will continue to grow in the coming years," it added.

"We want to improve our competitiveness and maintain refining operations and related strategic capabilities in Finland. The changes will support the transformation of the Porvoo refinery into a leading sustainable, safe, and efficient refinery," Neste President and CEO Peter Vanacker said.

These measures will save the company around Eur50 million annually, and this will not affect the security of fuel supply in Finland, it said. Terminal and harbor operations at the Naantali site will continue.

In 2017, Neste completed the integration of the Porvoo and Naantali refineries that now operate as one refinery, with a total capacity of 13 million mt/year.

Margins outlook

Globally, refining margins continue to remain weak despite a steady demand recovery in Asia.

Oil demand in Europe and the West has been under pressure due to the second wave of coronavirus infections.

S&P Global Platts Analytics expects refinery margins to remain weak until the first quarter of next year before turning somewhat higher with the Q2 2021 gasoline season.

"Refinery runs remain restrained due to weak demand and ample product stocks," it said in a recent note. "Diesel cracks are especially weak [supply boosted by low jet requirements] and gasoline cracks have eased due to high yields."

Permanent shutdowns globally of refinery capacity planned for 2020-2021 amount to 1.7 million b/d, according to the latest forecast by the International Energy Agency.

Around 102 million b/d of crude distillation capacity worldwide is catering for "only" 84 million b/d in terms of demand for refined products in 2019, which shrank to 76 million b/d in 2020 and is forecast at 80 million b/d in 2021, according to the IEA.