EU refining purge

There have been too many refineries in Europe for longer than most refiners care to remember, but closures have been slated only recently. It used to be cheaper for refiners to keep plants running than to close them, but tighter European Union fuel specifications due in 2000 and cutthroat market conditions have changed all that. Shell Europe Oil Products (SEOP) became the first company to embark on a massive pruning of its refining and marketing portfolio. It decided to close Shell Haven
Dec. 21, 1998
3 min read
David Knott
London
[email protected]
There have been too many refineries in Europe for longer than most refiners care to remember, but closures have been slated only recently.

It used to be cheaper for refiners to keep plants running than to close them, but tighter European Union fuel specifications due in 2000 and cutthroat market conditions have changed all that.

Shell Europe Oil Products (SEOP) became the first company to embark on a massive pruning of its refining and marketing portfolio. It decided to close Shell Haven refinery in the U.K. and to reduce operations at Berre, France.

Then it decided to close its Sola refinery in Stavanger because investment to meet the new EU regulations could not be justified (OGJ, Nov. 30, 1998, Newsletter).

Since British Petroleum Co. plc decided to merge with Amoco Corp., Exxon Corp. with Mobil Corp., and Total SA with Petrofina SA, Royal Dutch/Shell group has been criticized for being slow to react to market forces.

Shell cuts again

So Shell instigated a 5-year plan based on a ruthless purge of poorly performing assets (see related story, p. 31).

On Nov. 16, SEOP began consulting staff over its plan to cut 3,000 jobs during 1999, and since then decided that the Reichstett refinery in France, in which it holds a stake, "does not have a long-term future, leading to adoption of an interim solution only, involving no capital expenditure, to meet Auto Oil I (EU) specifications."

SEOP had discussed with Texaco Inc. a plan to merge their European refining and marketing businesses, but the talks led to nothing (OGJ, Dec. 7, 1998, p. 41). Now Shell, like the rest of Europe's R&M companies, will be looking to see what happens to the BP-Mobil joint venture in European R&M in the light of the BP-Amoco and Exxon-Mobil mergers.

Mergers dilemma

While the BP-Amoco and Exxon-Mobil mergers are intended to solve the companies' unit cost headaches, they have created another problem.

Wood Mackenzie Consultants Ltd., Edinburgh, said that the Exxon-Mobil joint venture raises immediate questions concerning the future of the BP-Mobil downstream alliance.

The BP-Mobil agreement comprised two separate ventures: the main fuels business, owned 70% by BP and 30% by Mobil and operated by BP, and a lubricants business split 51:49 between Mobil and BP but run by Mobil (OGJ, Mar. 4, 1996, p. 40).

"With Exxon a major downstream player in Europe in its own right," said Wood Mackenzie, "there is little doubt that the joint ventures will need to be unraveled.

"For the main fuels operation, one of two options seems likely: either BP will buy out Mobil's share of the JV, although this would increase BP's exposure to European refining, or the JV will be dissolved, with Mobil's share reverting to the new merged company.

"Neither BP nor Exxon Mobil are likely to be willing sellers of their respective shares, and in the event of Exxon Mobil taking back its share of the business, BP would be left with the major problem of having to relaunch a lubes business of its own in Europe."

Copyright 1998 Oil & Gas Journal. All Rights Reserved.

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