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Global Oil Refining Sector Needs Consolidation: BP

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By Alex Lawler and Emma Farge
February 15, 2010

LONDON (Reuters) – Consolidation is needed in the global oil refining sector, the chief economist of BP Plc said on Monday, indicating more tough decisions ahead for an industry beset by poor margins.

Oil companies including BP and Royal Dutch Shell have reported billions of dollars of losses from their refining business in the fourth quarter 2009 as the economic crisis hit fuel demand.

“To put it bluntly and shortly, there will have to be some consolidation in the global refining industry,” BP’s Christof Ruehl said at the IP Week oil and gas industry conference.

Oil refiners faced a double blow in 2009 when world demand for fuel fell because of recession just as a host of new refining projects planned during the boom years came on stream, squeezing margins.

Additions to global oil refining capacity in 2009 were the highest in 30 years, Ruehl estimates.

Shell is looking to divest 15 percent of its global refining. U.S. rival Chevron plans to close some of its refineries but has yet to say where.

The BP official said so-called simple refineries — without the capacity to convert heavy oil products into lighter fuels such as gasoline — would be most likely to close. Still, it was not simply a matter of closing plants for good.

“This is most likely to be not just about permanent shutdowns — it’s about mothballing, running down crude runs, changing configurations,” he told reporters.


Refineries in developed markets will be at a disadvantage compared with those in emerging markets, where governments often subsidies fuel prices, BP’s Ruehl said.

“You would expect the impact on refiners to be worse in countries where there is no protection,” he said.

Ruehl said he expected global refining utilization rates to fall in 2010.

Oil demand in developed OECD countries has peaked, according to BP and some other forecasts, while consumption is still expected to rise in emerging economies, such as China, for the foreseeable future.

Ruehl said he expected oil majors to seek acquisitions in China and other parts of Asia.

“These are the growing markets,” he said.

An Exxon Mobil executive attending the conference said the company was always reviewing the profitability of its assets worldwide, but any sale of the Exxon’s Fawley refinery in the UK was not on the agenda.

“We continue to look at the economics of our operations around the world,” Brad Corson, chairman of Exxon Mobil International, said when asked if the company planned any refinery sales.

“We currently have the largest refinery in the UK, Fawley refinery. We pride ourselves on being one of the most cost-effective refineries in the European region and as such we have no imminent plans in that regard.”

(Editing by James Jukwey)

Copyright 2010 Reuters News Service.
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