Despite a record year-to-year drop in profits in 1999, from 6.1 billion francs to 0.8 billion, France's oil industry maintained its investments, which, at 5.1 billion francs, were comparable to the 1998 level. Soaring crude prices compounded by the dollar appreciation led to high energy costs in refineries and to squeezed margins, while the scheduled shutdown for maintenance of eight of France's refineries did not improve matters, as volumes processed fell 9.2% to 83.4 million tonnes despite a refinery utilization rate of 87%.
In the retail sector, high prices pushed motorists to supermarket service stations, which increased their market share sales to 53.3%. Meanwhile, diesel oil consumption continued to grow as a result of reduced taxes.
Outlining last year's oil company results, Philippe Tr�nt, president of the trade group Union Fran�se des Industries P�oli�s, expects 2000 to be different. Mergers within the oil industry will have synergies and productivity gains that will decrease costs, he predicted. The whole landscape will be different, as required divestments bring in new players onto the distribution market, says Tr�nt.
Refining overcapacity in Europe is diminishing in the wake of the economic upturn .The merged companies' group strategies should give weak refineries a second chance, even though small inland units will still be at risk, he said.
Tr�nt pointed out that the refining sector would continue to consider capacity rationalization, and arbitration is planned among European refineries to decide on the investments that will be required to meet the new environmental specs of Phase 2 of the auto-oil program, which relate to nitrogen oxides, particulates, and carbon dioxide emissions. Still under debate is the sulfur content of products.
Heavy fuel oil
Another environmental issue of importance in France is heavy fuel oil specifications. Under the G�teborg directive, France should reduce its SO2 emissions from 20.9 kg per inhabitant in 1990 to 3.3 kg by 2010, a particularly unfavorable level vs. 5.5 kg for Germany from a 1990 level of 63.6 kg and 8.3kg for the UK from a 62.0 kg.
This change will condemn already unprofitable heavy fuel oil production in France. In 1999, only 4.6 tonnes were consumed in France, a 13% drop from 1998. With the country's predominance of nuclear power, use of heavy fuel oil is restricted to bunkers and some heavy industries. This means that, out of France's 8 million tonnes of heavy fuel oil production, about half is exported.
It will be unprofitable to introduce new sulfur specs for heavy fuel oil, and exports will become difficult as Europe as a whole introduces the new sulfur rules.
The ecotax project also carries a threat for the remaining heavy fuel oil markets in France (the steel and cement industries, for instance). Early this year, France's government approved an "ecotax" on gasoline and fossil fuel consumption by manufacturers and power producers to help rein increases in greenhouse gas emissions. This puts some refineries at risk. Tr�nt hopes that, as France takes over the presidency of the European Union in July, the government will push for acceleration of European oil taxation and see to it that environmental measures preserve the competitiveness of France's refining-distribution sector.
Carbon tax unlikely
The good news is that Industry Minister Christian Pierret said that there would be no direct energy tax levied in France. "Taxes are not a good answer to economic and social problems," he said.
France will deal with the "worrying increase in greenhouse gases through conservation, new technologies, and new consumer behaviour," he insisted.
Total, which was planning to overcome its heavy fuel oil problem through a 4 billion franc gasification-cogeneration project with Electricit�e France at its Gonfreville refinery in Normandy, has seen the project stalled. Feasibility studies are still proceeding, but the partners are at odds over the profitability of the venture.
The plant would produce electricity, steam, and hydrogen from the nearby refinery's heavy oil residues. Meanwhile, deregulation of the electricity market has pulled down electricity tariffs while oil prices have soared, jeopardizing the initial profitability of the integrated gasification combined-cycle unit as far as EdF is concerned. For Total, the project still makes sense, as it adds value to the hard-to-sell bottom of the barrel.
Discussions are continuing between the partners on a reduction of the planned IGCC plant's capacity. Start-up is still planned for 2003-04. It will be owned and operated by Total (35-40%), EdF (30-35%), and Texaco Inc., supplier of the IGCC technology.
