Cancun, Mexico (Platts)--31Mar2010/755 am EDT/1155 GMT

French oil major Total is still planning to reduce its refining capacity in Europe by 200,000 b/d and would prefer to sell rather than to shut down an existing refinery, CEO Christophe de Margerie said Tuesday.

But de Margerie, in an interview with Platts on the sidelines of the International Energy Forum (IEF) in this Mexican resort town, would not say whether the plan involved the sale of the 200,000 b/d Lindsey refinery in the UK, which has been the subject of recent media speculation.

De Margerie said that Total had declared its intention to reduce its refining capacity by 500,000 b/d between 2007 and 2011.

The French oil major earlier this month announced that it was ending its refining capacity at the 140,000 Dunkirk plant in northern France as a result of a fall in oil product consumption in France, Europe and the US.

"If you consider that Dunkirk is done, which is not the case yet -- all the legal process is moving toward this solution...to switch from the existing refinery to something which is more for storage for petroleum products and the opening of a training and development center for refining worldwide...that is underway and that will leave 200,000 b/d," he said.

"If we want to deliver what we've said, we have to sell or stop the equivalent of 200,000 b/d, which is one refinery. As I have said, we prefer selling than shutting down," De Margerie said. But he would not be drawn on where the cut would be.

While refining margins in the Pacific Basin were depressed, demand patterns were shifting and Total was following the trend by investing in a new 400,000 b/d refinery in joint venture with Saudi Aramco in Jubail.

Total is also bringing on a 50,000 b/d new coker at its 232,000 b/d Port Arthur refinery in the US, which he said would start producing in 2011.

"The question is timing. The market is adapting to demand. You have to be careful not to oversupply again the market," he said.

However, De Margerie said he did not share the pessimism of others in the industry that even after the downsizing and shutdown of refineries, there would still be overcapacity in refining. Other oil companies too were taking similar action and those pessimists were not taking into account the problem of ageing refineries that would have to be upgraded or replaced.

"If the market in the medium to long term continues to be faced with a reduction of demand then we will have to see what is happening," he said, adding that Total had reduced its French capacity by 20%. "... we are not the only ones. We will see what others will do. There will be certainly other changes and other adaptations," de Margerie said.

MORE REALISTIC MARGINS

"When you look at things, if some other things are done, the market should be back to some more realistic margins," he said. "Don't forget that 2008 was the best ever year for refining...that is surprising, at the same time that oil prices were very high, refining margins were very high too."

"It is typical in this market. They are moving from being over-optimistic to over-pessimistic. At the end of the day, you cannot sell crude if you don't process it into products, otherwise, when oil production will increase and there is no refining capacity, there is something stupid," he said.

And not all planned refinery projects were running on schedule, he added.

The ConocoPhillips joint venture refinery with Saudi Aramco has been delayed while there were question marks about the refining sector in Russia while Iran faced problems with no immediate end in sight to the shortage of refining capacity in the OPEC oil producing state.

Total has been a key supplier of gasoline to Iran, which has had to import up to 40% of its refined products because of a shortage of refining capacity, a consequence of the country's inability in recent years to attract foreign investment due to economic sanctions against Tehran.

Asked whether the French company had come under pressure from Washington to halt supplies of gasoline to Iran, de Margerie said the messages were indirect.

INDIRECT MESSAGES FROM US ON IRAN

"We are receiving certain messages but so indirect...if they want to say something, let them say it," de Margerie told Platts in an interview in Cancun, Mexico. "If they want to say something let them say it...you are threatening people without doing anything."

"If that is said, I will be forced to do it," de Margerie said, adding that he did not think that an embargo on gasoline sales would necessarily hurt the government of Iranian President Mahmoud Ahmadinejad.

De Margerie spoke on the sidelines of the International Energy Forum (IEF) in this Mexican resort where the issue of sanctions against Iran was discussed on the opening day of the two-day dialog between major energy producers and consumers.

Several other companies have in recent months halted gasoline sales to Iran for fear of reprisals by Washington.

US President Barack Obama said Tuesday after talks with French President Nicolas Sarkozy that stringent UN sanctions could be in place against Iran "in weeks."

The sanctions would be initiated by a group of six industrialized countries including the US and France, and could include restrictions on the sale of refined fuel products to Iran aimed at persuading the Iranian government to abandon its nuclear ambitions.

Sarkozy did not address Total in his remarks at the White House, but the European Union has spoken against two bills approved by each chamber of the US Congress that would require the US to take action against foreign companies that directly sell refined products to Iran.

For now, Total was not proceeding with a planned LNG project in Iran, de Margerie said, adding that in the long term, Iran's vast oil and gas reserves would be needed to meet future energy demand.

While Chinese companies were moving in to fill the gap left by the Western oil majors with little concern about the threat of sanctions, it was still difficult to develop projects due to several levels of embargo against Iran, he said, adding that he did not believe long-term investment decisions should be dictated by the government in power in any country.

"Iran is part of the system. It is part of the Middle East and Iran will have one day to find its position back to normal. Today it is difficult to invest," he said.

SUPPLY SHORTFALL

While there is much talk about under-investment in the upstream, de Margerie said it was not a question of a lack of reserves but the fact that international oil companies were prevented from investing in certain countries like Nigeria, Venezuela and Iran because of political or security issues.

The result is that there will not be enough spare capacity by 2020, when demand is set to rise to 95 million b/d, according to Total's prediction, from 85 million b/d currently, even if additional Iraqi production is factored in albeit at a lower rate than the country's ambitious target of 12 million b/d by 2017.

Added to that is the delay in bringing new projects on stream due to delays because of cost or environmental concerns, he said.

"...it is not a question of reserves but it is a question of when projects will come on stream. Iraq is still a problem. Iran is a problem. Nigeria is a problem. Venezuela is a problem...You have a long list of problems," de Margerie said. "There is not enough spare capacity."

--Staff reports, newsdesk@platts.com