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TheStreet Open House

Exxon Mobil Goes Where Few Oil Giants Tread

NEW YORK (TheStreet) -- The U.S. oil behemoth Exxon Mobil (XOM) revealed Wednesday that it has decided to invest more than $1 billion in its refinery in Antwerp, Belgium, even as others flee the continent's ailing refining sector.

That is because America's biggest oil company is eyeing a European revival several years down the road.

Exxon Mobil, whose shares closed Wednesday at $101.57, flat for the year to date,  has said that it will install a new coker unit to its 320,000 barrels a day refinery that will convert residual oils into transportation fuels.

>>Dicker/Cramer: End of the Export Ban Means the End of the Game for Refiners

In less than 10 years, Exxon Mobil has invested more than $2 billion at Antwerp and is still willing to significantly ramp up its facility despite a challenging business environment in Europe's refining sector, which is struggling due to overcapacity and weak demand.

By making investments in Europe's ailing refining industry, Exxon Mobil is following in the footsteps of Russian oil and gas companies.

The shale gas boom in the U.S. and growing competition from the Middle East and Asia are making things difficult for Europe's refiners.

Over the last five years, 15 refineries have closed in Europe. France, home of the continent's leading refiner Total (TOT), bore the brunt of the closures. Since 2008, the country's refining capacity has dropped by 30%.

Europe's current refining capacity stands at around 15 million barrels of oil per day. By mid-2014, the refining margins in the continent were $20.50 per metric ton, down from $24.60 per metric ton last year and $49.19 per metric ton the year before. For this to change, analysts have said that Europe will have to slash around 10% of its refining capacity. Eventually, amid deteriorating margins, nearly dozen refineries could shut down in the next couple of years.

According to the European Commission, the shale gas boom in the U.S is the primary factor responsible for the depressed refining margins in Europe.

Meanwhile, new refineries currently under construction in the Middle East, Russia and India are targeting greater share of the market. According to the International Energy Agency's estimates, non-OECD nations will install 1.7 million barrels per day of additional capacity in the current year, which is higher than the agency's previous estimate of 1.5 million barrels per day.

The shale gas boom in the U.S. and the new refining capacity in non-OECD countries will continue to exert downward pressure on Europe's refining margins.

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