UFIP: French refiners cope with many challenges

Doris Leblond
OGJ Correspondent

PARIS, Feb. 4 -- France's refining industry is facing a tough year as new challenges emerge to compound existing ones, Jean-Louis Schilansky, president of the oil companies' trade group, Union Francaise des Industries Petrolieres (UFIP), said at a press conference Feb. 3. "While I see no immediate risk of refinery shutdowns, I do not exclude cessions," he said.

The French government has further accelerated its biofuels program by setting a compulsory 6.25% energy content incorporation in gasoline in 2009, thereby anticipating the European Union objective by 6 years. This will entail introducing in April an E10 gasoline that incorporates 10% ethanol instead of the current 5%. This 10% is required if the 6.25% energy content is to be achieved, explained Schilansky.

He added that 60% of automobiles (on sale after 2000) will be able to use it. By yearend, 75% of service stations should be providing it.

But this new gasoline will increase the already heavy imbalance between diesel oil and gasoline in France's refineries, for it will increase gasoline volumes. Despite new investments and operating at maximum capacity, France's refining industry has never managed to fill the gap between insufficient diesel oil production and demand, requiring imports. The industry compensated excess gasoline production and falling demand by exporting gasoline abroad, mainly to the US.

But this export outlet for gasoline overcapacities is about to diminish, feared Schilansky, as American vehicles and drivers become increasingly gas thrifty.

The competitivity of France's refining industry will be further reduced with regard to its European counterparts, for it already is 33% below the average West-European index, pointed out Schilansky.

A further challenge is the fact that drivers in France drastically reduced their motor fuels consumption in 2008, and a poll commissioned by UFIP seems to point to their continuing to do so despite low prices at the pump.

Price, demand changes
Soaring oil prices in spring 2008 changed the behavior of drivers. Consumption remained stable until May before falling by 4.6% over the next 7 months. Drivers slowed their speed and used vehicles less, indicated the poll.

Motor fuels deliveries fell by 2.8% compared with a 1.1% growth in 2007, "an unprecedented occurrence," exclaimed Schilansky. Diesel oil consumption fell for the first time by 0.9% to 32.5 million tonnes, while gasoline consumption collapsed by 8.2% to 9.1 million tonnes.

Even with a liter of diesel oil costing less than one euro, 79% of private drivers remain comfortable with this new behavior, and 82% do not intend to go back to old habits even if oil prices continue to fall, revealed the poll.

Initially the oil price hike set off the trend, but the economic crisis and the campaigns to safeguard the environment and reduce climate change had a further effect on driver conservation.

Schilansky sees the new trend lasting well into 2009 and then being put to the test by a brightening economic environment and continuing low oil prices.

Another French government measure scheduled to be adopted in the near future is worrying UFIP—the requirement of energy-saving certificates to accompany the sale of motor fuels. Consumers are encouraged to save more energy through these certificates. Schilansky insists that they should also be required of hypermarkets and supermarkets, which also sell motor fuels, in order to prevent any competition distortions.

After steadily taking up to 58% of the motor fuels market share from the oil companies and independents, these competing markets now seem to have stabilized their share at this last 2-year peak.

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