Is oil refinement all dried up ?

The employees of six refineries and seven out of the 31 warehouses belonging to the French oil giant Total have been on strike since Feb. 19 to protest against plans to close Total’s Dunkirk refinery in northern France, which has been shut down since September. On Tuesday, the employees of two plants belonging to the US firm ExxonMobil joined Total strikers to denounce the dismantling of the French oil refineries.

The current state of French refineries

The refinery sector in France is at a critical juncture. A study recently published by the French Institute for Petrol revealed that “in 2008, the financial crisis took a heavy toll on the petrol refinery industry.” According to Jean-Louis Schilansky, president of the French Oil Industry Association (UFIP), the 12 oil refineries have lost as much as “150 million euros a month” since March 2009.

In 1975, there were 24 active refineries in France. Now, less than half remain with six of them owned by Total. According to the French Institute for Petrol, the levels of refinery in Europe as a whole dropped by two-thirds between 2008 and 2009.

For this reason, petrol companies have taken to delocalising their refineries – which are both costly and polluting - to countries where they can take advantage of on-site oil fields. There, they enjoy significant financial advantages, less strict environmental and safety codes, cheaper labour, and fewer overall constraints to doing business. It also means avoiding the possible surcharges that a future French scheme to levy carbon emissions taxes could bring.

Less profitable

The increase in crude oil prices on the market has reduced profit margins for petrol companies. But the root of the problem is to be found in the nature of consumption of petrol products.

In France, and to some extent in Europe as a whole, diesel consumption surpasses that of petrol.

According to UFIP data, France exports more than a quarter of the petrol it produces, and imports 39% of the diesel it consumes. This discrepancy isn’t very profitable for French petrol refineries.

The global financial crisis and the development of renewable energy have also lowered demand, particular in the US, one of the principle markets for European oil.

As for developing countries, who are consuming just as much fuel as before, and who would normally be the perfect market for the excess petrol produced by French refineries, they have recently started shifting the refinement process to their own soil.

Are refineries in the rest of Europe suffering the same fate?

“The affluent European nations are not competitive, it’s obvious,” said Simone Wapler, editor-in-chief of the UK magazine Money Week. “All over continental Europe, closing refineries has become the trend. More and more, petrol is being produced in countries with cheap labour.”

Schilansky, in his capacity as UFIP head, stated in early February that Europe’s capacity for refining crude was much greater than market demand. “It’s not a problem that can be solved by simply closing one refinery. One would have to cease production of seven to eight million barrels per day, amounting to 10-15 percent of Europe’s total crude capacity.” Schilansky estimates that “around 15” of Europe’s 114 refineries would have to be shut down in order to make supply and demand more equal.

In fact, the Italian petrol company Union has just announced that it will be closing four or five of its refineries in Italy. Four sites in Germany and the UK are also at risk.

Empty tanks in French petrol stations?

France is in the midst of two-week long school holidays, which traditionally means there are more cars on the road as families go motoring: a fuel shortage is particularly inconvenient at a time of increased demand for petrol. Total has guaranteed that half of its 12,000 petrol stations in France would not be in danger of running out of fuel.

Despite all reassurances, consumers panicked, resulting in a run on petrol stations over the weekend. On Monday night, day six of the strike, 132 petrol stations (of a nationwide total of 2,600) ran out of fuel.

However, the government and experts do not fear a serious shortage. France has reserves, and if necessary it can obtain petrol from other nations.

The president of the UFIP estimated on Monday that France had enough fuel for “between seven and 10 days.” Some regions are more affected than others: Total is the only refinery in the western part of the nation and in the Lyon region in eastern France.