Investment and Upgrades of European Refineries 5th Annual European Middle Distillates Investment and...

Platts 5th Annual European Middle Distillates

Investment and Upgrades of

European Refineries

Masood Ayoub

Sarwarzad Energy Ltdwww.sarwarzad.com

http://www.sarwarzad.com/

Investment in European Refineries

Copyright © Sarwarzad Energy Ltd 2015 www.sarwarzad.com

Exploring recent billion dollar investment decisions by Total and ExxonMobil

in Antwerp and Slagen in Norway.

Why are they investing at the same time as refinery are closing in other

parts of Europe?

Arguments for investment.

Arguments against investment.


Brent Crude Price – 2005 to Date


Cheaper feedstock is beneficial for refiners if crude oil prices remain low going forward.

Oversupply - Continued economic weakness especially in Europe.

Source: Thompson Reuters

Prediction - Back up

to $100/bbl in 12 –

18 months.

Capex cuts, projects

stalled, less drilling,

more M&A.

Brent crude over the last 10 years on 12/01/15


Regional Consumption by Distillates


Western Europe is the largest

region of Middle Distillate

consumption.

European refineries were

built primarily to produce

gasoline.

Source: BP and Jadwa Investment


European Middle Distillate Shortage


Source: Eurostat

Bloomberg reported that

in 2013 Europe

imported 13% of its

diesel, jet fuel, and

gasoil.


Recent EU Refinery Closures


Source: Concawe


Murco Refinery (UK) Deal Collapsed


In July 2014, Klesch Group were betting some

plants can be profitable by processing a higher

proportion of fuels for domestic markets. When

the Milford Haven deal was announced, the first

step would have been to increase diesel output.

Deal collapsed in November 2014. “There is a natural tendency to conclude

there is an oversupply from a refining

perspective in Europe, but that needs to be

challenged. It’s clear majors want to reduce

their exposure to refining. We are in discussion

with all of them.” – Gary Klesch.

Press reports suggested that the UK

Treasury were prepared to grant £100m loan

to Klesch Group.


Outlook for European Refining Sector in 2015


Total, Europe's biggest refiner, promised in 2010 not to close any plants in its

domestic market for five years after it shut the Dunkirk refinery. Total could shut plants

in 2015, as the promised period has expired. In coming weeks, Total has a decision to

make and will address the politically dangerous issue of closing refineries in France.

Italy's Eni reached an agreement with the government and trade unions to convert its

105,000 b/d Gela refinery in Sicily into a bio-refinery, although a decision to close its

84,000 b/d Livorno refinery was met with industrial action.


Influx of Middle Distillates into the EU


USA

More products from yet to be

completed refineries are

destined for Europe.

Arbitrage Opportunities i.e.

from china.

China

Russia

Middle East India


Recent Completed Upgrades of EU Refineries


Numerous refinery upgrades have come on stream in Europe in the period between

2008 – 2013. Most upgrades were planned pre-recession.

Matosinhos and Sines in Portugal

Cartagena, Bilbao in Spain

Zeeland, in the Netherlands

In the works and due on stream:

Burgas in Bulgaria launch in 2015


Eni: Gela Bio-refinery


In November 2014, Eni revealed plans to covert the Gela refinery into a bio-refinery.

Eni's refining and marketing unit, which accounts for 10 percent of capital employed, has been

losing money for the last three years, with operating losses rising to €1.5 billion in 2013 from

€1.3 billion in 2012.

Credit Rating Agency Fitch has stated that failure by Eni to turn around its refining business over

the next 12 to 18 months could trigger a downgrade of the company’s A+ rating.

At the end of July 2014, Eni said it would stop refining crude oil in Gela and instead would invest

€2.2 billion in converting the plant into a production site for biodiesel.

The investment means no job losses for any of its near 1,000 employees.


Copyright © Sarwarzad Energy Ltd 2015

Total confirmed the Final Investment Decision on 22 May 2013.

Total is going ahead with a plan to invest €1 billion ($1.3 billion) at its Belgian refining and

petrochemical complex to boost diesel-making capacity and cut costs.

