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The European refining sector

is facing big challenges

Europe
renery
decline hits
petchems
PAOLO SCAFETTA ICIS CONSULTING

he persistent weakness of the European economy and tough environmental policies are heavily affecting
domestic oil consumption.
In the past, diesel-use increases have compensated somewhat for the drop in gasoline.
In fact, through the increased use of diesel in
the European car eet, diesel road use has increased at an average growth rate of 2.9%/year
from 2000 to 2011 against a decline of gasoline by about 3.1%. While recent estimates
indicate a constant decline, an optimistic scenario shows a slight rebound in 2013.
In particular, while the biggest consumers
(France, Germany, Italy and UK) show a drop
in oil requirements, eastern Europe and the
Mediterranean countries, Turkey and Poland
primarily, contribute the most to oil demand.

Petrochemical feedstocks and diesel use are

the main driving forces of future oil growth.
But, freight transport would sustain the projected demand growth more than private use
because of the increased efciency of cars and
shorter trips.
Yet the implementation of the EUs 20-2020 policy (20% cut in greenhouse gas
emissions from 1990 base; raising use of renewables to 20%; and a 20% boost to energy
efciency) plus the development of its Energy Roadmap 2050 show the push for on the
one hand, decarbonisation and, on the other
hand, ensuring security of energy supply and
competitiveness. The general outlook in the
EU is a move towards a green energy
matrix, with a progressive decrease in oil
product consumption.
The malaise of the European renery sector
has been going on for many years, as witnessed

EUROPEAN ETHYLENE PRODUCTION BY FEEDSTOCKS

m tonnes

Naphtha

Middle distillates

LPG

Heavy crudes

Ethane

25
20
15
10
5
0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

32 | ICIS Chemical Business | 10-16 December 2012

Rex Features

Greater vehicle efciency plus regulatory moves pushing

increased use of renewables could leave petrochemical
producers with a transformed feedstock landscape
by the constant decrease of operational plants
albeit, until 2005 the total rening capacity increased in line with oil consumption. There
was rationalisation of reneries with closures
of less competitive sites and this kept capacity
utilisation at around 82%. This was the golden
age of European rening.
With decreasing oil demand due also to rising crude oil prices, rening capacity started
to shrink. Recently, both strong international
competition and the economic slowdown
have had a further negative impact on rening
capacity. Between 2009-2011, these factors
caused the closure of another ve reneries
with a total capacity of about 700m bbl/day.
In 2012 four additional plants stopped rening in France, Germany, Italy and the UK.
In addition, changes of ownership in the
rening industry with the entering of exploration and production majors and trading companies could mean more exibility and opportunity for the supply market.
A few Italian reneries are still under pressure. Enis Gela renery in Sicily has run partially since April, while apis Falconara renery will close for one year (2013) and the Porto
Marghera site in Venice will be converted into
a green renery for the production of biodiesel from 2014. Apart from the coming on
stream of the Socar/Turcas Energy renery in
Turkey in 2017, for the time being the players
are no longer interested in investing in the rening sector because of the weaker outlook.
Notably, current low utilisation rates of European reneries also reect a reduction in
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MARKET OUTLOOK FEEDSTOCKS

change their product slate in favour of middle

distillates and remain in a competitve position. The EU could play an important role
supporting, eventually, the necessary rationalisation of domestic renery capacities.

EUROPEAN REFINING FUTURE TRENDS

m tonnes

No of reneries

1,000

130

900

125

800

120

700

115

600

110

500
400
300
200

PETROCHEMICAL DEMAND
In Europe most of the existing steam crackers
are integrated with reneries. In terms of petrochemical feedstock, volumes of naphtha are
constantly drawn from the gasoline pool to
the petrochemical industry. In fact, the drop
in gasoline demand has hit naphtha consumption for renery uses. This has declined by
about 2%/year from 2000-2011.
Meanwhile, naphtha for other uses (chemical and fuel) has grown at about 1%.
Ethylene requirements, after a drop both in
2008 and 2009, is increasing at an annual average growth rate of less than 1%, although it
remains slightly below the peak of consumption recorded in 2007.
This growth depends principally on the
Petkim investment in petrochemicals in Turkey around 2017. Regarding the outlook for
feedstocks, naphtha and liqueed petroleum
gas (LPG) show the major contribution in volume terms, while demand for the remaining
feedstocks should not change signicantly.

105
Optimistic oil consumption
Refining capacity
Pessimistic oil consumption
Number of operative refineries*

2000

100
95
2020

90

NOTE: *excluding dedicated lube/asphalt refineries

gasoline exports, in particular to the US. Reduced local demand, but also increased use of
ethanol are the key factors there.
Notwithstanding, Europe must, to some extent, keep its rening structure to guarantee
security of supply and feedstocks for the petrochemical industry. The restructuring process should continue by shutting down lessprotable reneries and matching supply
with domestic demand proles.
In fact, the output of most reneries is not
aligned with demand and produces gasoline
in overcapacity. The major players need to invest in upgrading their existing assets to

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The growth in LPG is limited both by logistical infrastructure and availability of exiblefeed liquid crackers. In addition, as LPG supply both from NGL plants and reneries is
expected to remain roughly at, the outlook
foresees progressively growing imports to
cater for domestic demand.
In particular, the LPG decit is expected to
rise from almost 5.0m tonnes in 2011 to about
8.0m tonnes by 2020. The Middle East, rstly,
is a potential candidate to supply incremental
LPG over the next few years following an impressive projected development of NGL
recovery plants.
However increases in naphtha requirements are projected to have a minor impact on
naphtha imports because of major amounts of
material released from domestic reneries.
Aromatics demand follows a similar pattern
to that of ethylene with an average growth rate
projected to be about 1.5%/year between
2011-2020. Among feedstocks, reformate
should overtake the contribution of pygas. O
Paolo Scafetta is a chemical engineer
and joined Parpinelli TECNON (now ICIS
Consulting) in 2001. He is engaged in
annual multi-client reports, as well as
single-client studies. Contact
paolo.scafetta@icis.com

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10-16 December 2012 | ICIS Chemical Business | 33