European Refinery Plans Threaten Biofuel Glut

The European refining industry is in danger of reducing excess conventional refining capacity at the price of creating a glut of biofuel capacity.

Fear of industrial strife and concerns over corporate image are pushing Total and Italian energy group Eni towards biofuel conversions that allow them to reduce or eliminate the job losses that site closures would bring.

But the halving of the oil price since June last year has all but ended discretionary blending of biofuels in the EU, with significant capacity sitting idle. As recently as January, Spain’s largest biodiesel producer Musim Mas shut in 300,000t/yr of production at the northern Atlantic port Ferrol, after failing to find buyers in north west Europe for its product. Europe’s largest biodiesel producer Avril — formerly Sofiproteol — cut capacity from 3mn t/ yr in 2013 to 2.7mn t/yr in 2014, citing capacity excess and saying it could cut further.

Market participants speaking to Argus say employee protests and political pressure to avoid layoffs in the midst of Europe’s ongoing economic crisis, are part of the reason companies are choosing to convert.

Public policy pressures also exist. Companies need to fulfil EU 2020 and ongoing national biofuel blending mandates. But far cheaper sources of biofuels are readily available in the already over-supplied European market.

Despite excess biofuel capacity in Europe, trade unions have said Total is planning to announce its loss making 150,000 b/d La Mede refinery will be converted into a site producing biofuels. Chief executive Patrick Poyanne — formerly head of the company’s downstream division — is to announce a review of Total’s refineries before the end of June. If the unions are correct, La Mede will join the company’s Dunkirk facility — once a 156,000 b/d refinery — which is earmarked to become a 200,000t/yr second generation biofuels joint venture, BioTfuel. Total says the refinery conversion process at Dunkirk will finish in 2016. From 2017 onwards the company intends to begin producing biofuels from organic waste, but commercial scale production is unlikely before 2020.

Despite the overcapacity in EU biofuels production, Poyanne says “we believe there is a market”. BioTfuel has seen the start up of the unit slip several times from an original date of 2012, with costs rising from €112mn ($118mn) to €180mn. The refinery was earmarked for conversion under former chief executive Christophe de Margerie in 2009, pressured by strikes and court decisions to maintain some operations at the site, promising no layoffs.

Eni confirmed on 6 March that it wants to covert its 105,000 b/d Gela refinery in Sicily into its second hydrotreated vegetable oil (HVO) biodiesel unit, outputting 750,000t/yr. Chief executive Claudio Descalzi is expected to give more details in a strategy update on 13 March. The Gela conversion will give the company 1.1mn t/ yr of production. But this is nearly twice its mandate requirement of around 600,000t/yr, with one market actor calling the decision “political”. The firm had faced strikes, protests and interventions by government ministers after it announced planned restructuring of its downstream segment following financial losses. Speaking at the company’s full year results presentation, chief financial officer Massimo Mondazzi said the cost to Eni of the Gela conversion would be “around €200mn to €220mn” with construction taking two years after full approval is received.

The firm had already converted its Venice refinery – which produced 80,000 b/d – into a 350,000t/yr facility to output HVO in June 2014, after it faced employee actions when it mulled closing the site. HVO can be blended into diesel in the same way as ester-based biodiesel, but has properties closer to diesel and a much higher freezing point, making it more suitable for winter sales in Europe.

But site closure, replacement with storage operations, or conversion of conventional refineries into biofuel plants are not the only models in Europe. Spain’s integrated oil company Repsol and refiner Cepsa are both combining existing on-site refining operations with HVO production. Repsol produces around 60,000t/yr at both its Bilbao and Cartagena refineries, processing palm oil as feedstock. Cepsa also uses palm oil to produce HVO at its 180,000 b/d La Rabida refinery in the southern port of Huelva with its latest figures showing production of around 278,000t/yr.