Gunvor Group Ltd., Geneva, has started a process to assess potential mothballing of refining operations at subsidiary Gunvor Petroleum Antwerpen NV’s (GPA) 107,500-b/d refinery located near the Berendrecht and Zandvliet locks in the northern part of Belgium’s Port of Antwerp, home to Europe's largest integrated chemical cluster.
While Gunvor has previously explored several solutions to keep GPA operating in an already challenging European refining environment, a confluence of geopolitical and macroeconomic events exacerbated by the coronavirus (COVID-19) health crisis has put the refinery in a very difficult economic situation, creating further uncertainties as to whether the manufacturing site will again become economically viable in the near future, Gunvor said in an e-mail to OGJ.
Despite Gunvor’s investment of more than $300 million on projects to improve operations at the refinery since acquiring it in 2012, the company said the Antwerp manufacturing site has continued to face increasingly challenging refining margins (OGJ Online Mar. 2, 2012; Nov. 12, 2014).
While Gunvor was previously able to utilize various trading activities to keep GPA’s refining operations going, the operator said that strategy is no longer possible.
“Our team has made many efforts and investments to keep GPA a going concern, but the novel [COVID-19] pandemic has turned an already challenging situation into one that’s unsupportable. GPA has had and will now certainly continue to experience negative cash flow on a magnitude that is not affordable for the group. We are now considering all options,” said Torbjörn Törnqvist, Gunvor’s chairman and chief executive officer.
Gunvor cited several key factors specifically informing its decision to evaluate halting refining activities at Antwerp, including:
- Lack of oil products demand. The global economic downturn caused by the COVID-19 pandemic has created an unprecedented slowdown in product demand—particularly for jet fuel and gas oil—putting pressure on European utilization rates and sustained negative refining margins. Even when demand returns to prepandemic levels, Gunvor said it will take time to reduce the substantial global overhang of oil products, especially gas oil, which is a key output for GPA.
- Lack of suitable feedstocks. As a simple hydroskimming refinery, GPA is designed to process mainly medium-sulfur crude and related feedstocks, which have gradually become more costly due to less availability. As a result of newer, more sophisticated global refining capacity coming online, demand for these feedstocks will continue to increase, making it more difficult for GPA to compete, the operator said.
- Increasing competition. Over the last several years, growth in refining capacity has been balanced by corresponding growth in global products demand. This trend came to an end in late 2019, however, when additional complex refining capacity began coming on stream, with substantially more planned during the next 5 years. With no sign of any major demand growth in the short- and medium-term on the horizon, these planned capacity additions will create an excess of global refining capacity for the near future, according to the company.
- Increasing costs. Alongside economic challenges resulting from Europe’s already difficult refining environment, Gunvor noted operational expenses for maintenance activities as well as costs related to regulations and environmental requirements—including CO2 taxes—are concurrently increasing. To date, GPA has operated as efficiently as possible in line with safety requirements, and as such, Gunvor said it refuses to compromise GPA’s safe and reliable operations to make up for these added costs associated with maintaining ongoing operations.
Given ongoing limited demand for finished products, Gunvor—which halted crude processing activities at the refinery in late May to conduct scheduled maintenance works—plans to keep GPA’s crude processing units idled as it weighs a decision regarding the plant’s future.
Regarding a timeframe for a final decision on the matter, Gunvor said GPA is currently in discussions with its employee works council regarding its intention to proceed with a collective dismissal that could impact as many as 230 employees should the operator decide to mothball the site’s refining units.
The potential cessation of refining activities at Antwerp, however, will not impact GPA’s terminal operations—including 1.1 million cu m of storage capacity—for which various options are under consideration, Gunvor said.
The decision on refining operations at Antwerp also will not affect ongoing operations at subsidiaries Gunvor Petroleum Rotterdam BV’s 88,000-b/d refinery in Rotterdam, the Netherlands—which currently is undergoing a turnaround scheduled to be completed in October—or Gunvor Raffinerie Ingolstadt GMBH’s 110,000-b/d refinery at Ingolstadt, Germany, about 80 km north of Munich (OGJ Online, Mar. 26, 2020).
