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Shell sees large global oil refining surplus

Thu Feb 2, 2012 9:13am EST

* Shell says global refining surplus of 6 million barrels

* Predicts more refinery closures in Europe

* Shell made Q4 loss from oil refining and marketing

By Alex Lawler

LONDON, Feb 2 (Reuters) – Royal Dutch Shell said on Thursday the global oil refining industry is facing about 6 million barrels per day (bpd) of surplus capacity, and predicted more plants would close in Europe.

Refining crude oil into fuels such as gasoline and diesel, traditionally the second-largest business for global oil firms such as Shell and rivals like BP Plc, has come under pressure from weak profit margins.

Shell, Europe’s largest oil company by market value, made a loss of $278 million from oil refining and marketing in the fourth quarter. The collapse of Swiss-based refiner Petroplus has raised the prospect of more plant closures in Europe.

“Globally, the world has about 7 million barrels a day too much capacity. Recent events whether Petroplus or otherwise have seen about a million barrels affected globally, so that’s only 6 million barrels,” Shell’s chief financial officer, Simon Henry, said at a news conference.

“Two million barrels of new capacity came on stream last year and probably another one and a half this year. So actually, the world is still building more capacity than is going out.”

Seven million barrels a day is more than the entire demand of Japan, the world’s third-largest consumer, and amounts to almost 8 percent of the 90 million bpd the International Energy expects the world will need in 2012.

The challenges of the refining industry in Europe, a mature oil market where demand is no longer growing, were illustrated by the difficulties of Petroplus, which has closed three of its refineries after lenders froze credit lines.

Shell Chief Executive Peter Voser said in Europe there were too many small refineries that are not very profitable, a legacy of an era when every country wanted its own plants.

“Shell has reduced its European portfolio significantly over the last few years. We have done it from our side but some others have not done the same steps like close refineries and that shake out is still to happen,” he said.

“I think we will just see a few big refineries surviving in the long term and hopefully that the current slowdown will actually help to make this shakeout finally now, so that we can have the right refining industry in Europe.”

Despite the loss from refining, Shell reported net income of $6.46 billion in the fourth quarter earlier on Thursday. Most of the company’s profit comes from producing oil and gas.

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