Cost issues, operational performance, environmental legislation and ageing assets are the biggest challenges for European refineries according to a poll of 190 industry insiders, and only those who effectively manage costs and operational performance will survive.
In a recent debate by the KPMG Global Energy Institute, nearly sixty percent of guests from the energy industry cited effective cost management and optimised operational performance as the most vital characteristic of European survivor sites. Over a third (32 percent) of respondents believed the current challenges of falling demand and depressed margins faced by the European refining industry would continue for the next five to ten years, and 27 percent felt they would continue indefinitely.
More than half of the executives questioned believed that over the next 10 years, the rate of European refinery divestments and closures would increase.
Jeremy Kay, partner within KPMG’s energy and natural resources team, said: “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 difficult.
“The current challenges facing the European refinery industry may well prove permanent and any significant recovery will take some time. It is highly likely that more European oil refineries could have to close, with only the leaner, more efficient plants standing any chance of survival.
“We predict that over the course of the next decade we will be left with a much smaller European refining industry, as existing refining companies look to share the high costs of operation, resulting in a wave of joint venture partnerships.”
The majority of respondents expect investment in European refinery assets to come from international oil companies (35%), followed by private equity and sovereign wealth funds (26%).”
Jeremy Kay concluded: “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.”
The research was conducted with around 190 professionals from the Oil & Gas sector. It was conducted during a Webcast by the KPMG Global Energy Institute following a white paper by KPMG “The Future of the European Refining Industry’, which can be viewed at:
http://www.kpmg.com/UK/en/IssuesAndInsights/ArticlesPublications/Pages/future-of-european-refining-industry.aspx
Poll results :
What will be the key characteristic of European survivor sites?
Poll Results (195 answers)
a) Advantaged scale 12%
b) Advantaged location 10%
c) High complexity asset with clear investment strategy 17%
d) Effective cost management and optimised operational performance 59%
In your opinion, what is the most significant challenge facing the European refining industry?
(187 answers)
a) Falling consumer demand 12%
b) Cost pressures 21%
c) Aging assets 21%
d) Increasing competition/imports 20%
e) Environmental legislation 24%
How permanent are the current challenges of falling demand and depressed margins faced by the European refining industry? Current industry challenges expected to continue...
(193 answers)
a) for 0–5 years 22%
b) for 5–10 years 32%
c) for 10–15 years 16%
d) Indefinitely 27%
What will be the key characteristic of European survivor sites?
(195 answers)
a) Advantaged scale 12%
b) Advantaged location 10%
c) High complexity asset with clear investment strategy 17%
d) Effective cost management and optimised operational performance 59%
Over the next 10 years, do you expect the rate of European refinery divestments and closures to?
(180 answers)
a) Increase 52%
b) Decrease 22%
c) Remain at the current level 25%
Over the next five years, who are the most likely investors in European refinery assets?
(182 answers)
a) International oil companies 35%
b) National oil companies 14%
c) Niche refiners 17%
d) Financial buyers/private equity/sovereign wealth 26%
e) Airlines 4%
Media Contact :
Emma Murray, KPMG Press Office : 020 7694 6506 emma.murray@kpmg.co.uk
About KPMG
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff. The UK firm recorded a turnover of £1.6 billion in the year ended September 2010. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have more than 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.
