With new and more efficient refineries coming online in the Middle East and Asia this year, combined with lower-cost product imports from the US, European refineries are being squeezed out of their local and export markets, says an analyst with research and consulting firm GlobalData.
Carmine Rositano, GlobalData’s Managing Analyst covering Downstream Oil & Gas, states that the European refining sector is uncompetitive in today’s global marketplace. Lower feedstock and energy costs provide US refineries with a significant cost advantage compared to European companies, Rositano says.
The analyst continues: “Product imports from the US into Europe have steadily increased since 2008, reaching about 600 thousand barrels per day (mbd) in 2013. With a lower cost structure, US refiners are now exporting more products across the globe, taking away market share from European refiners.”
Additionally, it has been reported that the French refining sector incurred a net loss of approximately $950 million in 2013.
Rositano says: “Major oil companies, such as Shell, BP, ExxonMobil and Total, reported lower international downstream profitability in 2013 compared to 2012. European refinery runs in the last quarter of 2013 were lowered by a few hundred thousand barrels per day, as the European hydroskimming margin was negative and the cracking margin was just over breakeven levels.”
Furthermore, new and more cost-efficient refineries will come online in Saudi Arabia and India this year, running lower-cost crudes than European refineries. Saudi Arabia’s Jubail and Yanbu refineries have been configured to maximize the product yield for ultra-low sulfur diesel, which is a structural deficit position in Europe, the analyst says.
GlobalData forecasts that oil refined product demand in Europe will also decline further due to energy efficiencies and high energy taxes, adversely impacting refining throughput volumes.
“Lower refining runs and refinery closures of about 100 mbd to 200 mbd per year are likely to happen in Europe, especially in smaller sized and higher cost structure refineries. This will provide opportunities for US and export-oriented Middle East and Asian refineries to capture additional ultra-low sulfur diesel market shares in Europe, as well as gasoline shares in other regions,” Rositano concludes.
