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Developments in EU refining: Part 1

Hydrocarbon Engineering,

Oil refineries are constantly adapting to changes in product quality legislation and market demand. This requires the industry to be aware of such changes and anticipate them. Awareness of product quality legislation changes is generally straightforward, since they require that new product quality specifications be met by target dates. Predicting product demand changes is more complex, as these depend on only a few invariable factors, such as legislative targets for vehicle efficiency, and a myriad of much less predictable factors, such as economic growth and consumer preference for diesel or gasoline vehicles. A further complicating factor in the demand picture in recent years is the introduction of biofuels, which displace a portion of the products produced by refineries from crude oil (i.e. ‘refined products’).

To guide the refining industry in the complex task of anticipating future changes, Concawe released the ‘EU Refining 2020 – 2030’ study in 2013 (report no. 1/13R). This study used the Concawe EU refining model to combine a detailed inventory of the expected product quality changes with a forecast for product demand changes and estimate the impacts on refineries in EU27+2 countries over the period 2008 – 2030. This article highlights the key outcomes of this study.

What are the expected product quality changes?

EU road transport fuels have not been required to undergo any further changes in quality since the major milestone reached in 2009, when road diesel and gasoline were required to be ‘sulfur free’ (i.e. containing less than 0.001% sulfur, compared to 0.005% since 2005). In 2011 this 0.001% sulfur limit was extended to diesel consumed in non-road machinery and inland waterway vessels (previously 0.1% sulfur). Since 2011, ‘sulfur free’ products for road and non-road engines constitute about 37% of the total output of EU27+2 refineries.

The biggest changes in product quality in the post 2010 period will be in residual marine fuels, which currently constitute approximately 7% (40 t) of EU refining output. The maximum sulfur content of marine fuels used in EU emission control areas (ECAs) was reduced to 1.5% in 2006 and to 1.0% in 2010. A further reduction to 0.1% sulfur will be required in ECAs from 2015, which can only be met by fuelling vessels with distillate marine fuel instead of residual marine fuel.

In non-ECA areas the marine fuel sulfur content is set to reduce from 3.5% to 0.5% in 2020 or 2025, dependent on an International Marine Organization (IMO) review of worldwide fuel availability due by 2018. The IMO marine fuel regulations allow for onboard exhaust gas scrubbing to be used to achieve the required emissions abatement instead of reducing fuel sulfur content. Some ship owners have announced exhaust gas scrubber retrofits or new builds, but the number of scrubbers in operation is not likely to have a significant effect on the demand for 0.5% sulfur fuel if the sulfur reduction is imposed in 2020. In the absence of the availability review, the Concawe study base case assumed that the global change to 0.5% sulfur fuel would take place in 2020 and would be entirely supplied by refineries. This includes, de facto, the EU legislation1 which will impose the 0.5% sulfur limit on all marine fuels used in EU territorial seas (i.e. up to 12 NM off the coast) and exclusive economic zones (EEZs) from 2020, regardless of the IMO decision. In a sensitivity case the opposite extreme was assumed, i.e. that all ships fuelling residual fuel at EU ports would be equipped with scrubbers by 2020.

What are the forecasted changes in refined product demand?

Final demand for refined road fuels is declining in EU27+2 countries due to steadily improving vehicle efficiencies and the penetration of alternative fuels (mainly biofuels) made from non-fossil feedstocks. The combined effect of these factors on refined road fuel demand was assessed using the Fleet & Fuels (F&F) model developed by the JEC consortium, under the assumption that the 2020 vehicle fuel efficiency targets of 95g CO2/km average vehicle efficiency and 10% energy renewables would be met. Concawe extended the F&F modelling to 2030, assuming that vehicle efficiency would continue to improve to 75g CO2/km by 2030. The results show a continuing decline in gasoline demand (58% lower in 2030 than in 2005) while road diesel demand remains fairly stable up to 2020, then declines by approximately 9% to 2030. The ratio of refined road diesel to gasoline demand shows a continuous increase from 1.1 in 2000 to 2.0 in 2010, reaching 3.4 in 2030.

The main demand change in non-road transport fuels will be in 2015 with the switch in ECAs from residual marine fuel (1.0%S) to distillate marine fuel (0.1%S). This could remove about 13 tpy from residual fuel demand and add 13 tpy to distillate fuel demand.

Demand for non-transport refined products is also in decline, mainly due to substitution by natural gas. This is especially the case for heating oil (for domestic, agricultural and industrial uses) and inland heavy fuel oil (for industrial heat and power generation). Wood Mackenzie demand forecasts were adopted for these products in the study.

When these individual product demand trends are combined the overall result is a fall of 166 t (23%) in total demand for refined products from 2005 to 2030, as shown in Figure 1. It should be noted that while total demand is in decline from 2005 to 2030, the share of middle distillates2 increases from 49% in 2005 to 60% in 2030. This will place a considerable strain on the refining system, as declining total demand is likely to lead to more refinery closures. The distillate production capacity lost in closed refineries would need to be replaced with additional energy intensive distillate production capacity in the remaining refineries in order to meet demand without increasing the EU’s reliance on imported distillates to complement domestic production.

Figure 1. Total demand for refined products in the EU27+2 (tpy).

How is the EU refining industry meeting the challenges in the short term?

The European refining industry had 760 tpy of crude distillation capacity at year end 2008. This had reduced to 698 tpy by year end 2013 with the closure of 14 refineries under the combined impact of adverse economic circumstances, shrinking refining margins and declining demand. The closed refineries were on average smaller and less complex than the EU average and were oriented towards gasoline production.

Despite these adverse conditions, EU refineries have announced capital expenditure projects over the 2009 – 2015 period amounting to an estimated total of US$ 30 billion (€21 billion)3 . These projects will increase capacities of EU refinery units that boost distillate production and reduce residue production, making a major contribution to meeting future product requirements, and in particular allowing the switch to 0.1% sulfur marine fuel in ECAs in 2015 without needing additional imports of distillate fuels. The changes in process unit capacities resulting from announced projects and closures over the 2009 – 2015 period are shown in Figure 2.

Figure 2. EU27+2 refinery projects 2009 - 2015 (capacity change by process unit relative to year end 2008).

The rest of the article can be found here.


1. Directive 2012/33/EU of 21 November 2012, amending Council Directive 1999/32/EC regarding the sulfur content of marine fuels.

2. The term ‘middle distillates’ covers the range of refined products from kerosene fuel (for heating or jet engines) to diesel fuel (for road and non-road) vehicles to heating oil (typically used in oil fired domestic boilers) and marine distillate fuel (for ships not equipped to burn residual fuel and for ships in port and in the ECAs from 2015).

3. All the capital investment figures in US dollars and Euros in this article are based on costs in 2011, unadjusted for inflation.

Written by Concawe

Edited by Claira Lloyd

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