The newest oil refinery in Saudi Arabia reached full capacity last month, increasing the international competition that Vitol SA and Total SA said will force the closing of more European plants.
The Satorp refinery, a venture between Total and Saudi Arabian Oil Co., processed crude at a rate of 400,000 barrels a day on Aug. 1, Patrick Pouyanne, Total’s president of refining and chemicals, said at a conference in Brussels yesterday. Europe’s refineries are too small and not sophisticated enough to compete with new plants, Chris Bake, executive director at Vitol, the world’s largest oil trader, said at a separate conference in Fujairah, in the United Arab Emirates yesterday.
“Rationalization is a necessity for Europe,” Pouyanne said at the Platts European Refining Summit. “We are facing a global overcapacity” and companies in Europe should close about 10 percent of refining capacity by 2020 because of falling domestic demand and rising competition.
European refineries are shutting or converting to storage depots at the fastest pace since the 1980s after demand for oil products dropped for seven years and competition from other regions intensified. Seventeen plants closed in the past six years, according to the International Energy Agency, the Paris- based adviser to 29 nations. Another 10 refineries need to close, equating to 1.5 million to 2 million barrels of daily capacity, Pouyanne said.
“There’s quite a need to cut refinery capacity further beyond what is happening today,” Toril Bosoni, an IEA analyst, said at the Brussels conference yesterday. “The outlook for margins is not looking so good next year.”
Another 4.8 million barrels of daily capacity would have to be cut worldwide by 2019 to increase the average refinery- utilization rate to the levels last seen before the 2008 financial crisis, Bosoni said. This may be done by closing existing plants or delaying or canceling new projects, she said.
European refiners are at risk of closing because “they’ve been under-investing for too long and are too small to compete with the biggest refineries in the Middle East and India,” said Vitol’s Bake.
Satorp is the first of three new Saudi refineries. Saudi Arabian Oil Co., known as Aramco, is constructing another 400,000 barrel-a-day plant at Yanbu on the Red Sea coast with China’s Sinopec Group. The project is in the “precommissioning” stage, Aramco Chief Executive Officer Khalid Al-Falih said on Sept. 10.
The Jazan refinery project in the kingdom’s southwest will also process 400,000 barrels a day of crude and is planned to begin operations in 2016, according to Aramco’s website.