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PARIS (Reuters) - A two-week strike at French oil company Total (>> TOTAL) has shone a spotlight on refineries already threatened with closures by exposing a difficult truth: France can function without most of them.
By launching strike action in the run-up to Christmas, trade unions led by the hardline CGT had hoped they could paralyse the country by shutting down five of France's eight refineries and so obtain higher pay rises for workers.
But with the European refining sector already running well below capacity because of poor margins and imports of cheaper fuel from the United States, there was no shortage of gasoline and diesel to supply French service stations.
"The CGT has demonstrated that France didn't need Total's refineries to run the country," said Francois Pelegrina, a union official at the more moderate CFDT union near Marseille.
"At some point, we'll pay the price. This strike will have a cost. It will end up with some units closing down," he said.
Some 15 refineries have been shut in Europe since 2009, including four sites in France. It now has eight refineries, five of them being run by Total, Europe's biggest refiner.
And yet, Europe is still estimated to have 500,000 barrels a day of overcapacity, with no significant pick-up in oil demand in sight and new refineries in Asia and the Middle East - including Total's own Satorp joint-venture in Saudi Arabia - expected to eat away at margins.
Total Chief Executive Christophe de Margerie told a parliamentary hearing on Wednesday that the group was expecting a net loss of 500 million euros ($684 million) in its French refining business in 2013, with European margins hitting as low as $1.38 a barrel in the fourth quarter.
"There are too many refineries in Europe compared to consumption," he said.
The group had pledged not to shut any refinery in France for five years when it closed its Dunkirk plant in 2010, and the closure of Petroplus' Petit-Couronne plant had also taken some pressure off other French plants.
But the unexpectedly tough labour dispute has shone an unwelcome light on French sites.
"Workers in other refineries in Europe are probably happy that the French went on strike. We're in a situation where we're waiting for the weakest link," said Olivier Jakob, managing director at energy consultancy Petromatrix in Zug, Switzerland.
De Margerie said Total had not seen the strike coming.
"We were a bit surprised that the strike happened in the least healthy division. The motive that was chosen - pay rises - was not a good one," he said.
COAST UNDER PRESSURE
Total's refining strategy has been to invest in two major European platforms capable of processing complex and varied refined products, such as the Gonfreville plant in Normandy and the Antwerp site in Belgium.
"The most attractive ones are those with a high level of complexity," Jakob said.
But the future of the other sites remains uncertain, with some seen as more fragile than others.
Analysts say smaller refineries such as Grandpuits near Paris and Feyzin near Lyon make them vulnerable. But Grandpuits's strategic location to supply the country's economic and political heart protects it somewhat.
Feyzin's mayor, Yves Blein, told Reuters the plant's mix of refining and petrochemical units offset the disadvantage of its small size.
"The ones under pressure are the coastal ones, when you go further into the continent, there's a more captive market," Petromatrix's Jakob said.
The Donges refinery near Nantes on the Atlantic coast, France's second-largest, was perfectly positioned for gasoline exports to the United States yet that market dried up as the U.S. shale gas revolution boosted domestic U.S. production.
The other coastal plant is the La Mede refinery, near the Mediterranean port of Marseille. It is directly exposed to overcapacity from Italian and Spanish refineries and exports from the Middle East and Asia.
Closing units is not the only option, however. Total is in talks with Petrochina to create a partnership between its La Mede refinery and the neighbouring Ineos plant, which are already linked by a pipe.
"That would create a big refinery the size of the Gonfreville platform, save money on orders and facilitate diesel production," unionist Pelegrina said.
Total's CEO said talks with Petroineos were continuing.
Yet with France's energy bill reaching 69 billion euros in 2012, French officials dread a larger reliance on imported refined products and say other countries should play their part in cutting overcapacity in Europe.
"There are still a lot of refineries in Italy, in the Netherlands, in Germany. "We absolutely need to debate this at European level," said Feyzin mayor Blein.
"France has already given a lot. Everybody should make an effort."
(Editing by Mark John and Jason Neely)
By Michel Rose
