Shell U.K. Ltd. plans to close one of its two U.K. refineries, blaming the plant's poor economic performance on regional overcapacity and flat demand for products.
The company expects to close the Shell Haven refinery in Essex towards the end of 1999 and is believed to be expecting to spend tens of millions of dollars to close the plant, clean up the site, and redeploy or offer "substantial" severance terms to the plant's 290 staff.
A Shell official told OGJ the company had not tried to sell the plant: "Our feeling was that Europe's surplus refining capacity and tight refining margins meant there was little prospect of getting a viable price for the plant; but we're still open to offers."
Shell says the return on capital invested in European refining over recent years is only 4%. The company reckons this situation is likely to persist because of the increasing use of gas in power generation and heating, increased products imports from Eastern Europe, and more efficient vehicle engines.
Crude distillation capacity at Shell Haven is 39,000 b/d, while Shell's Stanlow refinery in Cheshire can process up to 93,000 b/d. The official said products from Shell Haven can be replaced by output from Stanlow or sourced locally.
There has been much speculation in recent years that Shell would close a U.K. refinery, as it is the only company to operate two. The U.K's 10 refineries have the capacity to make enough gasoline and diesel to exceed domestic demand by 12 million metric tons/ year.
Shell said the U.K.'s surplus products are shipped to Europe and North America, where competition is intense with local refineries. The European Union has 70-100 million tons/year of surplus refining capacity, according to Shell-an amount equivalent to 9-13 refineries.
Graham Watt, Shell U.K.'s director of manufacturing, said, "Over the last 5 years, all our staff at Shell Haven have made extraordinary efforts to secure longer-term viability through major steps forward in performance and many operational changes. It is a matter of great regret that European trading circumstances have shown no sign of improving, and that we must now pursue this course of action."
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