European refiners seek sacrificial cuts in fight for survival

* 10 more plants must close by 2020 if rates are to increase

* Rising imports outpacing costly attempts to upgrade

* Mediterranean plants seen vulnerable to Middle East ramp-up

By Claire Milhench

LONDON, Sept 25 (Reuters) - European refiners, in a desperate battle for survival, are investing in costly upgrades or trying to close plants that bleed the most money, but industry experts say their efforts fall short of what is needed to make the industry profitable.

Some 1.8 million barrels per day (bpd) of capacity has shut since 2008, with the loss of Coryton in Britain, Harburg in Germany and Berre l'Etang in France, to name a few, but the industry is still struggling to make decent returns.

"2015 will be a very difficult year for global refining, especially in Europe," said David Wech, managing director at JBC Energy, speaking at the 2014 Platts European Refining Summit in Brussels on Tuesday.

Patrick Pouyanne, president of the refining and chemicals division at Total, said Europe needs to cut refining capacity by at least another 10 percent by 2020 to restore a utilisation rate of 85 percent, the level at which the market is seen as balanced.

"At least 10 refineries have to be shut down by the end of 2020," or cuts of 1.5 million to 2 million bpd, he said at the summit. "It's difficult, but this is the reality of the market in Europe."

Total and Eni (NYSE: E - news) are reviewing refining activities in their home markets of France and Italy but face strong opposition to closures from trade unions.

Following the closure of its Dunkirk plant in September 2009, Total promised not to shut any more plants in France for the next five years. In August this year, its chief executive said it did not plan to shut any refinery completely but might reduce capacity.

Eni also said in August that it wanted to cut its refining business by more than half, with Gela, Livorno and Taranto understood to be at risk.

Meanwhile, Hungarian oil and gas company MOL is looking to downsize further following the closure of its Mantova plant in Italy at the start of this year.

Miika Eerola, group senior vice president, downstream production, told the summit, "We have done some of our asset rationalisation ... and we will do some more."

Its Sisak refinery in Croatia is currently idled, but the Croatian government is fighting against a permanent closure. MOL operates Sisak through its 50 percent stake in INA, whilst the Croat government owns close to 45 percent.

The drawn-out process of closing capacity in Europe means that shutdowns always lag behind the contraction in demand requirements as transport vehicles improve their mileage per gallon of fuel.

Isabelle Muller, director general of French refining industry association UFIP, said France had cut refining capacity by about 24 percent between 2007 and 2013 but that gasoline demand had fallen further than production.

BUYING INTEREST AND UPGRADES

At the same time, independent investors such as Gary Klesch and trading houses such as Gunvor have granted reprieves to some plants that had looked marked for closure.

"Some closures could be forced through, but the problem is we are still seeing buying interest," said Wech, referring to Klesch's recent purchase of Murphy Oil's Milford Haven plant in Wales.

"The market will only see capacity consolidated if it is firmly converted into (storage) terminals. You could argue that in Eastern and South-Eastern Europe there is a lot of capacity which is de facto consolidated, but it doesn't really count because it could start up again at any time."

Some European refiners, rather than be forced to the wall, have fought back by making expensive investments to boost high-value middle distillates production.

Unfortunately, this year Europe has been flooded with diesel from the United States and Russia, keeping margins under pressure. As a result, refineries that upgraded have not yet reaped the benefits, Pouyanne said.

This has not deterred majors such as Total and ExxonMobil , however, which both have billion-dollar projects underway to reduce the output of low value, high-sulphur products in favour of middle distillates.

They will face stiff competition from the likes of new plants Jubail, Yanbu and Ruwais in the Middle East and Paradip in India, all expected to ramp up over the next 12 months.

Olivier Jakob, an oil analyst at Petromatrix, said Yanbu in Saudi Arabia would be "an interesting one to watch" in terms of its impact on European distillate balances due to its proximity to the Mediterranean and the fact it is expected to yield 66 percent diesel.

Amrita Sen, chief oil analyst at Energy Aspects, said the additional distillates production should further encourage capacity cuts in the Mediterranean to rebalance the market. (editing by Jane Baird)