Europe faces new wave of oil refinery extinctions
* Italy's Mantua refinery closes, Britain's Grangemouth on brink
* More closures expected as European demand shrinks, imports grow
By Ron Bousso and Dmitry Zhdannikov
LONDON, Oct 16 (Reuters) - After a year of respite from bankruptcies, protests and closures, Europe's oil refining industry is cracking again under pressure of ferocious global competition and shrinking domestic demand.
The decision this month to shut a small refinery in northern Italy and the possible closure of a major plant in Scotland signal that a new wave of closures in the sector is coming - even faster than the industry had expected.
"The reason we didn't hear about other shutdowns this year is because 2012 was a good year, with refinery utilization rates near 80 percent," according to David Wech, managing director of Vienna-based JBC Energy consultancy.
"This year we haven't seen closures and that is why pressure is accumulating... Especially in East European countries there is far too much capacity so you can expect much of the next consolidation round there," he said.
Italy's 52,000 barrels per day (bpd) Mantua refinery will halt operations on New Year's Eve and be converted into a product storage terminal, its owner Hungary's MOL Group said this month.
The closure was "a consequence of the unfavourable economic environment that the refining business faces in Italy," said Ferenc Horváth, downstream vice president for MOL.
Demand for refined fuels in Italy dropped from 116 million tonnes in 2000 to 80 million tonnes in 2012, he said.
In Scotland, the 210,000 bpd Grangemouth refinery was shut down earlier this week in a labour dispute that could lead to the plant's full closure.
A total of 16 European refineries, or 1.7 million bpd of refining capacity has been mothballed since 2008, according to the International Energy Agency.
Europe's nameplate capacity stood at around 16 million bpd in 2012, according to the IEA.
Around 330,000 bpd of European refining capacity - or six Mantua refineries - need to be shut down every year by 2020 in order to meet declining demand and rising competitive pressures, Wech said.
THE LOSER IS EUROPE
Many of Europe's refineries, numbering around 120, were built in the two decades following the Second World War and are heavily geared towards gasoline production.
But as demand for gasoline sharply declined in recent years in favour of diesel, refineries today face a huge surplus of gasoline which is increasingly hard to sell overseas as demand from the United States weakens.
At the same time, massive state-of-the-art refineries in the United States, Asia and the Middle East are sending ever-growing volumes of diesel to Europe.
And as they benefit from cheaper feedstock and lower energy costs, they can easily compete against Europe's regional refiners.
"Cheap gas is making a huge difference to the profitability of U.S. refining industry. The loser is Europe. It has to be. There is no consolidation going on and no great consolidation hope," Torbjorn Tornqvist, chief executive officer of trading house Gunvor told the Oil & Money conference this month.
Diesel imports from Russia, Asia and the U.S. Gulf Coast reached a record 4 million tonnes in September, according to traders.
"The trend of U.S. exporting products is going to continue, you're going to see diesel coming from the United States to Europe for the foreseeable future," the head of Glencore's oil division Alex Beard said this month.
2013 may go down as one of the weakest in recent decades, as refining margins in the third and fourth quarter plummeted due to high crude costs and weak product demand.
Total, Europe's biggest refiner, said refining margins in the region had dropped to a near four-year low of $10.6 per tonne in the third quarter.
Other than the old, simple East European refineries, plants in coastal areas such as Italy that are easily accessible for importing remain the most vulnerable.
This year was set to go down as one of the worst for the European refining industry, with refinery utilisation slipping down to around 78 percent in 2013, according to JBC.
The path taken by the Mantua refinery is not new.
Last year, TotalErg, a joint venture between France's Total and Italian refiner ERG, converted its 90,000 bpd refinery outside Rome to a storage hub.
Reflecting the region's changing realities, the Fiumicino terminal receives around 100,000 tonnes of diesel per month from India's Reliance Industries, which operates the world's largest refining complex, according to trading sources.
Major traders and refiners have invested heavily in oil storage terminals in Europe and other key as trade becomes global. (Reporting by Ron Bousso and Dmitry Zhdannikov, additional reporting by Stephen Jewkes in Milan, editing by William Hardy)
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