Page 16 - Euroil Week 28 2020

EurOil PERFORMANCE EurOil
Total books weakest refining margins in six years
FRANCE
Even before the pandemic, France’s re neries were struggling.
FRENCH oil major Total, Europe’s biggest oil refiner, suffered its weakest refining margins in six years in the second quarter, owing to COVID-19 lockdowns.
European refineries, including those in France, for many years struggled with slim margins and structural overcapacity until 2014, when the last oil price crash provided them with some respite. ey then enjoyed ve years of cheap oil and robust economic growth. However, the COVID-19 pandemic brought this period of ease to an abrupt end. A er travel restrictions were imposed, margins soon dropped deeply into negative territory as oil product demand tanked.
The outlook is grim for France’s seven oil re neries, which were struggling even before the crisis. ree of them are owned by Total.
In a statement on July 15, Total said the “var- iable cost margin” for its European re neries in the three months ending June 30 dropped to $14.30 per tonne or around $1.95 per barrel. is compares with $26.30 per tonne in the pre- vious quarter and $27.60 in the year-ago period. It marked Total’s lowest quarterly average since the second quarter of 2014, when the gure came to only $10.90 per tonne.
European fuel demand has been steadily growing since lockdowns began to be eased in April, but this has been matched by a recovery in crude oil prices.
Total CEO Patrick Pouyanne described re n- ing margins as “catastrophic” in late May. He said he expected the group’s re neries to operate at 70% capacity, which is 15 percentage points lower than the 2019 average.
Total brought its 93,000 barrel per day (bpd) Grandpuits re nery back on stream in mid-June, after shutting it down following the completion of maintenance two months
earlier. But the company warned last month it was considering the re nery’s future, given longstanding problems with the pipeline that delivers its feedstock.
Grandpuits can only run at 70% capac- ity because of the pipeline’s reduced pressure. Meanwhile, a crude distillation unit (CDU) at Total’s 240,000 bpd Gonfreville re nery has been o ine since a re in December, while a similar unit at the 105,000 bpd Feyzin plant has not been working since February, because of extended maintenance.
e International Energy Agency (IEA) said last week that the demand losses caused by the pandemic had set the refining industry back “by several years.” e IEA estimated that con- sumption in 2021 would still be below the 2017 level, even though global production capacity will have increased by then. Global re ning runs are slated to fall by 6.4mn bpd to 75.3mn bpd in 2020, according to the agency, but rise by 4.7mn bpd in 2021.
Fellow major BP has also struggled with shrinking margins, reporting last week that its margins in Northwest Europe for the third quar- ter had averaged $4.40 per barrel so far, versus $4.80 in the second quarter. Shell, meanwhile, slashed its long-term assumptions for re ning margins by 30% last month, to account for much more bearish post-pandemic outlook.
While France’s plants have more than enough market available – the country’s fuel output can only meet two thirds of its needs – the problem is that they struggle to compete with imports. Further ahead, French and European fuel con- sumption will continue to decline, owing to changes in transport, putting added pressure on their margins.
The consequence could be further shut- downs, perhaps starting with Grandpuits. ™
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w w w . N E W S B A S E . c o m Week 28 16•July•2020