The European refining industry has gone through numerous cycles, but this time many of the changes are likely to prove permanent. We expect the current trends of falling demand, rising imports, increasing European legislation, growing competition from emerging markets and eroding margins to continue.
However, it is not all negative:
- The world’s appetite for hydrocarbons will keep growing, especially in India, China and across the wider Asia Pacific region
- Positioning refinery assets and operations properly now – when asset purchases are cheap and the costs of improvements are not as expensive as they were in the boom years – provides a good opportunity for high quality European refineries to compete profitably in the future
- Europe remains one of the largest economic regions in the world, and will be for the foreseeable future
Significant recovery, though, may take some time: cost pressures will continue; over-supply and competition will remain fierce; and the European carbon tax will continue to tilt the playing field in favor of overseas refiners that are subject to less regulation. The industry has seen a number of plant closures in recent years and more may well follow – as demonstrated recently by the announced closure of the Coryton refinery in the U.K.
The survivors will have to be leaner, more efficient and better able to adapt to changing market needs. A strong focus now on building and maintaining their relative competitive advantages is vital to help ensure their survival today and profitability in the future.