* Small, non-complex Atlantic basin refiners most at risk
* Sees no risk in lower Russian supplies, plant
* Says new Asian, Middle East plants unlikely to target
By Ron Bousso and Dmitry Zhdannikov
LONDON, Sept 16 Finland's Neste Oil
expects more plant closures by refiners in Europe as many have
failed to copy its model focused on serving local markets,
ultra-modern technology and biofuels.
A rare success story in European refining, the company last
week upgraded its full-year profit guidance citing
better-than-expected demand for renewable fuels.
European refiners, including BP, Royal Dutch Shell
and Total, were expected to slash crude
processing rates by around 750,000 barrels in September and
October in the face of weak profits, traders said.
"In Europe, there is too much refining capacity that is also
outdated," Chief Executive Matti Lievonen said in an interview.
As Europe's refining industry continues to shrink due to
weaker domestic demand, less complex refineries that rely on the
U.S. market are the most vulnerable, Lievonen said.
"The United States will become self-sufficient in gasoline
production in around 2020, so that puts extra pressure on small
refineries in the Atlantic basin.
"Those are probably the most pressured. Refineries that have
strong positions and enough complexity and strong home markets
will survive," he said.
Some 1.8 million barrels per day of European capacity have
been mothballed since 2009, according to Deutsche Bank. That
leaves 10.7 million bpd of operating capacity in the European
Union plus Norway.
Demand for refined product in Europe is set to decline by
170,000 bpd per year over the next five years, leading to the
closure of two small or one large refinery, according to JBC
The higher share of middle distillates and lower gasoline
production at Neste's Porvoo refinery, among Europe's most
modern, shelters it from declining U.S. gasoline imports.
"This company has always been very innovative and we have
been able to develop new products. We were first in Europe in
unleaded gasoline and sulphur-free diesel," says Lievonen.
While many northwest European refineries cut crude oil
processing rates to an average of 75 percent in the face of weak
profit margins in recent weeks, Porvoo has kept operating at 100
percent of capacity, according to Lievonen.
Refining margins at Neste's 210,000 barrels per day (bpd)
Porvoo refinery so far in 2013 have been around $6 per barrel,
nearly three times the average European Brent cracking margin.
This is due in part to Porvoo's position in the centre of
the Baltic, where demand for diesel has been on the rise.
Lievonen says the refiner has a humble strategy of
continuing to target mostly the Baltic markets, where it
generates 68 percent of its sales, with another 20 percent
generated in Europe and 12 percent in the United States, Africa
Challenges are abundant, including Russia, Porvoo's main
crude supplier, re-routing oil to Asia and modernising its
refineries, Europe's struggling economy, and the building of
huge, modern refineries in Asia and the Middle East.
Porvoo's proximity to the port of Primorsk in Russia gives
it a stable flow of Urals crude, which accounted for 68 percent
of intake versus 18 percent of Brent in the first half of 2013.
Although Russia is in the process of increasing supplies to
Asia at the expense of Europe, Lievonen believes the Baltic will
remain well supplied by the world's largest oil producer.
"We do not see any supply risks to Europe," he said.
He expects Urals to trade at an average discount of $1-$1.50
per barrel to dated Brent in the long-term despite recent spikes
in value due to a rise in Russian domestic runs.
He also said he was not very concerned by a large refinery
modernisation programme in Russia, which should result in much
higher output of diesel and lower output of fuel oil.
"Russian local demand is increasing too," he said.
New massive refineries in the Middle East and Asia would
mostly target customers in Asia and Europe's Mediterranean
markets rather than the Baltic, Lievonen said.
Neste's heavy focus on biofuels made from palm oil and
animal fats only turned profitable in the first quarter of this
The company now plans to increase annual renewables output
by 15 percent to 2.3 million tonnes by 2015.
Demand for biofuels in Europe is expected to rise as the
European Union wants to see biofuels meeting 10 percent of
transportation fuel demand, up from 6 percent currently.
Neste Oil has two fossil fuel refineries, in Porvoo and
Naantali in Finland, and three renewable diesel refineries, in
Porvoo, Singapore and Rotterdam. In the United States, which
buys 35 percent of Neste renewables, biofuels consumption is set
to double by 2020, according to Neste.
(Editing by Jason Neely)