Exclusive: Italian refiner Saras plans cost cuts, biofuel expansion

By Ron Bousso

LONDON (Reuters) - Italian oil refiner Saras <SRS.MI> is targeting cost savings of 120 million euro ($141 million) to weather a slow recovery in fuel demand due to coronavirus and plans to boost biofuel output to meet tightening environmental regulations, its CEO told Reuters.

Saras runs the 300,000 barrel per day Sarroch refinery in south-western Sardinia and like its peers is struggling with an unprecedented collapse in energy consumption.

"The refining environment in the last few months has been extremely, extremely challenging," CEO Dario Scaffardi told Reuters in an interview.

Saras, which posted a first-half loss of 41 million euros, plans to reduce its cost basis "by roughly 120 million euros", he said.

Around 30 million euros in savings will come by tapping an Italian government temporary furlough scheme agreed with local trade unions and announced on Monday which will involve all of its 1,378 employees.

No employee will be made redundant, Scaffardi said.

Further savings will come from reducing maintenance at the plant "to an absolute minimum" and putting on hold planned investments in tank farms and power grid upgrades, Scaffardi said.

The Sarroch refinery will continue to operate, albeit at lower rates of 70% to 80% of its full capacity.

Global oil demand collapsed by up to a third in the wake of lockdown measures introduced around the world to limit the spread of the epidemic.

Demand has struggled to recover to pre-crisis levels since as people work from home and avoid flying.

The International Energy Agency on Tuesday said that in the event of a slow economic recovery from the pandemic, a full rebound in world energy demand would be delayed until 2025.

Profit margins, known as cracks, for converting crude oil into fuels such as diesel and gasoline sunk to multi-decade lows in the third quarter and have only slightly recovered in the fourth.

"Never have the cracks been so ridiculously low as in the past months," Scaffardi said, adding that he expected margins to improve in early 2021.

ENERGY TRANSITION

Saras is sticking to longer-term plans to sharply expand its biofuel refining capacity, betting on a surge in demand for low-carbon road fuels and tighter regulations to limit climate change.

"We are already running a significant amount of vegetable oil and we plan to increase it," Scaffardi said. "Biofuels are an opportunity because of the cost structure in Europe."

Converting existing oil refining capacity to process vegetable oil is relatively simple and could reach 10 to 20 million euros, Scaffardi said.

The company said in July it aims to reach vegetable oil processing capacity of 100,000 tonnes per year with plans to increase that to 250,000 tonnes.

The company is also considering investments in hydrogen, which is increasingly seen as a clean fuel that could play a major role in the energy transition.

Saras is also studying plans to construct a carbon capture and storage facility to absorb emissions from the large power plant it operates at the Sarroch refinery which supplies electricity to Sardinia, Scaffardi said.

"This is a reaction to an emergency, in the first months of 2021 we will decide what will become permanent," he said.

Regarding local media reports that Italian authorities are investigating Saras over "alleged use of oil of illegal origin", Scaffardi said the company "firmly deny any misdeed" and called the allegations groundless.

(Reporting by Ron Bousso; editing by Jason Neely)