France's refiners will be at greater risk, on average, than their counterparts in other European Union countries when a compulsory investment crunch, brought on by stricter EU fuel regulations, forces plant closures in the next 2-3 years. This will happen despite after-tax revenues of 3.244 million francs in 1997-the best performance since the Persian Gulf war.
These are the views of Elf Aquitaine refining official Philippe Trépant.
Average refining margins last year increased to 113 francs/metric ton from 102 francs/ton, and products consumption in France grew slightly, by 5 million tons, accounting for two thirds of the improvement. The last third was due to the industry's cost-cutting and productivity gains.
Nonetheless, French refiners' 4 billion franc cash flow could not cover their 5 billion franc investments, and the return on capital used remained at 4.4%, one of the lowest in Europe.
Trépant reckons that the new motor fuel specs being prepared in Brussels will require each EU refinery to spend about 1 billion francs. And it will cost at least 1-2 billion francs per site to meet the 2010 specs, intended to reduce acid rain and greenhouse gas emissions.
Under the circumstances, Trépant fears that French refiners' handicaps compared with their EU counterparts-higher workforce costs, local taxes, French flag obligation for tankers, higher port fees, and an unfavorable diesel oil/gasoline balance-put them at a higher risk for closure.
Trépant said it costs 500 million francs to shut down a refinery. When investment outlays exceed that amount, then closure or the formation of alliances will be the best solutions. The more vulnerable refineries are the landlocked ones and those with fewer conversion units, says Trépant.
How to cope?
In this context, Shell is adapting its Berre l'Etang refinery in southeastern France to satisfy increased client demand and growing petrochemical needs. Of the 6.5 million ton/year capacity of the refinery-Shell's largest in southern Europe-4 million tons/year will be effectively used by yearend, when the Montell Polyolefins Co. polypropylene unit comes on stream (OGJ, Mar. 18, 1996, p. 40).Shell is investing 100 million francs in a capital program to help innovative small and medium-sized downstream companies develop projects near its Berre l'Etang complex. They could help take up the slack of the refinery's idled capacity.
Shell will provide financial help, know-how, products, and services, as well as assistance in dealing with administrative red tape.
On its Lavéra site, nearby, BP France also has chosen to develop synergies with its adjacent petrochemical site under what it calls the "Lavéra Maximization Project," which is in the planning stage. BP has not, however, given up its plan to find a joint-venture partner for the refinery.
Commenting these moves, Trépant was doubtful that such efforts would help solve Europe's overcapacity problems.
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