- Cost pressures and over-supply blamed
More European oil refineries could have to close, with only the leaner, more efficient plants having any chance of survival, according to a report by KPMG.
Despite having been through changes over the last few years, KPMG predicts that many of the changes currently taking place in the European refining industry are likely to prove permanent as falling demand, rising imports, increasing European legislation, growing competition from emerging markets and eroding margins continue.
The paper entitled ‘The Future of the European Refining Industry’, considers the various challenges facing the sector and the need for action now. The report coincides with growing concerns about the future of the Coryton refinery in Essex.
Jeremy Kay, partner within KPMG’s energy and natural resources team, said: “The current challenges facing the European refinery industry may well prove permanent and any significant recovery will take some time. The drop in demand together with increasing competition from emerging markets is eating at margins and we see no let up in these downward pressures.
“Ageing European refineries cost more to maintain and operate than the newer plants being built in Asia and the Far East, and when you add this to the higher cost base and increasing levels of legislation in European refineries, the future is looking increasingly challenging, with a number of refineries fighting for their survival.”
According to KPMG, European refiners must act differently now to protect future profitability. To improve performance, refiners will continually need to challenge all aspects of their business. Investment opportunities must be scrutinised and improvements pursued relentlessly in all commercial and operational areas.
Jeremy Kay concluded: “Identifying those sites which will be survivors is likely to depend on how on the industry responds, with the largest refineries warranting investment and improvement and the scope for divestment at other sites being limited in the current environment. Investment groups and oil companies from Asia, Russia and the US are being selective and targeting only the most advantaged European refining assets. Even so, divestment will only remain a viable strategy for refinery owners if the asset is properly prepared and the sale closely managed.
“If the current trend continues, within the next five to ten years European refining will be smaller, and joint venture partnerships are likely to become increasingly attractive as existing refining companies look to mitigate risks and share the high costs of investing through the future cycles.
“European refinery owners can expect to make a return on their investments if they have a clear understanding of whether their sites are survivor sites or closure candidates, they have clear investment strategies for each site and a steely focus on costs and performance.
“But only the best will make an attractive return and to do so they will have to alter the way they react to the challenges they face.”
The full report can be found at :
For further information please contact:
Julie Marshall, KPMG Corporate Communications
Tel: 0121 232 3177 Mobile: 07887 633677 Email: email@example.com
Emma Murray, KPMG Press office : 020 7694 6506, firstname.lastname@example.org
KPMG Press Office: 0207 694 8773
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