European refining at the Rubicon again – which assets will make it over?

Wood Mackenzie’s updated closure threat analyses 83 refineries in Europe and quantifies the risk of closure of each asset.

Executive Summary

Wood Mackenzie’s updated closure analysis suggests that 1.4 million barrels per day of European refining capacity is under serious threat of closure by 2023 at the latest. This is when we are forecasting refining margins in the region will reach a new low. Of course, the current coronavirus pandemic and the resulting demand destruction this has caused could deliver a weak margin environment sooner, but this would not substantially change the list of assets we believe to be most under threat of closure in the region.

The closure of 1.4 million barrels per day of refining capacity would be enough to increase refinery utilisation in the region to pre-2019 levels, providing of course the capacity reduction was picked up by other refiners in the region.

Medium-term refining outlook

Wood Mackenzie’s medium-term refining outlook in Europe is not pretty. Based on our H2 2019 analysis net cash margins are expected to fall to new lows by 2023 with 65% of refineries in the region with a zero or negative net cash margin (NCM) at that time. That is for those assets that are able to restart after the demand destruction on the back of many country lockdowns due to the coronavirus pandemic. This has resulted in reduced throughputs, partial and even some full capacity closures at some sites.

The chart highlights the plight of the European refining industry in the future based on our forecast NCM analysis which takes forecast crude and product prices but excludes investments and keeps yields and crude slates unchanged.

European NCM 2018 vs 2023

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