Petroineos Grangemouth closure plans the latest round of refinery rationalisations

LONDON (ICIS)–Plans by Petroineos to potentially shutter one of the units at its Grangemouth, UK, facility is the latest phase in the rationalisation of the global refining sector, which could stand to impact on chemical feedstock availability if the wave continues.

Joint venture partners INEOS and PetroChina has announced plans to launch a consultation on closing crude distillation unit 1 (CDU 1) and a fluidised catalytic cracker at the 210,000 bbl/day facility, citing reduced global demand in the wake of the coronavirus pandemic.

The move would also recalibrate refined products output to more closely reflect demand in northern England, Scotland, and Northern Ireland, the partners said. Both units have been offline for most of the year as a result of the impact of the coronavirus pandemic on demand.

The move, which would represent a substantial reduction in capacity at Scotland’s last remaining refinery, is the latest announcement in Europe. Neste is also considering a closure at its Naantali, Finland, plant, as is Gunvor in Antwerp, Belgium.

Croatia-based firm INA also announced plans at the end of 2019 to convert one of its refineries, at Sisak, into a bitumen terminal.

Several European oil and gas majors have expressed plans to increase biofuels production, potentially at the expense of refining capacity.

Total has already announced plans to convert its Grandpuits, France, refining site to 100% renewables, a €500m investment that will convert 7% of the firm’s European refining capacity to bio-refining.

Shell is moving forward with the shutdown of its 240,000 bbl/day refinery in Convent, Louisiana, the largest closure announced in the pandemic so far.

The company stated that the move was part of a wider plan to prepare for a less fossil fuel-reliant global fuels market, but it is far from the only planned shutdown or conversion of a refining site in North America, with Marathon, Phillips 66 and  PBF also announcing closures.

Shell has also announced plans to cut 500 jobs from its Singapore operations as part of a wider restructuring, with its wholly-owned Pulau Bukom refinery set to be reconfigured.

“Bukom will pivot from a crude-oil, fuels-based product slate towards new, low-carbon value chains. We will reduce our crude processing capacity by about half and aim to deliver a significant reduction in CO2 [carbon dioxide] emissions,” Shell said.

The Grangemouth closure is far from the first announced in the UK

“The move is not unprecedented both globally and in the UK,” said ICIS global refining team senior consultant Michael Connolly. “In the UK, Total Lindsey did a similar move in 2016 and a year earlier the same occurred at Essar Stanlow.”

“The driver is to supply only the nearest (highest margin) markets and reduce the amount of product from the refinery that moves in to lower margin markets and decrease fixed costs, hopefully overall to increase profitability,” he added.

Despite a rally in crude pricing after pharmaceutical firms Pfizer and BioNTech announced strong efficacy rates for their coronavirus vaccine currently under development, but demand has fallen sharply this year and is likely to take some time to recover to 2019 levels.

The latest crude demand projections from the International Energy Agency point to an 8.8m bbl/day decline year on year in 2020 to 91.3m bbl/day, a downward revision of nearly half a million barrels a day compared to its projections the previous month.

A resurgence in lockdowns in Europe has dented OECD demand, while air and road transport miles remain depressed and a mild winter has reduced heating fuel demand. The situation is expected to improve next year but remain 3m bbl/day below 2019 demand.

Refining throughput fell in September as higher activity in parts of the world failed to offset the impact of hurricane-driven shutdowns in the US.

Permanent refining capacity shutdowns now stand at 1.7m bbl/day, but significant structural overcapacity remains, with more than 20m bbl/day of crude distillation capacity remains idle, highlighting the extent of the supply/demand disparity in the current market.

A closure of part of Petroineos’ Grangemouth refining capacity would be unlikely to move the needle on European oversupply, according to Connolly.

“The effect on Europe is limited, with ample global supply currently and predicted reduced transportation fuels demand in Europe in the medium to longer term,” he said.

The impact of the moves could be limited in the current low-demand environment but could have implications for the petrochemicals sector in future.

A cracker announced by INEOS in Antwerp would the first to be built in Europe in two decades and, with operating and raw materials costs higher in Europe than in many other markets, there is limited appetite to invest in more capacity, particularly in light of the protracted economic slowdown in the wake of the pandemic.

With the strong potential for additional closure announcements, significant refinery shuttering could stand to impact on propylene availability down the line, particularly in light of competition from cheaper and newer crackers in the US, which run on shale-derived ethane.

INEOS is the only firm to announce plans for new cracker capacity in decades, and that too will produce shale-derived ethylene.

A rationalisation of Europe’s ageing cracker stock in the wake of refinery closures could impact on propylene and polypropylene availability, with a spate of new propane dehydrogenation (PDH) units set to offset that decline to an extent.

INEOS and Borealis both have PDH units under development with capacities of over 700,000 tonnes each, flagship units, but substantially smaller than any new cracker.

With oil prices likely to remain depressed even as the demand collapse becomes less substantial over time, and the operating environment remains uncertain even as vaccination programmes likely start to roll out across the world in 2021, the European refining sector could see yet more rationalisation.

This could be compounded over the coming years by increasingly tight regulations on fossil fuel cars and on emissions, which has already started to drive more concerted moves by oil and gas majors away from their comfort zones, further downstream into petrochemicals and into electric vehicle markets.

Company	Location	Plans	Date
Total	Grandpuits, France	Conversion, biorefining	By 2024
INA	Sisak, Croatia	Conversion, bitumen (biorefining under consideration)	By 2023
Petroineos	Grangemouth, UK	Partial closure	In consultation
Gunvor	Antwerp, Belgium	Closure	Under review
Neste	Naantali, Finland	Closure	Under review

Focus article by Tom Brown.

Additional reporting by Miguel Rodriguez-Fernandez and Nel Weddle.

Read additional commentary on European refinery shifts and the Grandpuits refinery shift on ICIS here.

Thumbnail picture: Lotos’ refinery in Gdansk, Poland (source: Wojciech Strozyk/REPORTER/Shutterstock)