TotalEnergies has warned of a significant decline in its European refining margins in the third quarter of 2024, attributed to the correction in petroleum product prices from historic highs. This fall in margins weighs heavily on profits in the downstream segment of the French energy giant.
In its October 15 quarterly update, TotalEnergies reported that its European refining margins averaged $15.40 per tonne in the third quarter. This figure represents a drop of 66% from the second quarter, marking the largest quarterly decrease in more than five years.
A difficult margin environment
Like most global refiners, TotalEnergies benefited from sharply rising margins after the shock caused by the war in Ukraine in the second quarter of 2022, which upended oil supply chains. Margins then reached record levels. However, with a recovery in trade flows and economic pressures affecting consumption, refined product prices have continued to decline throughout 2024.
The last time TotalEnergies recorded lower refining margins was in the third quarter of 2021, with a figure of $8.80 per tonne. Before the Russian invasion, the 2021 annual average was $10.25 per ton.
Raw material costs and production adjustments
Although the price of a barrel of Brent fell slightly in the third quarter, going from $85 to $80.30, this drop was not enough to offset the more marked decline in the petroleum product markets. This context pushed refiners to reduce production, after a summer marked by high production, to take advantage of margins that were still relatively favorable historically.
Commodity Insights analysts cut their fourth-quarter production forecast by 50,000 barrels per day due to early signs of an economic slowdown, while refinery utilization rates in Europe are expected to fall to 82% from 83% in September. % in October and November.
The outlook for winter
Autumn maintenance work at key refineries in Europe, such as Frederica in Denmark and Pembroke in the UK, is expected to limit excess supplies. However, demand remains weak, and stocks of refined products built up in the Amsterdam-Rotterdam-Antwerp hub in September. Despite a slight drop in diesel stocks at the beginning of October, growth prospects in Europe remain gloomy, and a mild winter could limit demand for domestic fuel oil.
Large European refiners, such as BP, Shell and OMV, have also experienced a series of negative results in the downstream segment, with margins reaching historic lows, with some cases dating back to the COVID-19 crisis.
Growing pressure in the upstream
In the upstream segment, TotalEnergies forecasts total hydrocarbon production of 2.4 million barrels of oil equivalent per day (boe/d), down slightly from 2.45 million boe/d recorded in the previous three quarters. . This decrease represents a multi-year low.
Production disruptions in Libya, which lost about half of its crude output in September due to a political crisis, contributed to the decline. Additionally, unplanned outages at the Ichthys LNG project in Australia also weighed on production, although the Mero 2 project in Brazil offered some support.
LNG, engine of future growth
TotalEnergies predicts that LNG (liquefied natural gas) will lead its growth in hydrocarbon production through 2030. The company expects annual growth of around 3% by the end of the decade, largely due to major projects launched in 2024 in Brazil, Suriname, Angola, Oman and Nigeria.
The company also anticipated that its integrated LNG results would exceed $1 billion in the third quarter, with an average LNG price of $9.91 per million Btu (Mbtu) in the third quarter, an improvement of 6% from compared to the second quarter.
