LONDON--Some of Europe's largest economies face a growing risk
of fuel-supply disruptions, as commercial problems that have
already driven a swath of the region's oil refineries out of
business look set to intensify.
The vulnerability of the sector has drawn the attention of
policy makers across the continent, with fuel security becoming a
rising topic in the policy agendas of many governments and
regulators. They are concerned that the need to import more fuel
will mean higher prices at the pump for consumers who are already
contending with a weak economy.
"If this trend continues, probably the European Commission will
have to take it into account," said Pedro Miras, chairman of
Spain's emergency oil stockholding agency, Cores, and chair of the
International Energy Agency's standing committee on oil emergency
questions. The closures "could affect security of supply, not
today, but in the long term," he said.
Europe's aging refineries have struggled to adjust to the lower
demand and weaker profit margins that accompanied the economic
slowdown. They have also been hit by increased competition from
newer refineries in the Middle East and Asia, which benefit from
lower operating costs.
Fifteen European refineries have shut down since 2008, idling 8%
of the region's fuel-processing capacity, while many others are
running at reduced capacity. The result is that, even as Europe's
total oil consumption has fallen, the proportion of its refined oil
products that are imported has risen to 28% in the first quarter of
this year from 20% in 2007, according to data from the IEA.
Now, the IEA is warning that a flood of fuel production from new
plants in Asia and the Middle East could push global crude-oil
processing to an all-time high of 77 million barrels a day in the
third quarter, squeezing profit margins tighter and potentially
leading to more closures.
"This could be particularly dangerous, if Europe would become
entirely reliant on imports, and no longer able to support its own
consumption needs," said Massimo Vacca, a spokesman for Saras SpA
(SAAFY, SRS.MI), which runs a 300,000-barrel-a-day refinery in
Sardinia.
Italy's refiners face a "dire" situation, said Alessandro
Gilotti, the president of the country's oil association, Unione
Petrolifera, at its annual meeting in Rome last week. "A couple of
[Italian] refiners could be closed in the next year or two with the
possibility of one shutting down already in 2013."
The problem has taken on particular urgency in the U.K. since
the sudden closure last year of the 220,000-barrel-a-day Coryton
refinery near London, following the bankruptcy of its owner,
Petroplus.
"The Coryton closure really stuck out in people's minds as a
serious canary in the coal mine," said Alan Whitehead, a U.K.
lawmaker in the opposition Labour Party and a member of the House
of Commons Energy and Climate Change Committee. Coryton was one of
the largest and most modern facilities in Europe and supplied 10%
of the U.K.'s fuel.
The U.K. has seen its tally of refineries fall to seven from 18
in the late 1970s. In the wake of the Coryton shutdown, the
country's Department of Energy and Climate Change is reviewing the
role of the refining industry in energy security and the way the
country's emergency oil stocks are held.
"Security of energy supply is one of our principal policies at
the Department of Energy," U.K. Energy Minister Michael Fallon told
a parliamentary hearing Tuesday, when asked whether the loss of
refining capacity could be a danger for the U.K. "There's no
complacency about this issue--it's something we need to weigh very
carefully," Mr. Fallon said, although he didn't see a risk of
imminent supply shortages.
Other countries have had similar experiences. According to data
provided by BP PLC (BP, BP.LN), the biggest loss in refining
capacity between 2008 and 2012 was suffered by France, which lost
25%. Germany's has declined 12% in the same period, compared with
11% in the U.K. and 8% in Italy.
This has happened in many cases despite the best efforts of
European governments. The Petit-Couronne refinery in France
languished on the market for 15 months as the government struggled
to broker a deal to save the business. Plans for a sale eventually
fell through after the final two potential buyers were deemed by a
French court to have insufficient funding.
The U.K. government was keen for a buyer for Coryton to be
found, but ultimately was unwilling to provide the financial aid
required to keep the plant running.
"All of Europe is for sale, but nobody wants to buy it," said a
senior executive from the oil marketing and refining industry who
didn't wish to be named.
Further refinery closures would make Europe even more vulnerable
to disruption if "foreign producers will privilege their internal
consumption needs, versus the continuity of exports, especially at
times when they have spikes of internal demand," said Mr. Vacca,
the Saras spokesman.
Higher imports could also cause prices to rise at the pump due
to increased transport and storage costs, the IEA said.
But government intervention to save Europe's refining industry
is a tough sell in a region suffering both a stagnant economy and
sharp public spending cuts. An additional investment of $21 billion
on improvements and upgrades is needed by 2020 just to keep
refiners in business, according to a report published by the
European Commission in May.
-Liam Moloney and Art Patnaude contributed to this article.
Write to Sarah Kent at Sarah.Kent@wsj.com and Cassie Werber at
Cassie.Werber@dowjones.com
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