Vanishing gasoline demand from the United States and a long-term fall in local oil use mean Europe’s refiners are shutting down capacity – for good.

Already Total, Europe’s largest refiner, has said it will shut a quarter of its Gonfreville plant, the biggest in France.

Old refineries are particularly vulnerable. Swiss-based Petroplus will turn its UK Teesside plant into a depot if it cannot find a buyer and Italy’s ENI wants to sell its Livorno plant.

Morgan Stanley said in a research note last month that margins, the measure for refinery profitability, would average about $4 a barrel in Northwest Europe this year, less than half of the bank’s estimate of an average $8.47 last year.

Europe’s oil industry has long relied on supplying the US market with gasoline, but a source at Total’s Gonfreville said profit margins have collapsed as gasoline exports had shrunk.

With European oil consumption itself in long-term decline, refiners may now shift from simply reducing gasoline output to permanently cutting the capacity of crude distillation units, or even closing a refinery.

European refineries can process 16 million barrels per day of crude. Of this about one million bpd is accounted for by older, less sophisticated, plants.

“The trend is clearly to try to reduce gasoline,” said Olivier Abadie, at Cambridge Energy Research Associates in Paris.

“Now what will most likely be unprofitable in the downturn is simple capacity, and we’ll see added pressure to maintain capacity there.”

International Energy Agency data shows oil product demand in European OECD nations will fall to 14.7 million bpd this year, partially hit by a record high $147 oil last year and global recessions.

In the long term a structural demand fall will continue, the IEA said, extending the trend from its high in 2005-06 at 15.7 million bpd.

“The oil demand decline is largely led by industrial products, such as naphtha, and by weak transportation fuels,” said Eduardo Lopez of the IEA.

“In parallel, European demand patterns are experiencing structural changes. For example, fuel oil, heavily used for power generation in countries such as Italy and Spain, is being replaced by natural gas for environmental reasons,” Lopez said.

(Reuters & Gulf News)