* Italy's Mantua refinery closes, Britain's Grangemouth on
* More closures expected as European demand shrinks, imports
By Ron Bousso and Dmitry Zhdannikov
LONDON, Oct 16 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,
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
"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
"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
(Reporting by Ron Bousso and Dmitry Zhdannikov, additional
reporting by Stephen Jewkes in Milan, editing by William Hardy)