Loss crisis in majority of refinery plants afflicts global oil sector
PARIS: The world’s major oil companies are grappling with a crisis in the refining sector which is forcing them to cut back heavily to staunch losses, as shown by a dispute at Total in France.
The possibility that Total could shut down a refinery in France has sparked angry protests and the government now wants the privately-owned group to commit to not closing any French refineries for five years.
But the fact is that refining is not a good business for oil companies in advanced industrialised countries, analysts said. And financial results published by the big producers show that Total’s situation is hardly unique.
“The global refining situation today is not good,” said Colette Lewiner, an energy expert at the French global consultancy Cap Gemini. “At all the oil majors, refining activities are losing money.”
The refining sector has been under heavy pressure from a global slowdown in economic activity, particularly in major Western markets, and from energy-saving measures which have reduced consumption of refined products.
“The problem is that there are too many refineries in countries where demand is drying up — at a time when demand is robust in countries like India and China,” Lewiner said.
At British group BP, profit in the refining division fell by 21.6 per cent last year.
Exxonmobil of the United States reported a 57-per cent decline in refining profits and Anglo-Dutch group Shell saw a 69-per cent drop.
“The real test came in 2008, when we saw no movement in the price of refined products at a time when the price of oil had risen 30 pe rcent,” said Karine Berger, director of economic studies at credit insurer Euler Hermes SFAC.
She pointed to a collapse in operating margins caused by “worldwide over capacity.”
Most big groups in the industry have embarked on elaborate cost cutting drives, along with asset sales and site closures, in developed countries where production capacities are too high.
Last year, Shell sold refining assets worth $1.2 billion (887,000 euros).
The company, which in 2009 cut 5,000 jobs, plans to sell up to 15 per cent of its refining capacity, along with some distribution activities.
Shell also announced recently the closure of a refinery in Montreal which had employed 500 people and is negotiating the sale of three European refineries to the Indian firm Essar. In the United States, Chevron has announced job cuts in its refining division while Valero plans to shut down a facility in the eastern state of Delaware.
In France, Total has made no secret since November of its desire to reduce its European refining operations while showing an interest in refining projects in countries where demand remains firm.