Survival of the Fittest for European Refineries

Michelle Remo, “Big 4″ observer
July 30, 2012 /

Cost issues, operational performance, environmental legislation and ageing assets are the biggest challenges for European refineries.

This was according to a poll of 190 industry insiders, suggesting that only those who effectively manage costs and operational performance will survive.

In a recent debate by the KPMG Global Energy Institute, nearly 60% of guests from the energy industry cited effective cost management and optimised operational performance as the most vital characteristic of European survivor sites.

Over a third (32 percent) of respondents believed the current challenges of falling demand and depressed margins faced by the European refining industry would continue for the next five to ten years, and 27 percent felt they would continue indefinitely.

More than half of the executives questioned believed that over the next 10 years, the rate of European refinery divestments and closures would increase.

Jeremy Kay, partner within KPMG’s energy and natural resources team, said: “Ageing European refineries cost more to maintain and operate than the newer plants being built in Asia and the Far East, and when you add this to the higher cost base and increasing levels of legislation in European refineries, the future is looking increasingly difficult.

“The current challenges facing the European refinery industry may well prove permanent and any significant recovery will take some time. It is highly likely that more European oil refineries could have to close, with only the leaner, more efficient plants standing any chance of survival.

“We predict that over the course of the next decade we will be left with a much smaller European refining industry, as existing refining companies look to share the high costs of operation, resulting in a wave of joint venture partnerships.”

The majority of respondents expect investment in European refinery assets to come from international oil companies (35%), followed by private equity and sovereign wealth funds (26%).”

Jeremy Kay concluded: “Investment groups and oil companies from Asia, Russia and the US are being selective and targeting only the most advantaged European refining assets. Even so, divestment will only remain a viable strategy for refinery owners if the asset is properly prepared and the sale closely managed.”


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