By Ron Bousso and Karolin Schaps
LONDON (Reuters) - Refiners buoyed by cheap oil and fat margins face a return of tougher times due to stubborn overcapacity, Total Chief Executive Patrick Pouyanne said on Thursday, as Europe's largest refiner spurs plans to slim down.
"There is a risk in the refining industry that because of good margins it will postpone rationalisation," Pouyanne said in a speech at the IP Week conference.
"I am sticking clearly to my plan," Pouyanne said, adding Total's 2012 aim of slashing capacity by 20 percent would be achieved in 2016, a year ahead of schedule.
He warned the sector, which includes peers Royal Dutch Shell (L:RDSa), BP (L:BP) and EniMM>, not to be complacent after a good year for margins in Europe.
"The bad times will come back in refining...because we have globally speaking in the world, an overcapacity of refining, in particularly in diesel."
Helping to curb a fall in its 2015 net profit, Total's European refining margin indicator rose to an average $48.50 per tonne from $18.70, as cheap oil lowered costs and spurred demand for fuel.
Though refiners have reduced capacity around the world in recent years, large refineries have been built in the Middle East and Asia.
"We will shut down, as we planned to do that. Why? Because the overcapacity that was there three years ago did not disappear like that," Pouyanne said.
"My message to my peers is that you have to do your job to rationalise, as we have done."
Pouyanne said he expected oil demand growth to remain strong this year even though many expect it to be significantly lower than in 2015.
Pouyanne told investors that an exploration budget of $1.5 billion in 2016 will start delivering results following discoveries in Myanmar and Brazil.
He said the group expected to return to paying dividends with 100 percent cash with oil at $60 per barrel from 2017 after proposing to use a scrip dividend scheme to pay shareholders dividends in 2015 and 2016 in cash and discounted shares.
