The Sarroch refinery is one of the largest in Europe. Wholly owned by Saras, the refinery complex has a refining capacity of 300 kbd, accounting for over 20% of Italy’s total. The refinery delivered much of its products to Italy (25%), South Africa & France (9%) and Spain (7%) in Q3 2021, making it a prescient indicator of European oil consumption. Saras is due to publish Q3 earnings on 10th November.
In the third quarter of this year, Sarroch imported 20.0 mb of crude oil, marking a decline of 3.6 mb compared to the prior quarter and 0.5 mb lower y/y. Meanwhile, inventories increased by 0.6 mb, or 6.6 kbd in Q3, another indication of lower utilization as the Sardinia-based refinery is under partial maintenance.
After adjustment, we expect the Sarroch refinery runs to have reached 21 mb in the quarter ending September, failing to meet the lower end of its Q3 guidance of 23.4-24.8 mb and marking a 3.6 mb drop q/q. This also makes the company’s full-year guidance of 95.3-98.3 mb harder to achieve if Saras does not cut its target for refinery runs in its coming Q3 results.
This also makes it harder for Saras to achieve its full-year crude runs guidance of 95.3-98.3 mb. Indeed, with 47.8 mb having been processed in H1 this year, we estimate at least runs will need to increase to 26.5 mb in Q4 to meet the company’s low-end target. The last time that Saras managed to achieve such a level of runs was in Q4 2018 when throughput was 26.5 mb. Although crude throughput is likely to rebound in Q4 as both imports and runs reached nearly 8 mb in October, the strongest since June this year, reaching 26.5 mb of runs will be challenging. By comparison, the company’s original Q4 guidance of 24.1-25.7 mb is more achievable. Therefore, we believe it is likely that Saras lowers its full-year crude throughput guidance after the official Q3 results.
Azerbaijan retook the crown of the biggest supplier to Sarroch, with arrivals finishing at 5.7 mb (62 kbd) in Q3, up from 4.2 mb (46 kbd) last quarter. Libya also supplied large volumes with 3.5 mb (38 kbd), almost doubling q/q as they had only reached 2 mb (22 kbd) in Q2. On the other hand, imports from Russia and Iraq dropped significantly. Only 0.7 mb (8 kbd) of Russian crude we, from 2.1 mb (23 kbd) in Q2. Arrivals from Iraq, Sarroch’s main oil supplier in Q2 (6.9 mb, or 76 kbd), only reached 4.6 mb (50 kbd) this quarter.
Despite lower refinery runs in Q3, Sarroch’s total supply of refined products to its home country remained stable, with departures finishing at 518 kt (-1.2% q/q). According to UNEM (Unione Energie per la Mobilità), in the first three quarters of this year, total oil consumption in Italy was up by 9.2%. Data from Italy’s Ministry of Ecological Transition and the European Commission shows that fuel prices increased by over 20% so far this year, making fuel costs in Italy among the highest in Europe. Therefore, raising domestic supplies might have been more necessary and profitable.
Domestic deliveries compare to exports of 1,585 kt abroad, representing a sharp decrease of 29% against Q2. The main drops in products outflows were seen in Saras’s main European markets such as Spain, France and the Netherlands as well as North African markets like Libya and Morocco. Total diesel exports fell to 711 kt (-41% q/q), down from 1.2 Mt in the previous quarter. The slump of exports dragged down by anaemic Morocco demand, as the second-biggest buyer in Q2 (291 kt) only ordered 9 kt this quarter. France became the top overseas destination of Sarroch diesel with 185 kt (but also -41% q/q), followed by Spain and Slovenia, with 147 kt and 57 kt respectively.
Gasoil sales was a rare bright spot in Q3 as exports rose 16%. Most volumes continued to flow to Cuba in Q3 after the Caribbean country became Saras’s top gasoil buyer in Q2. s shipped 375 kt of gasoil to Cuba since it sold its first gasoil cargo to the country in December 2020, one month after Biden’s election. A potential easing of US sanctions on Cuba could further spur clean products imports as the Cuban government also aims to modernize the vehicle fleet.
Gasoline loadings show the same pattern as diesel, with quarterly flows to all countries dropping to 541 kt (-22% q/q). South Africa remained an important pillar to receive gasoline from Sarroch as 29% (159 kt) of the total exports headed to the African country, the same level as in Q2. By contrast, flows to another prominent Q2 buyer, the Netherlands, plummeted to 14 kt (-93% q/q).
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