2012 has been a challenging start to the year for refining in Europe. 2011 saw refiners dealing with overcapacity issues, operational inefficiencies and falling demand, all combined with the pressure of costlier supplies to offset the loss of Libyan crude. To add to this, in 2012 they are now faced with tightening credit availability.

 

The current credit squeeze, very evident in the Eurozone, is starting to affect some independent oil companies, notably leveraged refiners impacted by the general market conditions.

 

I think the big question in 2012 before refiners is: will they be able to offset these poor market conditions and how? This is not an easy one to answer. The refining outlook has not changed for the better. Also many European refiners are unable to buy low-priced crude for upgrading limiting their flexibility around feedstocks as well as their potential for better margins.

 

Idling and closures of refining plants is already underway not only in Europe but also in the United States and Japan. Still, refining troubles in Europe might have an unexpected silver lining. Faced with less demand for their products at home, some US refiners have been steadily increasing their supplies of distillate to Europe. These may yet turn out to be the surprising beneficiaries of the crisis.

 

The challenges facing the downstream are not likely to disappear any time soon. Accenture’s experience with downstream energy companies finds that adopting distinctive processes enable refiners to transform operations and drive value. To find out more, read our recent downstream energy transformation point of view.