During the summer of 2018, at the peak road building season, many bitumen supply shortage situations were reported throughout Northern Europe, creating issues for road builders and membrane manufacturers – the main buyers of bitumen.

This situation caught the attention of several storage operators. At a time where every facility is looking at ways to diversify its activity and reduce dependence on diesel and gasoline, is bitumen a way to diversify a storage terminal’s business?

Bitumen has a very unique profile in terms of supply and demand in Europe. If bitumen consumption continues to be fairly stable in Europe, production is under severe pressure. Production has declined in Europe over the past eight years, from 20 million tonnes in 2010 to 17.5 million tonnes in 2018.

There are many reasons for this reduction of bitumen production. Bitumen is made out of crude residue and production is much less profitable than residue conversion. Therefore, refiners have decided to invest in conversion capacity like delayed coker units and deasphalter units that turn residues into lighter products. Total and ExxonMobil for instance have made that choice in Antwerp.

Most of the refineries producing bitumen are old and have poor hardware (low level of complexity). They struggle to remain competitive due to the excess of refining capacity in Europe and competition from new and modern refineries outside Europe. Many European refineries producing bitumen have fully closed already, Total’s La Mede being one of the most recent examples. This site has been converted into a bio diesel production plant boosting bitumen storage projects in this area.

Bitumen adds complexity and cost to refinery operations. Bitumen production requires the processing of specific crudes (heavy and high sulphur) which impact refinery operations. Some refiners have decided to stop processing those crudes and to produce other products. For example, ExxonMobil in Fos, France stopped in 2006 and BP decided to do the same in 2018 in Gelsenkirchen, Germany. The crude oil situation is actually getting worse for bitumen producers as the two bitumen crude super stars – Venezuelan and Iranian crude – are getting very hard – if not impossible – to source due to different reasons.

Consequently, several countries have stopped bitumen production, such as Switzerland, Norway, Denmark, Ireland and Slovakia. Many countries are also getting short, whereby they no longer cover their consumption with local production. For instance, France, despite having six refineries producing bitumen, is short by 600,000 tonnes per day. The UK has been a major importer of bitumen since 2013. In 2015, the Netherlands produced less than half of what it produced in 2014. Production in Belgium has reduced by a third since 2010.

Another remarkable item is that rationalisation of production leads to more monopolistic supply situations and risky buyer positions. Many countries rely only on one producer. Buyers are left with few options and it gets worse when production stops due to operational issues that tend to be increasingly frequent due to the aging of the bitumen production assets or in the case of a major incident. A fire impacted the Vohburg refinery in September 2018¹ in Germany and there is still uncertainty on when production will restart.

The supply situation is not expected to improve despite the IMO 2020 impact, which creates an opportunity for refiners to use bitumen as a back-up plan for high sulphur residue disposal. In theory, bitumen would be the perfect alternative for refiners to get rid of high sulphur residue that has been going into bunkers before 2020. However, it is not that simple:

1) Not every refinery can process bitumen crude,

2) Not every high sulphur residue stream can go into the bitumen pool,

3) Bitumen logistics are dedicated, expensive to operate and need major investments. Few refineries can afford this move in Europe and if they invest, they are likely to target conversion projects rather than bitumen production.

The Bitumen Opportunity

Storage operators should then carefully study the bitumen storage opportunity for themselves as there is more appetite from customers to secure their supply. Stock out is not an option for road builders who account for more than 85% of bitumen global consumption and are exposed to major penalties if they do not complete work on time. Quality is also critical as roads are here to stay and are expensive to maintain. Logistical flexibility is required for a product that is weather dependent and subject to a seasonality consumption pattern.

In order to assess the potential, storage operators should look at the following criteria to assess the potential of their locations:

•  Are they close to strong bitumen demand areas with no/limited competition?
• Are their terminals already on one of the main bitumen shipping routes?
• Do they offer enough draft to accommodate any kind of bitumen ship?
• How good are their road & rail connections?
• Do they have access to competitive energy costs?
• Do they have land to accommodate storage expansion and ideally a bitumen transformation plant that tends to be more integrated on bitumen storage sites?

Additional changes in the industry will also benefit storage operators. Additional closure of bitumen production sites is expected as further rationalisation of refining is needed in Europe due to increased competition from the US and Middle East and expected declining demand of diesel and gasoline in Europe.

More blending & transshipment activities will be required to cope with supply/demand imbalance.

Current shortage of qualified truck drivers will further boost demand for new lifting points closer to demand areas.

Additionally, storage in the low bitumen season to cope with peak season should grow, boosted by a global deficit.

For these reasons, few products show an attractive profile for storage operators like bitumen.

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