The impact of French strikes on regional product supply, March edition

_{The French refining system is reliving last fall’s nightmare, when more than 700 kbd of primary distillation capacity remained idled for nearly 6 weeks. Back in October, we estimated the impact of French strikes on gasoline and gasoil/diesel supply and were only off by 5-10 kbd in our closest-to-reality scenario compared to JODI reported figures. Considering these results, we have taken the liberty of creating another set of scenarios with new estimates of French oil product supply for March and April. Assuming a similar turn of events, the future looks even bleaker.}

Although headlines on the banking sector crisis, ARA gasoil/diesel stocks at multi-year highs at this time of year, and increased production from new refineries in the Middle East point to a less bullish outlook for European diesel, the latest French strike should not be taken lightly. Even though at face value backdrop looks better than it did last October, the ongoing strikes could cripple France’s refinery runs even more than last time, which would result in some tightening of physical clean product supply, especially for gasoil/diesel.

According to industry news, four of the six French refineries have stopped operations or are planning to do so this week in the wake of the strikes. These are TotalEnergies’ 230 kbd Donges and 210 kbd Gonfreville refineries, Petroineos’ 220 kbd Lavera plant and ExxonMobil’s 240 kbd Port Jerome refinery, representing 900 kbd of primary distillation capacity, i.e. about 80% of France’s total, and our starting assumption for the following scenario analysis. This figure is 200 kbd higher than at the time of the October strike, according to IIR Energy refinery data, and higher than the figures seen at the peak of the Covid-19 pandemic in April 2020.

Following a similar approach to our previous assessment, we have estimated how French gasoline and gasoil/diesel production in March and April may be affected by the strikes. To this end, we consider four scenarios:

1) Immediate end to strikes and resumption of operations of the aforementioned refineries

2) Strikes ending on the 30th of March

3) Strikes ending on the 23rd of April

4) Strikes ending on the 30th of April

Estimates are based on our forwards-driven supply model, which takes into account capacity constraints as well as relative production incentives to forecast refinery unit utilization rates. The calculations assume an immediate ramp-up to full capacity once the strikes end, something that refinery margins currently incentivize. It is worth noting that in practice, this is on the optimistic side, and the production figures outlined below can probably be toned down a touch to account for this.

_{French refinery production scenarios for March}

Gasoline Production           NWE split (kbd)           MED split (kbd)               Total (kbd)                 y/y*           Avg ref utilisation

‍No strike, 100% ref util                167                                 117                        284                       69%                  100%

‍Strikes ending 30th Mar             108                                 98                        206                       22%                   72%‍

‍

Diesel Production                 NWE split (kbd)           MED split (kbd)                Total (kbd)               y/y*           Avg ref utilisation

‍No strike, 100% ref util             317                                 223                              539                           30%                   100%

Strikes ending 30th Mar          204                                186                              391                            -6%                     72%

_{French refinery production scenarios for April}

Gasoline Production           NWE split (kbd)           MED split (kbd)               Total (kbd)                y/y*           Avg ref utilisation

No strike, 100% ref util             174                                122                           296                       53%                    100%

Strikes ending 23rd Apr            41                                  79                            120                       38%                     40%‍

Strikes ending 30th Apr             0                                   66                            66                        -66%                    22%

‍

Diesel Production                 NWE split (kbd)           MED split (kbd)                Total (kbd)                y/y*           Avg ref utilisation

‍No strike, 100% ref util                326                                 229                        555                            38%                 100%

‍Strikes ending 23rd Apr               761                                 48                          225                           -44%                 40%

‍Strikes ending 30th Apr                0                                    124                        124                            -69%                 22%

‍

‍Diesel ProductionNWE split (kbd)MED split (kbd)Total (kbd)  y/y*Avg ref utilisation

‍No strike, 100% ref util32622955538%100%Strikes ending 23rd Apr76148225-44%40%

Strikes ending 30th Apr0124124-69%22%

* Note: March and April 2022 French refinery run rates stood at 797 kbd and 825 kbd respectively, or 69% and 72% ref utilization.

_{France: crude intake (kbd)}

‍

If we take the fall strikes as a reference, we would be looking at an end to the current strikes relatively close to the April 30 scenario. This scenario estimates a decline of more than 65% y/y in French gasoline and gasoil/diesel supply, with a total reduction in domestic production in Northwest Europe, representing a more marked drop in product supply than last fall. This would have a significant impact on refined product balances, particularly for gasoil/diesel, whose imports into France should be closely monitored, as they remain prone to surging over the coming weeks, though the dockworkers’ strike could see them arrive via alternative routes.

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