BMI View : The closure and conversion by MOL of the Mantova refinery to a fuels storage terminal yet again highlights the unfavourable and uncompetitive state of the refining sector in Italy and Europe more generally. While the conversion will enable the company to move away from the low-margin refining sector, it reinforces our view that difficult times continue to lie ahead for European refiners, with other shutdowns likely in the coming years.
Hungarian oil and gas company MOL announced the closure and conversion of its Ma ntova refinery into a ' products logistics hub ' from January 2014. This once again highlights the unfavourable and uncompetitive state o f the refining sector in Italy and in Europe more generally, as refiners are hit by high oil prices and weaker demand in Western European product markets , which has severely reduced refining margins.
Operated by Italiania Energia Servizi (IES), the Mantova refinery is located in Mantua, Lombardy. IES was acquired by M OL in 2007. The refinery has a capacity of 52,000 barrels per day (b/d), wi th a Nelson complexity index of 8.36, and specialises in diesel and b itumen production . Crude supplies originate from oil areas linked to the Mediterranean basin and are unloaded at Porto Maghera, from where it is c arried to the refinery via a 120km-long pipeline.
The conversion of the refinery into a products logistics hub will enable the company to move away from the low-margin refining sector and improve its competitive position in Italy through the high er -valu e storage and logistics sector . The conversion of the refinery will most likely be cost effective for the company, as most of the nece ssary infrastructure is already in place. The logistics network, the storage units at Porto Margera and the 120km pipeline connecting the port and the Mantova refinery previously used to transport crude from the port to the refinery will be used to transport end-products to the refinery for storage.
In addition to the possibility of importing refined products from the Middle East , MOL has reportedly reached an agreement with E ni to connect its conversion project with E ni ' s green refinery initiative . Similarly to the Mantova refinery, E ni is in the process of converting its Venice facility into a bio-refinery in a move to transform the low - profit refinery into an economically sustainable industrial operation over the long term. E ni began the conversion in July, with first biofuel production scheduled for January 2014.
Ailing European Refining Sector
This shutdown and conversion yet again highlights the ailing state of the Italian and, more generally, of the European refining sector . C hanges in product demand and growing international competition from new, large and efficient refining centres in several Asian and Middle Eastern countries (India and Saudi Arabia for example) have forced the reorganisation or the closure of several refineries. 15 refineries have closed since 2008 in Europe , with companies relocating investments to Asia and the Middle East. W e expect this trend to continue. For example, a Bloomberg survey earlier this year highlighted that of the region's 104 refineries, a further ten could shut down permanently by 2020.
In Italy specifically, refineries are typically of lower complexity and provide few economies of scale. As a result, they are particularly vulnerable to cyclical downturn in markets for refined products. Weak demand in Western European product markets has severely reduced refining margins in the country ; for example, the margin from refining Libya's Es Sider crude had been negative for most of 2009 and parts of 2010. As a result, this has forced Italian players to seek the reorganisation of its domesti c refineries.
MOL 's Manto va refinery is the latest victim of the downtrend hitting Italy's refining sector. Eni's Gela refinery had temporarily implemented a partial stoppage in 2012 in order to cut losses. To improve Gela's efficiency and profits, Eni plans to convert the refinery into a 'technological hub' by 2017, with a new industrial and organisation structure capable of varying its product slate by maximising production of diesel and interrupted production of gasoline and polyethylene.
In June 2013, It alian industry minister F lavio Zanonato said that Italy has an excessive capacity of 15-20 million tonnes annually , putting four big sized refineries at the risk of closure within the next few years. Alessandro Gilotti, chairman of the oil union, in turn warned that at least two refi neries c ould be closed by 2014.