Stanlow refinery will cut production by about a third

UK's second-largest refinery cuts production by third

Britain's second-largest oil refinery will mothball a crude distillation unit, cutting a third of its production capacity.

In further evidence of losses forcing closures across the struggling European industry, Essar Energy said its Stanlow refinery in northwest England will shrink its output capacity to around 195,000 barrels-per-day (bpd) from 296,000 bpd after the unit goes offline by October.

In a statement, the company said the measure is part of a $100m (£60m) revamp in an effort to save the plant, which supplies about 15 per cent of Britain's transport fuels, after it posted a loss of $287m last year.

According to the firm the loss resulted from planned maintenance, a damaged furnace, and weak refining margins – each barrel of crude the company processed in the fourth quarter lost an average of $2.61, compared with an average profit of $7.22 a barrel in the same quarter of 2012.

The refinery is already operating at 70 per cent of capacity, according to the Essar website, indicating overall runs will not be sharply reduced by the closure of crude unit. After the unit is closed Stanlow will produce approximately one third gasoline, 57 per cent diesel and kerosene and 3 per cent heavy fuel oil for shipping and power generation.

The cutback "will further reduce fuel oil and naphtha production and improve absolute margins whilst delivering cost efficiencies," the Essar statement said.

A source at the refinery said that some jobs were expected to go at the plant.

"We don't anticipate any compulsory redundancies as there are a lot of workers in their mid-50s to 60s, but rationalisation and cutting costs is definitely behind the changes," said the source.

He declined to say how many workers were at the plant or how many posts would be cut and the company declined to comment.

Stanlow is the first European refinery to see capacity closures this year in the face of sinking regional refining margins in the past six months. The industry in Europe has been hammered by weak demand, over-capacity and huge flows of diesel from overseas competitors.

Around two million bpd of refining capacity, the equivalent of 10 medium-sized plants, will need to shut in the next four years to balance the European market, according to Vienna-based consultancy JBC Energy.

Essar Energy, which owns a series of power and oil assets in India and is controlled by India's billionaire Ruia brothers, received a £900m takeover offer from its largest shareholder yesterday.

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