New European Union (EU) fuel specifications due in place in 2005 threaten the future of 28 European refineries, of which 17 are candidates for closure.
This is the view of The Petroleum Finance Co. (Petro Finance), Paris, which said the large majority of European refineries will have difficulties meeting the 2005 specifications with existing equipment.
The EU has slated two rafts of transport fuel specifications, the first due next year, for which refiners appear mainly to be prepared, and tighter regulations still in 2005, for which many of the limits to be specified have not yet been decided (OGJ, July 6, 1998, News- letter).
Petro Finance said the specifications due in place on Jan. 1, 2000, will have a significant impact on European supply and demand for gasoline and-to a lesser extent-diesel fuel.
"However," said the analyst, "the impact will not be large enough to justify the closure of any additional refineries in Europe, apart from those for which capacity reductions or closures have already been confirmed."
Yet Petro Finance believes that the bulk of European refineries will not meet the anticipated 2005 specifications as they stand: "Out of 95 surveyed refineries, some 28 are in a particularly fragile position, including 17 that can be considered logical candidates for closure."
The analysts said that, while the overall cost of plant upgrades to meet the 2005 specifications is likely to be less than the refiners originally anticipated, the impact in terms of industry restructuring may be greater than thought a year ago (OGJ, Jan. 12, 1998, p. 21).
"Among large refining companies," said Petro Finance, "headquarters will be reluctant to invest in every site and will rather push their operating companies to find alternative solutions with neighboring competitors whenever possible.
"On the other hand, for a certain number of refineries whose future cannot be questioned, refiners may decide to invest ahead of legislation in order to take advantage of possible fiscal incentives."
Diesel in 2000
Most European refineries will find it relatively easy to match the 2000 specification for diesel fuel. However, plants in Denmark, Ireland, France, Italy, Greece, and the U.K. face difficulties for a variety of reasons."In some cases," said Petro Finance, "difficulties arise from a heavy crude slate, in others from limited desulfurization capacity or from the structure of the gas oil pool, where large conversion capacities raise the production of light cycle gas oil and the density of the gas oil pool.
"In addition, some countries have a large market for jet kerosine and therefore are not in a good position to integrate part of this product into the gas oil pool to provide some room for maneuver."
The analyst reckons that, in these countries, the new diesel density specification-down to 845 kg/cu m from 860-will be much more difficult to attain than the new limit on sulfur content-down to 350 ppm from 500.
"By contrast," said Petro Finance, "the German, Dutch, and Belgian refining industries appear to be in a less difficult situation, notably because heating gas oil accounts for a significant portion of overall demand.
"In addition, refineries in these markets are relatively well equipped. Germany in particular has a greater proportion of high-pressure desulfurization units."
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