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abarrelfullabarrelfull wrote on 21 Dec 2009 06:50
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Why ENI (and many others) Need to Split Up

created: 11 Jul 2014 14:03
tags: eni italy refinery

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ENI is one of the largest oil companies in Europe and by far the biggest refiner in Italy. Outside of Italy, they own shares in Galp, which has two refineries in Portugal, and small shares in 3 German refineries. Recently they announced a deal to dispose of their shares in 2 Czech refineries.

So they are big, and predominantly focues on their own home market, which has proved to be a major problem:

State-controlled Eni, which has five wholly owned refineries in Italy and one half-owned plant, posted an adjusted net loss of 232 million euros last year in its refining and marketing division. Italian consumption of refined products fell from 72 million tons a year in 2006 to 53 million tons a year in 2013.

They have the dominant position in a market that has shrunk drastically. No wonder they are losing money.

They also have a mixed bag of assets, to say the least. The Porto Marghera Venice Refinery has already been given the bullet. It is to be converted into a biofuel facility, with the Porto Marghera Venice Green Refinery Project. Low complexity and a capacity of only 70,000 bpd, made that inevitable.

The Gela Refinery and the Leghorn Livorno Refinery are in a similar quandary. The 84,000 bpd Livorno Refinery was put up for sale back in 2009 and completely failed to find a buyer, whilst the 100,000 bpd Gela Refinery, is reportedly not currently working.

The remaining three assets, JV owned Milazzo Refinery, the recently upgraded Sannazzaro de Burgondi Refinery and the Taranto Refinery are probably ok longer term, given their better complexity, and the shareholdings in foreign assets can probably be disposed of.

Which brings me to my recommendation, to ENI and others in similar positions. You need to split the company into upstream and downstream. With projects in places like Mozambique and Angola that look far more exciting than substandard downstream, its just a waste of management time.

Restructuring would be much easier as an independent downstream firm, there is no need to prolong the pain. Marathon made the plunge, and they haven't looked back since.

There is no longer any logic in vertical integration, and its time the sector realised this.


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Exxon Invests in Refining Even as Margins hit Unprecedented Lows

created: 03 Jul 2014 08:55
tags: belgium exxon refinery

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Everyone knows that refining is in a terrible state, at least it is in Europe.

Economic problems have led to declines in demand in what were already stagnant markets, WTI / Brent differentials and low Henry Hub gas prices mean that US refiners are able to produce more and sell into the European Market. The Jubail Refinery Project, the first of many Projects in the Middle East has come onstream and is selling diesel to Europe.

In the midst of this doom and gloom, Exxon announces that it is to invest $2 Billion in a project to upgrade its Antwerp Refinery in Belgium.

So what are we to make of this?

First of all, we need to remember that all refineries are not created equal, and that some are hurt worse than others by the current situation. The more complex you are, the better you can cope with the poor environment. This investment increases their complexity.

Secondly, the refining sector is a classic cyclical one, where the best investments are made counter cyclically. Only those with deep pockets (and they don't come much deeper than Exxon's) can afford to take such an approach. It is generally cheaper to do this and the investment finishes at a better time.

Thirdly, if you are going to survive, you need to produced the right products. Global demand for Residual Fuel Oil is on the wane, Natural Gas Liquids are eating directly and indirectly into the Gasoline market. The future is in Middle Distillates, Diesel & Jet Fuel.

Fourthly, Greenfield Refinery investments make money on the refining margin, that is the weighted average price of the products produced, minus the weighted average cost of the crude oil processed. Upgrading projects however, make money on the price differential between the products that you will be able to produce, minus the products being produced now. For a Delayed Coker, this means the differential between diesel and fuel oil, which is pretty large, even today.

So Exxon's investment makes a lot of sense, because it will align the refinery with future demand, reduce low value products and invest whilst it others are not. It also sends a signal to the market that this is one refinery that is here to stay. Many others will not be so lucky.


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US Ethane and the Death of Gasoline

created: 14 May 2014 12:18
tags: ethane gasoline refinery usa

rating: +2+x

Last week, the EIA had an interesting blog article about a new form of US export, Ethane:

Mistral Energy confirmed on Friday, May 2, that it has received exports of purity ethane in an inaugural shipment along the Vantage pipeline from the Williston basin in North Dakota, to connect with the Alberta Ethane Gathering System (AEGS) near Empress, Alberta, in Canada.

We already have seen that shale gas has turned the US petrochemical sector on its head. Rising supply of ethane from natural gas, has led to a big change in petrochemical feed stocks and a slew of new investments.

Yet even this will not be enough to utilise all of the new ethane production. So we are seeing investments in export capability. A pipeline to Canada is a fairly simply one, but some companies Enterprise Products to Build Ethane Export Facility on Texas Gulf Coast are even more ambitious.

Enterprise Products Partners L.P. announced today that it plans to build a fully refrigerated ethane export facility on the Texas Gulf Coast.

So ethane exports will be possible to anywhere that has an import capability, and there will be a lot of ethane to export:

We estimate U.S. ethane production capacity currently exceeds U.S. demand by 300 MBPD and could exceed demand by up to 700 MBPD by 2020, after considering the estimated incremental demand from new ethylene facilities that have been announced

So we can expect to see more of these type of investments

There has already been an important project announced for export of ethane to Europe. Ineos, a company with many petrochemical plants in Europe and elsewhere, is one of the partners.

CONSOL Energy Inc. announced today that it has entered into agreement with Ineos Europe AG, part of the Ineos Group, to export ethane via Sunoco Logistics' Mariner East infrastructure and the Marcus Hook Delaware River port for use in Ineos' European cracker complexes.

So what is this going to do to the Naphtha market?

Extracting ethane and exporting it will help gas producers in the US and pet-chem producers in Europe. The one group that will be hurt by this is naphtha producers. Given that Europe is already long on gasoline, and it now faces a new substitute in the gasoline pool, I think we can safely say that this is one more nail in the coffin for Europe's gasoline producers.

As if Shale Oil were not bad enough Shale gas is blowing a typhoon through the world of refining as well.


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