Total to Shut Lubricant Production Unit at Normandy Refinery

Total plans to shut a lubricant making unit at its Gonfreville refinery in northern France to focus on higher-quality automotive base oils, union sources said on Wednesday.

The French oil company will hold a works council meeting on Friday at the Normandy site, where it has invested more than 1 billion euros ($1.25 billion) in the last three years, to inform unions of its plans.

"A plan to modernise speciality products in Normandy will be presented on Nov. 21 to union representatives," a spokesman for Total said. Under French law, the group cannot divulge more detail before it has officially informed unions.

The closure of the so-called Group I base oil unit, which produces material for lubricants, will affect some 50 jobs, but employees will be transferred to other units on the site, where 1,700 employees work in total, a CFDT union official said.

Group I is the lowest quality base oil, and can no longer be used for automotive lubricants in Europe, where margins are the highest.

Tighter environmental regulations in Europe has meant group II and group III base oils, which produce lubricants with lower emissions, have taken over most of the non-industrial market share. Total currently produces a small amount of Group III at Gonfreville that amounts to roughly 10 percent of the plant's lubricants capacity.

Total's project will be carried out by autumn 2015, the CFDT union official said. Base oil production will fall to 800 tonnes per day from 1,600 tonnes per day, a CGT union official said.

Industry experts say several Group I base oil units need to close globally, and Europe is at the most risk because of its higher production costs, smaller and older refineries.

"People don't want to drive around in cities filled with smog. It means essentially they have to use Group II and Group III (base oils)," R. David Whitby, CEO of Pathmaster Marketing, a lubricants and fuels consultancy, said.

"Europe is a special case because of the higher quality requirements and the upcoming increase in emissions controls."

The closure of Total's unit will ease the pressure a bit, but not by a huge amount, he said, estimating the global overcapacity in the market at around 7 million tonnes per year.

(1 US dollar = 0.7975 euro)

(By Michel Rose; Additional reporting by Gus Trompiz in Paris and Libby George in London. Editing by Jane Merriman)