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Facing wave of closures, oil refiners turn to biofuels

October 20/2020

MOSCOW (MRC) -- European and U.S. oil refineries face a wave of closures due to plateauing fuel demand, tightening environmental rules and overseas competition, prompting some owners to opt for an easier alternative - converting plants to produce biofuels, said Hydrocarbonprocessing.

The shock of the coronavirus epidemic crushed global oil demand and as some producers, including, say it might never recover to pre-crisis levels, the need to close refineries has accelerated. The International Energy Agency (IEA) said in a recent report that by 2030 around 14% of current refining capacity in advanced economies faces the risk of lower utilization or closure."

That share could grow to 50% in 2040 under a more aggressive transition away from fossil fuels to electric vehicles, the IEA said. Shutting down refineries, some of which are 70 years old, is a costly process which requires dismantling heavy equipment and pipelines and remediating the land.

So owners are choosing alternative paths, including converting refinery sites to import terminals, putting them to other industrial uses or, in many cases, switching to cleaner biofuels by processing vegetable oil and waste oils. BP, Total and Eni, outlined in recent months plans to grow their biofuel capacities by two to five fold by 2030 while reducing their global oil refining footprints.

The switch is part of companies strategies to radically reshape and grow renewables and low-carbon businesses. Other European refiners including Repsol and independent Italian refiner Saras also plan to increase their capacity. Converting refineries to biofuels makes a lot of sense, said Rob Turner, partner at PWC specializing in the energy sector. "It allows plans to play a role in the energy transition, creates long-term value and mitigates the costs of a full shutdown and site cleanup."

Although refiners in other developed economies face a similar challenge, it is particularly difficult for Europe where local consumption has been in a steady decline and governments have accelerated efforts to curb carbon emissions. Already, three refineries in Europe have shut down in the wake of the coronavirus epidemic - Totals Grandpuits plant in northern France, Nestes Naantali plant in Finland and Gunvors Antwerp refinery. Total converted the La Mede refinery in southern France into a biodiesel plant in 2019.

Other refiners, whose profits have collapsed due to a sharp drop in demand due to the epidemic, are on the brink. Europes biofuel production capacity is expected to grow to around 8 MM tons per year from the current 3 MM tons per year, according to Barclays analyst Joshua Stone.

Finnish refiner Neste Oyj, which has invested heavily in renewables and has biofuel facilities in Europe and Singapore, has seen its shares soar in recent months while those of traditional refiners and energy companies dropped. Nestes shares have gained over 55% so far this year while shares of Saras have tumbled 69%.

As MRC wrote before, on 15 October, The European Commissionadopted the EU's chemicals strategy for sustainability, describing it as the first step towards a zero-pollution ambition for a toxic-free environment announced in the European Green Deal.

We remind that Russia's output of chemical products rose in August 2020 by 5% year on year. At the same time, production of basic chemicals increased year on year by 5.3% in the first eight months of 2020, according to Rosstat's data. According to the Federal State Statistics Service of the Russian Federation, polymers in primary form accounted for the greatest increase in the January-July output. August production of benzene fell to 102,000 tonnes from 95,300 tonnes a month earlier due to scheduled shutdowns for maintenance at several producers. Overall output of this product reached 918,300 tonnes over the stated period, down by 0.9% year on year.

At the same time, August production of primary polymers rose to 888,000 tonnes against 838,000 tonnes in July due to increased capacity utilisation at ZapSibNeftekhim, Stavrolen and Gazprom neftekhim Salavat. Overall output of polymers in primary form totalled 6,630,000 tonnes over the stated period, up by 15.2%  year on year.
Author:Anna Larionova
Tags:PP, PE, ethylene, propylene.
Category:General News
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