In Antwerp, Total plans to build a 20,000 barrel per day hydrocracking unit at a cost of €700

million to transform high sulfur heavy fuels into low sulfur diesel and heating oil in 2017.

April 2014:

Maire Tecnimont awarded two contracts at Total’s Antwerp Refinery. The first is an EPC contract

Refinery Off Gas project (ROG) aimed at processing refinery off gases and recovering

hydrocarbons. The second contract is for the execution on an EPCA basis of the modification to the

existing naphtha cracker unit necessary to process the hydrocarbons streams recovered in new

ROG and interconnecting works. The overall value of the two contracts will be approximately €190

million.

Total: Antwerp Refinery

www.sarwarzad.com



More Diesel and Less Sulphur

The first goal is to adapt its production facilities to a changing market.

The European market wants less heavy fuel oil and more diesel. Regulations keep pushing

sulphur content lower and lower. However, this cannot be achieved by pressing a few buttons and

make those adjustments in a refinery.

Synergies and Putting Off-Gas to Good Use

The second goal is to improve the complex's industrial performance and overall efficiency by

stepping up streams among the three sites.

Going forward, the off-gas produced from oil refining, now used strictly as fuel in refinery

furnaces, will be recovered and utilised as feedstock in petrochemical units.

This change, which requires efficient processing of off-gas, will also shrink the complex's overall

environmental footprint.

Total: Antwerp Refinery

www.sarwarzad.com


ExxonMobil: Slagen


In September 2014, ExxonMobil announced plans to Upgrade the Slagen Refinery, in

Norway. The project involves the installation of a residual flash tower.

The project will replace production of heavy fuel oil with high quality vacuum gas oil feedstock,

which is used to produce cleaner transportation fuels such as diesel.

Investment demonstrates commitment to invest in advantaged assets despite challenging industry

environment.

International comparisons show that the Slagen refinery is one of the most energy-efficient

refineries in the world.

Upgrade builds upon refinery’s record of 25 percent energy efficiency improvement since 1990.


ExxonMobil: Antwerp


In July 2014, ExxonMobil approved a project to install a new 50,000 barrels

per day delayed coker unit at Antwerp.

Installing a new delayed coker unit will convert heavy, high-sulfur residual

oils into products such as marine fuel, gas oil and diesel fuel.

Project Capex is over $1 billion.

ExxonMobil’s annual Capex is around $37bn = about 2.7% for this project.

“We're going to fund our best projects.”


Foster Wheeler & Fluor: EPC Contractors


Foster Wheeler completed the front-end engineering design (FEEED) for this project.

In October 2014, Foster Wheeler were awarded an engineering, procurement, and

construction (EPC) contract by ExxonMobil.

In December 2014, Fluor confirmed it’s responsibilities span the project’s life cycle

and include design, engineering, procurement, module fabrication, transportation,

installation and construction.

Groundbreaking ceremony in October 2014.

Start-up is planned for 2017.

*Foster Wheeler is now part of the Amec Foster Wheeler plc after the acquisition by Amec.


ExxonMobil


Antwerp refinery upgrade is a long term investment - 30 to 50 years!

ExxonMobil is also evaluating several other potential refining investments in

Europe.

Invest in a difficult environment if it wants to be around for the long term.

Refinery Manager Todd Sepulveda said: “All of our investments are for the long term, the next 30

to 50 years. The refinery is strategic because of its location in the port of Antwerp, a hub for north-

western Europe, and Exxon explains its decision to invest is based on sound business reasons.”Source: Reuters - interview at the Antwerp ground-breaking ceremony

Jeffrey Woodbury (VP of IR and Secretary) said: ExxonMobil's European assets, though, are

advantaged versus our peers due to the more efficient operations and the integration that we have

with our chemicals and lubricants manufacturing businesses. So you'll see us continue to invest

through the business cycle in order to enhance our advantaged position.Source: Jeffrey Woodbury (VP of Investor Relations) in Q3 2014 ExxonMobil Conference Call on 02/11/2014


Arguments for ExxonMobil’s Investment


More efficient and better equipped to deal with current European fuel needs. If more

European refineries close, it will benefit ExxonMobil and reward its investments.

