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Oil refineries likely to close across UK and Europe, Essar Energy boss warns

India’s Essar says larger refineries such as its Stanlow facility in Cheshire will survive competition from Asia and the Middle East – but warns many will not

The owner of Britain’s second largest oil refinery has warned that closures are likely across the UK and Europe in the wake of the collapse into administration of the Coryton complex in Essex.

India’s Essar Energy, which is listed on the FTSE 100, said its Stanlow facility in Cheshire could compete in a cut-throat market but warned that less sophisticated rivals would suffer.

Essar’s chief executive, Naresh Nayyar, said refineries must be able to process difficult fuels such as dense crude oil – cheaper than lighter fuels like Brent crude – and need to be of a certain size in order to keep costs per barrel at a profitable level. Companies that did not fit that profile would struggle, Nayyar added.

Coryton supplies 20% of the fuel for the south-east but has buckled under the pressure of tight margins and competition from “super-refineries” in Asia and the Middle East. Its owner Petroplus collapsed into administration in January, putting 900 jobs at the Essex site at risk, although a last-ditch reprieve this month will keep it open until at least May.

“There is some sort of structural change in the refining industry globally,” said Nayyar. “Refineries that were small-sized or low-complexity are being replaced by large, complex refineries mostly built in the Asia-Pacific region … Those refineries that are not economically sustainable or of low complexity will find it much harder to survive in this market.”

He added: “We believe that there has to be some shake-up in the European refining industry and that uneconomic capacity will move out.”

Nayyar spoke as Essar disappointed investors with annual results below analysts’ expectations. Shares in the power generation and refining group fell 12% in mid-afternoon trading after it posted earnings before interest, tax, depreciation and amortisation of 4.8m (£394.6m) for 2011, compared with 6.5m in 2010 and below a consensus forecast of 5m. India provides the majority of Essar Energy’s earnings, with the UK accounting for about a quarter last year. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds