Will customers notice?

Jan. 18, 2002
Europe's biggest oil products market, in Germany, has just been given approval to start a process that will lead to the biggest restructuring in its history.

Europe's biggest oil products market, in Germany, has just been given approval to start a process that will lead to the biggest restructuring in its history.

But will the customer even notice? Probably not, unless the sleeping ExxonMobil Corp. tiger awakes and moves to reclaim its traditional market leadership with aggressive marketing moves.

Big mergers

The process started in December, when the German Cartel Office announced that it had given qualified approval to the refined oil products aspects of two major oil company mergers in Germany announced earlier last year. In March, Royal Dutch/Shell Group and RWE-DEA GMBH announced their intention to merge their respective German refining and marketing businesses, initially into a 50-50 joint venture but with the ultimate intention of Shell taking full ownership of the business.

Then in July, BP PLC agreed a deal with E.On GMBH to take an initial majority 51% stake in Veba Oil in return for selling to the German company an identical stake in its 25.5% shareholding in Ruhrgas, but with the potential to exchange the remaining 49% interest in both these businesses during 2002.

Both deals were subject to regulatory approval, although the European Commission referred detailed consideration of the implications of the two deals on the downstream oil and gas sectors in Germany to the German competition authorities while retaining the right to rule separately on the petrochemicals aspects.

Concessions, synergies

The Cartel Office demanded some concessions from both groups designed to reduce their market shares.

The Cartel Office estimates that this will mean some 1,500 service stations out of a national total of just over 16,000 changing hands, 850 being sold by Shell andRWE-DEA and 650 by BP-Veba.

At the same time as the German Cartel Office issued its ruling, the EU competition authorities also gave qualified approval for the petrochemical aspects of the two deals, following concessions by the oil companies concerning the use of a key ethylene pipeline in northern Europe.

According to research by the Edinburgh-based oil industry specialists Wood Mackenzie, Shell and RWE-DEA have already indicated that they believe the $150 million/year of cost synergies that they originally estimated as resulting from their merger will remain intact despite the concessions they will now have to make.

At the same time, BP and Veba remain confident that their estimated $200 million/year of cost synergies will also remain intact, despite their required divestments. Overall, the result appears to be a victory for both BP and Shell in terms of their aspirations to become the dominant integrated refining and marketing players within the largest oil products market in Europe.

The question is how ExxonMobil and TotalFinaElf SA will react. TotalFinaElf has already given indications that it is moving into acqusition -mode, and ExxonMobil never likes to be out of the leadership slot for long.

It could be that 2002 will be an active year in the European downstream sector, with customers benefiting from fierce price competition.