Geographical and strategic advantage of ARA region. Logistics advantage.

Already invested $2 billion in the last decade.

The diesel deficit explains why ExxonMobil is investing a significant. ExxonMobil can

run its refineries at higher utilisation rates, which would mean lower rates at its

competitors refineries.

Removes the potential risk of closure in the future, thereby future proofing the asset.

Potential of lower oil price (feedstock) going forward into the next few years.


Arguments against ExxonMobil’s Investment


The investment will take another two years to complete.

European refineries pay much more for energy costs than any other region.

It is a very long term investment – 30-50 years by ExxonMobil’s own admission.

European refinery margins may not rise for many years.

Antwerp will have to compete with a new wave of investment and imports of foreign

middle distillates.

New units such as Delayed Coker still produces gasoline.

European economic slowdown.


Alternative Investment Options for Integrated Refiners


❏ Can investments in excess of $1+ billion go elsewhere?

❏ Another refinery in another region or better position markets

❏ Upstream

❏ LNG

❏ Petrochemicals

❏ Acquisitions

❏ Shareholders will not appreciate such long term investment scenario and

would prefer the company share buyback and higher dividends.


Investment, Closure or For Sale?


European refinery owners should act differently now if they are to be profitable in the

future. The main options available to them are:

Invest in their refinery plant to increase production, improve yields, and reduce costs;

Improve operations, procedures and management to reduce costs and improve yields;

Divest unprofitable assets to maximise return on investments made; or

Close unprofitable assets, and possibly convert some, or all, of the site to other uses

i.e. storage.

> Split Strategy - We are seeing all of the above


Trends and Predictions


For every investment decision within the same country, it increases the likelihood of

closure of another refinery (within the same country) in the European Union.

For every investment decision within the EU, there is added pressure for those that

have yet to invest to make a play call or a decision soon: invest, close, for sale, convert

to storage.

The impact of new mega refineries may be severe for the EU refining industry, once

they are on stream: the saving grace is that many will not be online until 2020

onwards.

Not too many refiners in Europe are willing to invest billions for the very long term

with an uncertain outlook.


Existing EU Refineries (Operating)


Source: Concawe


Existing EU Refineries (Operating)


Source: Concawe


Last Words


“Always expect the unexpected. The oil and gas industry

is terrible at predicting anything. Always have a back-up plan.”

David Dixon, graduate production technologist (production engineer) at Shell quoted in the publication,

“Excelling in Your First 10 Years: Ten Life Lessons” - by Jakob Roth, Schlumberger and Islin Munisteri, BP.

“If you don't have a refinery operating, it's hard to use oil that's

available.”T. Boone Pickens

www.sarwarzad.com



Thank you for your attention.

Tel: +44 (0)208 1508296

Email: [email protected]

Web: www.sarwarzad.com

@SarwarzadEnergy

www.sarwarzad.com

Further Q& A / Follow Up

mailto:[email protected]



Sarwarzad Energy Ltd

➔ Independent consultancy, advisory and research firm

➔ Oil, Gas and Petrochemicals

➔ Specialist in tracking projects & plants (FEED / EPC contracts)


Analysts | Bid | Coal | Commodities | Conceptual Design | Consultancy | Contract Award | Database | Downstream | Emerging Markets

| Energy Projects | Engineering Procurement and Construction (EPC) | Exploration and Production (E&P) | Feasibility Study |

Feedstock | Fertilizer | Front End Engineering and Design (FEED) | Gas | Import and Export Data | Investment | Key Contacts | LNG |

LPG | Metal | Methanol | Middle East | Midstream | Mining | Offshore | Oil | Onshore | Petrochemical | Pipelines | Polymer | Power |

Procurement | Refinery | Sarwarzad Energy | Storage Tanks | Subsea | Supply Chain Opportunities | Tender | Tracker Plus | Upstream


Date post:	02-Apr-2018
Category:	Documents
Upload:	phamxuyen
View:	214 times
Download:	0 times

Investment and Upgrades of European Refineries 5th Annual European Middle Distillates Investment and...

Documents