Refiners in a number of European countries can't meet prevailing patterns of demand.
There is excess capacity for some products, while others are in short supply.
A report published by FT Business Information Ltd., London, says shifting demand patterns will worsen the imbalance for many refiners. The remedy is a familiar one: "Considerable investment is necessary.
The general shift in European demand is toward lighter petroleum products. This and tighter European Commission environmental regulations increase the need for further processing of refined products.
In the report, author Anthony Barnett, analyst at Datamonitor, London, studies upgrading ratios-that is, the ratio of plant conversion capacity to crude distillation capacity for Europe's refiners. This makes troublesome reading for some big companies.
UPGRADING REQUIREMENT
Europe's seven largest refiners are identified as units of Exxon Corp., Shell International Petroleum Co. Ltd., Ente Nazionale Idrocarburi (ENI), British Petroleum Co. plc, Ste. Nationale Elf Aquitaine, Total SA, and Repsol SA. Combined, they own 57% of Europe's distillation capacity.
"Of the seven largest European refiners, only ENI and Elf have average upgrading ratios above the West European average of 29.4%," Barnett said. "It is notable that Exxon, Europe's largest refiner in terms of distillation capacity, has one of the lowest average upgrading ratios at 20.4%."
Barnett also said Exxon may have to finance a considerable outlay if it is to increase its upgrading capacity to bring the ratio close to the European average. This would prove expensive because Exxon is sole owner of nine of its 12 European refineries.
France, Italy, Spain, and Netherlands are the major refining countries identified by Barnett as needing to invest heavily to improve their upgrading capacity. Portuguese refiners would need to quadruple upgrading capacity.
SPENDING BREAKDOWN
Barnett's report quotes European Petroleum Industry Association (Europia) estimates of outlay required by Europe's refiners. To meet EC environmental legislation, Europia reckons refiners will have to spend $50-100 billion.
A further $1.5 billion/year total is expected to be spent to make sure refineries operate efficiently.
Still another $13 billion is expected to be required to meet increased demand for petroleum products amounting to 60 million metric tons/year by 2005.
The shift in demand toward lighter products is expected to require $10 billion in spending between now and 2005. For some refineries, total investment requirements are not justifiable, said the report. Plant closures are likely soon.
"All of Europe's refiners must now consider the strategies they follow," Barnett said. "In some cases, plant closures may imply withdrawal from specific national markets, raising issues of geographical diversification and capacity concentration."
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