European refiners benefiting from crude oil price, challenges persist: conference


Crude oil prices -- roughly half their level three years ago -- have been benefiting European refiners, as their energy costs fall, but challenges remain, the World Refining Association conference was told this week.

Energy costs for refineries tracked the crude price lower and "this has a significant effect on operating costs of refineries," Solomon Associates vice president Stephen Wright said at the conference in Athens.

Prior to the fall in crude prices that began mid-2014, refineries in Europe had much higher energy costs than competitors across the Atlantic.

The differences between regions "are exacerbated by a high crude price", Wright said, adding that for Europe "high crude price is a big disadvantage".

The lower crude price has also made it "difficult to bring material cost effectively" in Northwest Europe, he said.

Energy costs remained a significant part of European refinery costs at around 50%, versus 28% in North America and South America, which was due to the former increasing utilization and "that drives up energy usage", Wright said.

But "as energy costs reduce, labor costs differentiate between regions," Wright said, adding that, as a result, the US has started "to fall back as labor costs are pretty high". Another disadvantage for US refineries was their much higher cost of maintenance.

Meanwhile low labor costs "give distinct advantage" to Southeast Asia, Wright said.

Low labor costs in central and southern Europe have also seen the "best refineries in Europe moving from western to central and southern Europe," Wright said.


Another challenge for refineries has been the swift changes in demand for diesel and gasoline.

"Gasoline is coming to the front and diesel falling behind," said Wright, adding that "as the market changes, the people who succeed are those who follow the market."

Those with hydrocrackers also need an FCC to produce gasoline, he said.

Apart from market changes, refiners across the world are under pressure from regulators, society, environment and different energy sectors, according to Stefano Milanese from consultancy Arthur Little.

One of his suggestions for refineries was to look at feedstock optimization but also to take action in biofuels and green refineries "which provide opportunity to reduce dependency on oil prices".

But while bio-refineries reduce dependency on crude market volatility, feedstock costs are more than 10 times higher than crude, said Luca Alburno from the Venice refinery.

Eni converted its Venice refinery after the crisis in Europe which saw close to 30 plants shutter since 2008.

Venice operates at 300,000 mt/year capacity with plans to double it, while, separately, Eni's Gela refinery is being modified with the aim of starting up as a green refinery in the middle of 2018.

Venice's 65% conversion rate was "quite low for a refinery", Alburno said. Venice is still running its platformer and isomerization gasoline units, but also uses Eni's own Ecofining technology and produces green diesel, naphtha and LPG predominantly from palm oil.

Its diesel has "very high heating value", cloud point is up to minus 20 degrees Celsius and 70-90 cetane number, and the refinery is working with the navy to test green diesel in the ship cargo market and is also studying the possibility for producing green jet, he said.

While emissions and water consumption have dropped substantially, the Venice refinery was looking to diversify from the costly palm oil and was testing cooking oil, shea oil and matrilox -- a byproduct of bio-petrochemicals.

It expects to launch a pretreatment unit in February-March next year for treating advanced feedstock, Alburno said.

"We are looking for lower prices feedstock and if possible linked to crude oil market and not food like palm oil," he said.

Others, like Finnish UPM Biorefining, are producing wood-based biodiesel from residue from the pulp process, drawing on its experience in the paper industry, said Teemu Lindberg, refining director.

Meanwhile the focus of European refiners is further direction from the EU -- the European Commission's clean energy package sets decarbonization as one of the main aims.

While some countries in Europe still subsidize fossil fuel prices, the drive to alternative fuel remains at the forefront, said Megan Richards, director for energy policy at the European Commission.

The fall in clean energy costs has prompted the commission to reassess its impact assessments of costs with the aim of "going to higher targets of renewables".

"We have seen just in the last two years dramatic reduction in the cost of wind and solar,' Richards said.

Commenting on high prices for biofuel feedstock, she said: "I know it is painful now but we have to take a longer views."


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