* Exxon's $1 bln investment shows some confidence in
* Mediterranean plants to be hit by declining consumption
* Around three Eni plants in Italy to close
* North European refiners under threat from Russian diesel
By Simon Falush
LONDON, July 25 ExxonMobil is pouring $1 billion
into modernising a European refinery just as others are fleeing
the sector, making life even more difficult for older plants
struggling to stay afloat.
Exxon said it would install a new coking unit at the
300,000 barrel per day (bpd) Antwerp plant to turn high sulphur
oils created as a by-product of the refining process into
various types of higher-profit diesel, including shipping fuels
that will meet new environmental laws.
"This project demonstrates ExxonMobil's long-term view,"
said Remko Kruithof, Exxon's public and government affairs
manager for the region. "It is the first of several
(investments) we are evaluating to further strengthen our
strategic refineries in Europe to more successfully face the
challenging industry environment."
Exxon is considering refinery investments in the United
States, where plants there run close to full capacity, but it is
the sums in Europe that have surprised some observers as where
market conditions are far more challenging.
Analysts said Exxon's reasoning for making this move now are
particular to its own refining economics, with the plant able to
process heavy fuels that its other refineries in the region such
as Fawley in England, are not able to deal with.
Exxon is also swimming against the tide in Europe.
Although France's Total, Europe's biggest refiner,
promised in 2010 not to close any plants in its domestic market
for five years after it shut the Dunkirk refinery, union sources
and analysts think Total could shut plants next year, after the
promised period expires.
Exxon's move spells more pain for competitors in the region
that will have to compete with a plant that is more efficient
and better equipped to deal with current European fuel needs.
"It will enable it to have higher utilisation rates, which
would mean lower rates at other plants," said Alan Gelder,
senior vice president at Wood Mackenzie.
"It could challenge smaller refineries and accelerate the
process of forcing closures."
BP and Shell have already sold plants to
smaller independent players, which in some cases subsequently
closed them, while others are struggling to keep them operating.
REFINERS IN TROUBLE
The feeble state of the refining industry in Europe was
highlighted by the latest data from Euroilstock, which showed
that European refineries processed 11 percent less crude oil in
June from a year earlier, as weak profits forced plants to cut
In Italy, Eni is threatened with a credit downgrade
if it fails to turn around its refining business while being hit
by strikes next week to prevent closures.
Other European refiners are also in trouble. Czech Unipetrol
took an unexpected 4.72 billion crown ($231.5 million)
impairment charge on its refining assets in the second quarter,
pushing its results into the red.
Poland's refiner PKN Orlen wants to sell its Orlen
Lietuva unit, but its chief executive said it would be "hard to
imagine" to find a buyer.
"Northwest Europe specifically is high on our consolidation
pressure list, as the steadily growing outflows from Russia are
hitting primarily this region," said David Wech, analyst at JBC
energy in Vienna, adding that some 500,000 bpd of diesel from
Russia would hit the region by 2016.
When plants do close, analysts say it will benefit those
like Exxon's which have invested in modern refineries.
"There will be closures as utilisation rates have come down,
but those with complex integrated systems like Exxon's Antwerp
plant can benefit from closures elsewhere," said Blake
Fernandez, senior analyst at Howard Weil brokers in New Orleans.
Around 2 million bpd or roughly 15 percent of Europe's
refining capacity will need to be shut by 2018 in order to
balance the market, according to consultancy JBC Energy.
The pressure is a result of competition from the Middle East
and Russia, where refineries are more efficient, and because
European oil demand is falling due to rising energy efficiency.
(Reporting by Simon Falush additional reporting by Ron Bousso
and Dmitry Zhdannikov in London, Michel Rose in Paris, Vera
Eckert in Germany and Jose Elías Rodríguez in Madrid; Editing by
Henning Gloystein and David Evans)