Page 6 - Euroil Week 43 2020

EurOil COMMENTARY EurOil

European refiners eye biofuel

Converting refineries to produce biofuels offers an alternative to closures

SPAIN SPAIN’S Repsol plans to build an advanced fivefold over the next 10 years, as part of efforts
biofuels plant at its refinery in Cartagena in to decarbonise their downstream operations.
WHAT: south-eastern Spain at a cost over €188mn Other European refiners such as Repsol and Ita-
Repsol is the latest of ($222mn), its CEO Josu Jon Imaz announced at ly’s Saras have set similar goals.
several European refiners a conference on October 22.
to unveil plans to convert The oil major is the latest of several European Margins
plants to produce cleaner refiners to unveil plans to convert their facilities Margins for motor fuels may have slumped this
fuels. to produce cleaner fuel, in response to height- year, but margins for naphtha and fuel oil have
ened pressure over emissions. held firm.
WHY: The new plant is due online in the first half Refiners cut their utilisation rates heavily over
Refiners are struggling of 2023, Repsol’s head of industrial business and the summer, with rates in the EU16 (the bloc’s
with over-capacity, but trading, Juan Antonio Carrillo, told the confer- 15 pre-2004 accession members plus Norway)
closing plants completely ence. It will produce 250,000 tonnes per year falling to 68% in May-August, which is near to
is expensive. (tpy) of fuels from recycled raw materials for use minimum operating levels. This is down from
in aircraft, trucks and cars, Imaz said. almost 82% a year earlier.
WHAT NEXT: Cartagena is Spain’s biggest refinery, with a Motor fuel inventories still built up over the
The recovery in motor processing capacity of over 100,000 barrels per summer, as they make up the bulk of European
fuel demand has slowed day (bpd). refineries’ product slate. As such, margins have
and will remain under Repsol was among the first major European averaged under $6 and $3 per barrel for diesel
the 2017 level in 2021, oil firms to announce a target to emit net-zero and gasoline respectively, versus over $16 and $7
according to the IEA. emissions by 2050. Adding a biofuels unit will on average in 2019.
reduce its CO2 emissions by 900,000 tpy, the With Europe now engulfed in a second
company said. coronavirus (COVID-19) wave, the outlook is
“With this initiative, we at Repsol are decisively bleak. According to the IEA, premium transport
promoting a new technological route that will be fuel demand will remain under the 2017 level
key in our path towards carbon neutrality,” Imaz in 2021. Diesel has come under more pressure
said. “It is added to the projects we have already than gasoline, as the latter has been supported by
implemented in energy efficiency, low-emissions more people avoiding public transport by driv-
electricity generation, renewable hydrogen, circu- ing their cars to work.
lar economy, synthetic fuels and CO2 capture, use “It’s very difficult for anyone to make money
and storage [CCUS], among others.” when diesel cracks are at this level,” UBS Group
AG analyst Henri Patricot was quoted as saying
Turn to biofuels by Bloomberg, referring to the price gap between
France’s Total last month announced plans to fuel and crude oil in Europe. “We continue to see
convert its 93,000 bpd Grandpuits oil refinery a demand recovery, but it has slowed.”
near Paris to a biofuel and bioplastics plant. Swe- On the other hand, the margin for high-sul-
den’s Preem later said it would consider cleaner phur fuel oil (HSFO) has been relatively resil-
fuel production at the Lysekil refinery, after ient, supported by the idling of the 115,000 bpd
axing a $1.65bn residue oil conversion project. Antwerp refinery and the Netherlands’ 80,000
The collapse in fuel demand this year has led bpd Europoort plant since March. The pair are
many refiners in Europe and the US to consider among the biggest HSFO suppliers in Northwest
shutdowns. The International Energy Agency Europe. Supply has also been curbed by a move
(IEA) estimated in its latest outlook that around towards very-low sulphur fuel oil (VLSFO) pro-
14% of current refining capacity in advanced duction, spurred by IMO 2020 rules on sulphur
economies “faces the risk of lower utilisation or content in marine fuels.
closure.” That share could expand to 50% in 2040 Naphtha margins are meanwhile at a four-
if there is a more aggressive push to change over year high, thanks to resilient demand in the pet-
vehicles from fossil fuels to electricity. rochemicals sector, especially in major import
Among the plants that face closure in Europe markets in the Asia-Pacific area. The fuel also has
are Neste’s Naantali refinery in Finland and Gun- more varied uses than premium transport fuels,
vor’s Antwerp refinery in Belgium. benefiting its margin.
Closing refineries is expensive, however, as For years, declining demand for heavy fuels
it requires the dismantling of heavy equipment such as fuel oil has hurt simpler refineries, while
and pipelines and the remediation of the land. complex refineries that produce more of the
An alternative option is converting sites to either lighter fuels like gasoline have fared better. The
import terminals or conversion to biofuels. BP, shift in the demand slate this year, on the other
Total and Italy’s Eni have all announced they hand, will benefit simpler refineries and come at
will increase their biofuel capacities by two to the expense of complex plants. ™

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