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Interview

with Willem-Arie Kuijl, Business Unit Leader, BP Refinery Rotterdam B.V.

21.02.2010 / Energyboardroom

In recent years, we have witnessed a number of refineries in continental Europe closing their operations due to unbearable cost constraints while the ones established in the ARA (Amsterdam-Rotterdam-Antwerp) region have increased their share and role in the region. In your opinion, what are the roots of this trend and do you believe it is set to continue?

Indeed the ARA region boasts a significant proportion of Western Europe’s refining capacity. In the Port of Rotterdam area there are a few big refineries, amongst which Shell and BP have the larger throughput. BP refinery for example has about 20 million tons of refining capacity. Aside from these two there are other smaller players such as Q8 Petroleum.

I’m not in a position to pass judgment on why others have chosen to base themselves around the Port of Rotterdam, but for BP the area represents a deep liquid market and offers a great potential in terms of market optionality. In saying this I mean that there is a market for both intermediates and for products, both for the greater European market and for export to other continents such as America or Africa.

The Rotterdam market is different from inland markets in that the range of specifications for products and the availability of different intermediates are considerably higher compared to those of the inland markets. Furthermore landing costs put the Port of Rotterdam at an advantage over inland markets as no additional inland costs (such as transportation costs) are incurred. But of course the inland market offers a transportation-cost related inland premium for their products.

All of this differentiate the market in Rotterdam from inland markets and therefore require a differentiated positioning of refineries in their own market.

Do you believe that the current trend of refineries concentrating in the ARA region will continue?

Yes of course. There is a battleground going on in the inland market, and there is a parallel but associated one here in the Port of Rotterdam. It is fundamental to bear in mind that the demand for inland market products continues to shrink. In other words, where Rotterdam competes in an environment of high liquidity and optionality with international markets, the inland refineries must maintain their inland premium in order to stay competitive, which is a major challenge, particularly due to the reduction in demand. In this sense I believe that Rotterdam refineries have an advantage over others.

Mr Rob Nijst, managing director of VTTI, in an interview to the OGFJ, highlighted the fact that Europe is importing more and more refined products from low-cost destinations such as the Middle-East and India and that in the future imports from those countries will be much more important. Is the concentration around the ARA region enough to deal with this increased cost competition?

The refining industry structurally thrives on margins differentials in areas of under supply. For instance, from the 1990s up until a few years ago the USA was a pure gasoline importer. Thus, prices in Rotterdam were set by the peak prices in the USA minus the transportation costs.
Europe is equally structurally high on fuel oil whilst Asia is structurally short; this leads to a net export situation from Europe to Asia most of the time. The opposite is the case for mid-distillates. Europe is normally net short on mid-distillates and thus a net importer of these products. Hence, I believe that the product prices in Rotterdam are netbacks of the regional and global supply and demand situations. If you look at the global flows it is what you will see going on here. As long as we are capable of producing higher quality products at competitive costs, Europe will continue to play an important role in international markets.

Mr Peter Goedvolk, CEO of Argos, highlighted that another major issue for European refineries was the increasing local and regional HSE standards – especially those related to the environment such as CO2 emissions cut and biofuels’ compulsory mix. How is BP responding to these increased challenges?

BP has a continuous energy efficiency improvement drive on its sites. However, we don’t believe that biofuels can represent in the short and medium term a threat to fossil fuels because of competition with food production, and because of quality limitations. Thus, we believe that the first route towards consumption reduction is increasing efficiency along the entire length of the value chain. For instance, the impact of automotive car efficiency can be enormous in the fuel’s market in terms of shrinking demand.

It is however clear that electrical power and biofuels will gradually replace fossil fuels, but this is not likely to be at a very fast pace. For example I believe there is great potential in hybrids and electrical cars. For instance, as wind parks continue to emerge – which represent a weather dependent source of energy – soon, and with relatively little effort, there will be intelligent systems that would charge plugged–in cars over the peak production hours or when consumption is low. Thus a car will be able to charge itself on the basis of intelligent information and the additional electrical power available. The number of such mechanisms, which cater for the availability of power supply in line with nature, will continue to increase. I do not think this is a threat, but a supplement to fossil fuels.

The Netherlands is one of the countries with the strictest HSE standards worldwide, which are especially strict with regards to the Oil and Gas sectors. Still, local refineries have reported a number of minor accidents in previous years. How has BP managed to maintain its lead in HSE standards in an already very regulated area?

BP has a very stringent audit system; plus we have an operating platform that we use for continuous improvements; naturally we have been constantly building-up our organizational capabilities. These are the three main elements which make this success a reality.

One of the hot issues across the entire Oil and Gas industry is the lack of young and skilled workforce. Having such a well-established reputation, how comfortable is BP’s position in attracting the brightest minds?

There are two types of workforce in this equation; the first is the academic workforce where BP can attract the quality talent that lead in their fields of knowledge. Attracting these is definitely a lot of work but it is not a principal problem for BP.

However, if we’re talking about the blue collar workforce – notably the service providers – then we find that the quality of the local industry, the services and the people working for them is often not on par with the qualities that one can find in other countries.

Countries where the know-how and discipline are inherent in the culture, or countries with very structured education systems, tend to produce people who are more fit for the job; Germany comes to mind as a good example here. There is also an element of under supply of people in our region, which creates challenges in maintaining high standards of discipline in the workforce.

Looking towards the future, what are your main expectations for the refining industry in the Netherlands and what do you think needs to be done to overcome the many challenges?

There is something generic about going back to old values of how refining used to be. Only the refineries that have excellent work processes and very good work staff will be on the winning side. I do not believe in either of the present models, which are either stringently procedural or too loose. It’s all about a good balance. In short, flexibility must be a pillar for success, and this is exactly what this region offers to its refineries.

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