Strikes, indignant motorists, big monetary waste and a dyspeptic President of the Republic have put Total, the French oil giant, underneath heated vigour to suspend, if not cancel, plans to close down the Dunkirk refinery.
A set upon by members of the communist-affiliated CGT kinship protesting opposite the due closure is causing the light shutdown of all 6 Total fuel plants in France. With usually 7 days of fuel reserve remaining, informal elections appearing and French family groups scheming for half-term legal holiday driving, President Sarkozy has since marching orders to Christophe de Margerie, Totals mustachioed arch comparison manager after Dunkirk, there will be no some-more refinery closures.
Instead, a sacrificial English lamb has been mooted: the sale of Lindsey, Totals British refinery. The French President wants to pull a line on the beach at Dunkirk, but Mr Sarkozy is deluding himself if he thinks that he can do some-more than check the suffering at home. If this were nonetheless an additional cyclical downturn, Total competence swallow a little red ink rather than humour the mud-slinging of politicians, unions and consumers, but the French oil association is confronting something most bigger than made at home opprobrium.
The stinking fuel factories of Europe and North America are in their genocide throes, dejected by high oil prices and timorous direct for oil products. Total is losing €100 million (�88 million) per month from the European refinery business. BP suffered a $1.9 billion necessity in the tellurian fuel-making commercial operation in the fourth quarter, whilst Shell has voiced an additional call of redundancies, especially in the downstream fuels business, after increase were beaten in enlightening and marketing.
Related LinksExxon Mobil increase tumble 23% on refinery hitThreat to energy supply after sackingsThe complaint is that there are as well most refineries in Europe and as well most that are inefficient, versed usually to routine costly light North Sea crudes rather than cheaper Russian or Arabian crudes with high sulphur content. Dont be misled by the prophesy of acres of steel pipework and outrageous belching chimneys. This is not a static, cookie-cutter business. It is one that requires nimble footwork. A refinery managers day involves a dance to opposite melodies the cost of wanton oil and the cost of the opposite products he sells, petrol, diesel, jet fuel and heating oil. The cost of the former has been on an ceiling direction since the begin of the year, whilst the latter are depressed, stranded in the ennui of recession. According to Purvin & Gertz, an oil consultancy, the simple domain for enormous wanton oil in to gasoline (petrol) has depressed from in in between $5 and $7 per tub a year ago to usually $2 per barrel. Add in alternative costs, such as energy and labour, and the refiners domain slips next zero.
This is an industry with constructional problems, Damian Kennaby, a comparison expert at Purvin & Gertz, believes. For a short duration in in between 2005 and 2008, refiners warranted great money, but Asian companies have built outrageous refineries with their eye not usually on burgeoning internal direct but additionally trade markets. These immeasurable comforts have non-stop their doors usually as the retrogression strike Europe, forcing the oil majors to have oppressive decisions: do I outlay even some-more income upgrading my refinery, or give it up as a bad job?
According to Mr Kennaby, enlightening does not suggest a great long-term lapse on capital. Refiners are price-takers. Upstream oil scrutiny is the price-maker, he said.
Big oil companies lend towards to have their income upstream; the margins in anticipating and producing oil can be huge. Even at the benefaction high prolongation costs of $40 per barrel, the domain for a association such as Total, BP or Shell is large and comforting at an oil cost of roughly $80 per barrel. Compare that with the parsimonious dollar or cent warranted from estimate and offered motor fuel or motor fuel and it is startling that big oil has not since up the commercial operation of fuel production as a bad job.
It competence even come to that. According to Wood Mackenzie, the normal outlay of Europes refineries is right away usually 81 per cent of their capacity, compared with 92 per cent at the commencement of 2008. Over the prolonged term, that is not sustainable, as the cost of profitable staff and progressing plant in a protected condition renders it uneconomic. Few refiners would confess it but BPs experience at Texas City in 2005, when an blast killed fifteen people, is concentrating minds. Squeezing ever some-more cost out of these businesses could display them to a risk as well horrible to contemplate.
The resolution selected by Shell, BP and Total appears to be: shelter to the castles the large, formidable refineries able of delivering increase via the cycle and sell or close the rest.
That is simpler pronounced than done. Shell is still in talks over the sale of the last UK refinery to Essar. With margins so thin, the Indian firm will expostulate a tough bargain. But the alternatives are not palatable. Running down a commercial operation that creates flighty chemicals is dangerous. Beneath these old factories lies dark an fast liability, a poisonous bubbly beverage of lees that competence take years to purify and tens of millions of pounds in costs. For big oil, the enlightening problems are usually beginning.
carl.mortished@thetimes.co.uk
