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European refining competitiveness and security

Hydrocarbon Engineering,

The role of European refining and achieving energy security was discussed by Chris Beddoes, Single Director General at CONCAWE AISBC Association and released as a highlight of the 2013 Global Refining Summit.

Beddoes began by discussing that oil demand would continue to decline across Europe, however, the drop in demand would not be universal across the barrel. Once, again, the importance of distillates was enforced, as has been the tone across the industry during 2013. European refineries are known for mobility fuels and they are taken from 2/3 of the barrel and converted mainly in to diesel to reach the growing demand in the European market. The economic benefit of this to the EU is substantial but what cannot be ignored is the chemical feedstock production from European refineries. 90% of European refineries are in fact linked or integrated with petrochemical plants.

The refining industry is the second biggest tax collector in Europe after the inland revenues at 270 billion Euros/y however, 2030 European primary energy demand from oil is likely to be at 30% and fall to 20% by 2050, impacting the margins somewhat. Yet, it is obvious that oil products and fuels are not going to be totally replaced by alternative fuels due to the energy density of these fuels and cost of ownership of cars that run on them.

What’s impairing EU refining?

Three key factors were announced to be impacting the competitiveness of the European refining industry:

  • The international dimension.
  • EU policy and legislation.
  • Shifting demand.

The unequal environmental policies set by the EU are going to of course hit the competitiveness of the EU refining industry hard. The competition of shale from the US is also going to be a factor as this has resulted in a drop in demand for gasoline imports from the US. The drop in US gasoline demand is also due to the introduction of CAFE standards in the country. Competition from Asia and the Middle East is proving a problem for Europe too, as super refineries such as Jubail and Yanbu are coming online. Finally, subsidised refineries found in Russia are causing problems for EU plants. But, what rubs salt in the wounds of the EU’s struggle to compete is the fact that Europe sets the benchmarks with Euro standards for most motor fuels, which have been adopted almost globally.

Refining costs are also becoming an issue that is impacting the competitiveness of Europe’s refineries. CO2, operating costs and taxation are all causing problems, especially as the demand for refined fuels has dropped by 8% alone since the start of the recession. Operating costs are a big factor as in 2010, they totalled 60% of European refinery operating costs and only 30% of US refinery costs, which of course affects competitiveness.

Survival of the industry

If the above level of operation and costs are to be profitable in the European Union then the current utilisation rate is not sustainable, especially as 220 member states have a refining industry. Weaker refineries need to close and some steps in this direction have been taken, as there were 98 refineries in 2009 and there are 87 today. The remaining European refineries need big investments to ensure that the switch from bunker fuel production to distillate fuel production is achieved as Beddoes’ figures indicated that by 2020 bunker demand would have dropped from 3.5% to 0.5%.

The level of European industrial manufacturing will also need to be addressed for the industry to survive. At the moment only 16% of GDP is taken from industrial manufacturing, but there are industrialisation plans for a 20% level to be achieved by 2020.

Finally, in order to achieve sustainable competitive and utilisation levels to remain in business and profitable the EU refining industry needs a stable and political framework to encourage investment, development of technologies and ensure that the industry is kept above water.

Written by Claira Lloyd.

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