French refiners to slash spending to 2000

Fraqnce's Refining Industry General Investment Program [30853 bytes] French refiners have slashed tentative capital budgets for 1998-99 to less than half the average level seen during the early 1990s. Capital outlays budgeted for France's refining sector for 1997 alone are down almost 40% from relatively stable levels of about 3 billion francs/ year ($540 million) during 1992-94. Investment in French refining continues to plunge because of excess capacity, extremely weak margins, and

Feb. 17, 1997

3 min read

Fraqnce's Refining Industry General Investment Program [30853 bytes]

French refiners have slashed tentative capital budgets for 1998-99 to less than half the average level seen during the early 1990s.

Capital outlays budgeted for France's refining sector for 1997 alone are down almost 40% from relatively stable levels of about 3 billion francs/ year ($540 million) during 1992-94.

Investment in French refining continues to plunge because of excess capacity, extremely weak margins, and uncertainty over upcoming environmental directives (OGJ, July 1, 1996, p. 38).

Spending plans

Refiners in France expect to spend about 1.4 billion francs ($250 million) in 1998 and $1.1 billion francs ($197 million) in 1999.

That compares with a projected annual average of about $2.2 billion francs ($393 million) during 1992-99, according to a study of the nation's 17 refineries by the French Industry Ministry's hydrocarbon department.

The investment slowdown reflects uncertainty over the industry's future in Europe and related repercussions in France, where refiners have been engaged in discussions on how to cut capacity (OGJ, Oct. 7, 1996, Newsletter).

As discussions continue to stall, a unit of Royal Dutch/Shell just became the first French refiner in 12 years to take major refining units out of operation (see related story, this page).

Regulatory uncertainty

French refiners' investment decisions for 1997-99 are being delayed by uncertainty over the European Union's (EU) directive on fuel quality in 2000, which is still under discussion.

For the time being, refining officials say they are planning investments only for safety and basic environmental needs.

Investments in desulfurization reflect changes in fuel sulfur requirements (see table, p. 24). Capital spending on desulfurization grew steadily during 1992-95, as France's refiners scrambled to meet requirements for a 0.2 wt % sulfur level for middle distillates, then 0.005 wt % sulfur for diesel fuel.

Capacity increases have typically involved debottlenecking, rather than revamps of existing units.

The required level of investments needed to comply with the coming EU directive should become clear within the next few months. EU is considering a 0.02 wt % sulfur content for gasoline and 0.035 wt % for diesel. It is expected that the projected investment in conversion units-such as fluid catalytic cracking, distillate hydrocracking, and visbreaking-are probably undervalued in light of the large projects still to be defined by the EU directive.

Lube oil investments have remained high because of development of the Dunkirk lubes complex by BP France and Elf France and the Notre-Dame-de-Gravenchon plant by Mobil Oil Francaise. Another factor propping up lube oil investment is a recent decision by Shell to develop a lube oil plant at Nanterre near Paris.