The European Union’s embargo on Iranian oil threatens to accelerate refinery closures in Europe.
Mr Piero De Simone GM of Unione Petrolifera said that “Asian countries not applying the embargo could buy the Iranian oil at a discount and sell cheap refined products back to us. Italy already risks the closure of five refineries and at a European level we’re talking about 70 possible shut downs.”
The European Union this week agreed to ban oil imports from Iran. The policy comes as refiners fight over capacity and falling fuel demand. Petroplus Holdings AG which has five plants across Europe declared insolvency after banks called in loans.
While refiners will replace Iranian imports with Saudi Arabian and Russian oil from the Urals, Mr De Simone says he is concerned Asian refiners will use cheap Iranian crude to undercut competitors.
He said that the Iranians will have to unload their production somewhere and I’m sure they’ll find buyers. The last thing we need is more unfair competition. Either we do something at a European level or we risk a precipitous end similar to Petroplus’s for many European refineries.
According to the International Energy Agency, refining margins from processing Brent into gasoline, diesel and other fuels in northwest Europe fell to loss of 26 cents a barrel in December from a profit of 51 cents a month earlier.
Ms Amrita Sen analyst of Barclays Plc said that with crude oil prices high and likely to remain high, margins are set to remain under pressure. We would expect further closure of simple, non profitable refineries in both the US and Europe.”
According to data from the US Energy department, while the EU imported 450,000 barrels per day from Iran in the H1 of 2011, China bought 543,000 barrels in the same period and India, South Korea and Japan purchased a total 913,000 barrels.
European Commission data showed that Italy, Spain and Greece combined accounted for about 68% of EU imports from Iran in 2010 with Italy getting about 13% of its oil from Iran.
Mr De Simone said that smaller and older plants which specialize in the heavy kind of oil Iran provides will be the hardest hit. Italy currently has production capacity of about 103 million tonnes of fuel a year, while internal demand is around 74 million tonnes a gap equal to about four or five small refineries. Europe including Russia has 175 oil refineries.
He said that what we’ll likely see over time is that only the large refineries, particularly the ones able to make diesel which is increasingly in demand will survive and it still won’t be easy.
(Sourced from Bloomberg)
