France to cut refining industry investments

Investments in France's refining industry have been on a downward trend since 1995 after peaking at 3 billion francs in 1994. During 1992-2000, total outlays are estimated at 19.6 billion francs, with average annual capital expenditures of 2.1 billion francs, down from the 2.3 billion franc estimate made in 1996.

These are the conclusions of the hydrocarbon department of France's industry ministry.

Industry prepared

A slight upturn in refinery spending is forecast in 1998 and 1999, linked to implementation of the European Union's motor fuels directive, which will take effect in 2000.

Besides productivity gains and cost cutting, the requirements of the directive involve making refinery changes to meet a future benzene specification of 1 vol % and stricter sulfur requirements.

All six refiners in France-Cie. de Raffinage et de Distribution Total France, Elf France, Ste. des Petroles Shell, Esso SAF, and the BP/Mobil joint venture-indicate they are nearly ready for the 2000 specs, provided that the 2005 requirements are not brought forward.

"In this case," Esso's Environmental Manager Alain Rauline told OGJ, "a technological leap will be required well beyond our current financial possibilities."

The French refining industry's 2000 budget of 1.1 billion francs to prepare for the 2005 requirements is probably underestimated, notes the ministry's hydrocarbon department, and it will need to be readjusted. This seems to be the case for most European refiners.

In its annual roundup of the world oil and gas scene, Institut Français du Pétrole notes that "Environmental constraints are likely to weigh even more heavily in the future, with drastic limits on refinery emissions and the sulfur content of fuel oil. In view of these constraints, it is not surprising that the European refining industry is tempted to put off making decisions for as long as possible, particularly in view of the relative improvement in margins."

Required changes

Meanwhile, the hydrocarbon department says budgets in France for conversion units are also higher than initially forecast, albeit at a lower level than observed during 1992-97. They involve either fluid catalytic cracking (FCC) process improvements to increase production of light olefins (propylene and butenes), or fractionation of FCC gasolines in order to reduce olefins levels in the overall gasoline pool by sending the heavy ends to the heavy fuel oil pool.

During 1992-2000, 2.9 billion francs will have been spent to add storage and terminal facilities for crude and refined products, as well as to bring existing facilities up to the safety and environmental standards now required (namely, improved recovery of volatile organic compounds).

Finally, more than 2.1 billion francs will be spent on other utilities during the period.

Analyzing the whole European refinery scene, IFP believes that the formation of new alliances, like the recent BP/Mobil merger, "although desirable, or even essential, to achieve satisfactory profitability in the refining business," is unlikely.

What is more likely, says IFP, are "local cooperation agreements designed to optimize operations of a group of refineries, or asset sales by smaller refineries, particularly since the current slight margin recovery is not conducive to such operations."