Doris Leblond
OGJ Correspondent
PARIS, Feb. 22 -- France's refining industry stands at a crossroads this year as new operators replace long-established Shell Francaise and refiners comply with tighter refining restrictions, said Jean-Louis Schilansky, delegate general of the oil companies' trade group Union Francaise des Industries Petrolieres (UFIP), at the annual press conference Feb. 20.
When LyondelBasell Industries finalizes its purchase of Shell's 6.3 million tonne/year Berre refinery and petrochemicals site on the French Riviera, and Swiss refining group Petroplus assumes Shell's 7 million tpy Petit Couronne refinery in Normandy and its 4 million tpy Reichstett refinery near the German border, one third of France's refineries will belong to nonintegrated groups.
Schilansky added to the list Ineos, which took over BP France's 9.9 million tpy refinery in 2005.
The remaining refining majors will be Total with its 52.7 million tpy capacity divided among six refineries—Gonfreville, Donges, Flanders, Provence, Feyzin, and Grandpuits—and ExxonMobil Corp. with Esso's 17.7 million tpy capacity shared by its Port Jerome-Gravenchon refinery in Normandy and the Fos-sur-Mer refinery in southeastern France.
This new configuration of France's refining market is taking place in an unsatisfactory environment, as the industry faces three major challenges and other problems, said Schilansky.
Challenges include:
-- Increasingly stiff environmental demands at both the French and European level: carbon dioxide emission quotas; air quality targeting sulfur, nitrogen oxides, and particulates; the 10 ppm specification for all motor fuels; and new specs for heavy fuel oil and nonautomotive diesel.
-- Increasing world competition as new refineries are built near fast-developing markets in countries that have not ratified the Kyoto Protocol: India, Saudi Arabia, and Algeria.
-- A French and European market increasingly unbalanced between gasoline and diesel oil. Favorable taxation has given diesel in France "an exaggerated advantage" leading to "excessive diesel predominance," for a liter of diesel "contains more energy than a liter of gasoline," explains UFIP, pointing out that the trend is growing faster in France than in the rest of Europe.
The consequence is ever-higher exports of gasoline to the US, growing imports of diesel from former Soviet Union countries—further increasing Europe's vulnerability—and a greater need for biofuels to comply with biofuels incorporation obligations, said UFIP.
Overambitiously green
France's refining industry is unsure that it can comply with France's ambitious biofuels target, as the 5.75% incorporation of biofuels this year in both gasoline and automotive diesel is up from 3.50% in 2007, a full 2 years ahead of the European Union schedule.
By setting an "over-green" target, the government has caused a dilemma for the industry. First there is the concern that there might not be enough biofuels available. In addition, automobile manufacturers guarantee their vehicles only for biodiesel volumes that do not exceed 5%, but refiners must fulfill their 5.75% obligation for fear of incurring the General Tax on Polluting Activities, which could be as high as €150 million in 2008.
Current refining margins have fallen to a low €18/tonne this January compared with €31/tonne in 2007, so the industry would be unable to absorb the penalty and would have to pass it along in its selling prices.
"France must return to Europe's rhythm" of biofuels incorporation, said Schilansky, especially as the industry needs to continue exchanging products with neighboring countries.
The fewer number of vehicles running on gasoline also has affected the introduction of flexfuel, which the government launched in 2006. Demand has remained marginal, especially since the government introduced a bonus for buyers of cars with low CO2 emissions, further encouraging the purchase of diesel vehicles.
Compounding the industry's problems, the sale of products in France dropped last year to 84.2 million tonnes from 86.4 million tonnes in 2006, due to mild weather, even though the consumption of transportation fuels rose slightly by 1.3%.
In addition, service stations continue to suffer increased competition from supermarkets, which now account for 58% of the market. Last year 281additional service stations shut down, bringing the number to 12,929 compared with some 40,000 in the early 1980s.