Europe has been cutting its consumption of oil products since 2008. Beyond the economic cycle this is a long-run trend, driven by energy efficiency and a gradual shift to other energies. The whole downstream is affected: refinery closures, depot closures, reduced distribution capacity.
Yet a paradox emerges. Storage is almost decoupled from that decline.
Falling consumption, rising utilisation
European refinery output has followed consumption, falling 1.9 % a year. Stored volumes, by contrast, have stayed broadly flat, with an average annual decline of 0.1 %.
Combined with site closures, that stability mechanically pushed up utilisation rates. In France, rationalisation of the distribution depot network, with many small sites closed, lifted utilisation from 58 % in 2008 to 81 % in 2013. In the Netherlands, Vopak reported record occupancy of 96 % in early 2016.
A midstream reshaped by new entrants
Historically dominated by the majors, Shell, Total, BP, European oil logistics is changing hands. Two buyer profiles have emerged: trading houses such as Vitol through VTTI and Varo, or Lukoil, and downstream specialists such as Oiltanking and Greenergy. Investment funds are also present, with Macquarie, EQT and Ardian.
The entry mechanism is often the same: converting closed refineries into depots allows terminals to be built at low cost. For the selling major, the deal avoids significant decommissioning and redundancy costs, and offers redeployment for part of the workforce. A significant share of European refineries closed since 2010 followed that route.
The economic performance of these specialists is notable: annual growth of 2.2 % to 11.6 % and operating margins between 27 % and 42 % in 2015.
The difference lies in management, not in the assets
This is the heart of the analysis. The new entrants offer more flexible infrastructure and more services than the majors’ legacy depots. They allow their customers, sometimes their own trading arms, to extract the value of storage through time and location arbitrage.
The difference is conceptual: the logistics chain is run as a profit centre rather than as operational support to refining. That translates into four concrete requirements.
- Proximity to hubs, to ensure stock liquidity.
- Infrastructure flexibility, to maximise logistical options.
- Service quality, with optimised loading times, blending capability and round-the-clock opening.
- Price transparency and stability.
The result shows in utilisation: VTTI’s Rotterdam terminal held above 75 % guaranteed for more than three years under its contract with Vitol.
Cyclical or structural?
Part of this value pool reflects cyclical conditions, notably a contango market that rewards storage. But several drivers are structural: adaptation of the asset base to new market configurations, high price volatility, and rising imports of refined products caused precisely by European refinery closures.
In other words, the decline of European refining itself feeds demand for storage. That is what makes the new entrants’ investment case durable.
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The downloadable PDF of this study is available in French only.
