By Inti Landauro And Christopher Bjork
PARIS--French energy company Total SA said on Thursday it plans
to pump more than $600 million into two struggling refineries and
cut 180 jobs, in a sign of the coming pressures on European
refiners.
Total said it will invest about $428 million to upgrade its
Donges refinery in western France and pour $214 million into
transforming the La Mède refinery near Marseille into a biofuel
plant. At La Mède, the company will cut staff to 250 from 430
through early retirements and transfers.
The changes come at a moment of transition for European refiners
who have experienced good times for the past several months after
years of losses. Spain's Repsol SA, Portugal's Galp Energia and
Italy's Eni SpA have all reported strong profits from refining
recently.
But analysts have cautioned that profits won't last after
historically low oil prices eventually rise and new supplies of
refined products continue to arrive from Russia and the Middle
East.
At a news conference, Total Chief Executive Patrick Pouyanné
said Europe's refining industry was in a "crisis," and said he had
to take action.
"There are three possible responses to the crisis in the
European refining industry," Mr. Pouyanné said. "The first is to
throw in the towel. The second is to do nothing and perish. The
third is to innovate and adapt."
Total has long struggled with overcapacity in European refining.
European demand for petroleum products has dropped 15% since 2008,
according to Total, while the boom in shale oil and gas has given
an advantage to U.S. competitors. Weaker demand in the EU stems in
part from the continent's drive to have a lower carbon footprint
and the greater fuel efficiency of new cars, Total said.
Until recently, European refiners had struggled with an
oversupply of refined products in the continent, with cheaper
American fuels and Russian and Middle Eastern distillates flooding
the market.
European energy firms have closed 20 refineries since the
oversupply crisis began in 2008, leading to a reduction in overall
capacity of 16.4%, estimates PJK International, an oil-market
research company.
The rapid descent of oil prices and a need for crude storage
have helped turn things around, for now, for European refiners. But
the good times will soon be over, said Patrick Kulsen, managing
director of PJK International.
"Sooner or later, oil product tanks will be full, prices on
refined products will come down, and the effect [of declining oil
prices] will be gone," Mr. Kulsen said.
Total's move on Thursday would continue Europe's trend of
reducing refining capacity; along with other capacity cuts at
Total's Lindsay refinery in the U.K. and closures elsewhere in
Europe, Total is cutting 20% of its refining capacity. It is part
of a refining-business overhaul that Mr. Pouyanné announced in
February.
"It is positive to see Total addressing the structural issues
facing these assets; however, the benefits are still some way off
and far from a given," said Marc Kofler, an equity analyst at
Jefferies.
Mr. Pouyanné's plan is far from a done deal at Total, where a
strongly unionized workforce vowed to oppose parts of it.
"The CFDT will not back any job losses. Every euro that is
invested at La Mède and Donges must offer development
opportunities," the CFDT union said in a statement.
Total's effort to revamp antiquated oil distilleries contrasts
with some smaller European rivals such as Galp and Repsol, which
during the early years of the refining slump poured billions of
euros into modernizing their operations.
While oil prices remained high, these investments paid meager
dividends, but during the recent slump in crude, the strategy is
finally starting to pay off. Last week, Repsol said its refining
margin had jumped to its highest level ever in the first quarter,
cushioning the hit from plunging oil prices at its oil pumping
unit.
Write to Inti Landauro at inti.landauro@wsj.com and Christopher
Bjork at christopher.bjork@wsj.com
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