Petroplus to convert French refinery into terminal

Oct 21, 2010 12:00 AM

Switzerland-based refiner Petroplus Holdings said it intends to convert its Reichstett refinery in eastern France into a terminal.
The announcement comes as Petroplus, Europe's largest independent refiner, failed to find a buyer for the site and mirrors a similar decision by the company to convert its Teesside refinery in UK into a storage facility in November 2009.

The move is unlikely to surprise the oil market as refiners in Europe have seen their regional and global market share eroded by a massive growth in refining capacity in the Middle East and Asia.
"It's very difficult to make an adequate return in a competitive market... we have over capacity [in Europe] and as Reichstett is a relatively small refinery it makes it a good candidate for closure," said Roy Jordan, downstream consultant for EMC, an energy consultancy in London.

In August, Petroplus' outgoing chief financial officer Karyn Ovelmen said the Reichstett refinery's book value was $ 175 mm. The plant's current shutdown, due to widespread strikes in France, makes investment in Reichstett less attractive, said David Wech, head of research at JBC Energy, a consultancy in Vienna. But Wech cautioned the proposed Reichstett conversion isn't enough to stop further consolidation of Europe's refining industry.
"Given that we see a total of 2.2 mm bpd of shutdown requirement in Europe by next year, this is little more than a drop in the ocean."

Nationwide protests in France against a government-planned pension reform as well the restructuring of Marseille port have disrupted operations at all 11 of the country's active refineries. Northwest Europe Brent fluid catalytic cracker variable cost margin -- an indicator of the amount of money a complex refiner can earn from processing a barrel of crude -- have fallen in the past two years, Jordan said.
The margin is now at just over $ 3 a barrel after getting a short-term boost from disruption to refining operations in France, but was as low as $ 1.40 a barrel at the start of October, Jordan said. The annual average margin was $ 5.35 a barrel in 2008, he added.

News also emerged that labour representatives of workers at a ConocoPhillips's Wilhelmshaven refinery in northern Germany will launch a search for new investors for the facility, after the US oil major revealed plans to convert the site into an oil terminal and fuel depot.
The number of refineries still up for sale in North-western Europe highlights the difficulties facing the industry in the region, with seven plants currently on the list.

Wech warned that despite Petroplus's decision to cease refining activity at the Reichstett plant, the process could be complicated in light of Total's struggle to halt refining activities at its Dunkirk refinery due to opposition from trade unions.
A French court in July ordered the French major to restart its 137,000-bpd plant in Dunkirk, after September 2009 saw Total halting refining at the site and present workers with a plan to permanently shut down refining operations there.

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