Mergers to trim European marketing sector

Jan. 10, 2000
Mergers among the petroleum giants and network rationalization will lead to the closure of 20,000 service stations in Western Europe by 2004.

Mergers among the petroleum giants and network rationalization will lead to the closure of 20,000 service stations in Western Europe by 2004.

This is the view of Datamonitor PLC, London, which said that the fiercely competitive fuel retailing market in Western Europe continues to suffer from low operating margins and stagnant fuel demand.

"Within this environment," said the analyst, "oil companies are undergoing strategic and operational change, and many have considered mergers and acquisitions as a means to survive."

According to a new report from Datamonitor, Western European service stations will be purged as the trends of merger activity and network rationalization continue and downstream margins are squeezed further.

The analyst said that the recent megamergers have brought huge benefits for BP Amoco PLC, but Royal Dutch/Shell still dominates in Western European retailing.

"Spain is the fastest-growing European market," said Datamonitor, "with annual fuel sales growing by more than 4 billion l. by 2004. However, more than 20,000 service station sites will close across Western Europe by 2004, representing an annual shrinkage of 3.1%."

While the European Union required the break-up of the BP-Mobil refining-marketing joint venture as a condition for approving the merger of Exxon Corp. and Mobil Corp. (OGJ, Dec. 20, 1999, p. 26), Datamonitor said the benefits of the BP-Mobil JV are likely to encourage other companies to consider a merger or acquisition in the future.

"BP Amoco has generated huge operational benefits from the previous BP-Mobil joint venture," said Datamonitor, "and [annual] volumes per site have increased substantially, from 2.57 million l. in 1997 to 2.74 million l. in 1998.

"This was achieved through extensive rationalization: 747 sites were closed during 1996-98, equivalent to almost 10% of the entire network. While BP Amoco achieved the highest volumes per site of any major oil company, Shell remained the Western European market leader."

Shell had a volume share of 10.7% in 1998, although the company recorded a lower average annual throughput per site of just 2.31 million l., compared with 2.48 million l. for Esso and 2.74 million l. for BP Amoco.

Meanwhile, Spain offers the best growth prospects over the next 5 years, with volumes forecast to increase by an average of 3.2%/year. Greece and Ireland are the only other European markets expected to experience significant volume increases, driven by economic growth and the growing size of their respective automobile population.

"Between now and 2004," said Datamonitor, "Western European oil companies will continue to rationalize their service station networks, a process driven by the quest to improve volumes per site and reduce costs. This will result in the closure of more than 20,000 sites, equivalent to annual shrinkage of 3.1%.

"The benefits of this will impact across Western Europe, with average [annual] volumes per site rising by 0.88 million l. by 2004. Luxembourg will record the highest volumes per site at just over 9 million l., due to the high levels of nonindigenous commercial traffic fueling at enlarged motorway sites."