EU refining is a strategic asset for Europe’s economy, but the growing risk of relocation to other regions, is a serious threat that EU policy makers have to address without delay.
The European refining industry plays essential roles in transport and the petrochemical industry. Refined oil products supply 90% of the energy used for transport in the EU, and about 2/3 of the feedstock for the petrochemical industry. These are vital components of the European economy, and a healthy domestic refining sector is, therefore, indispensable for European energy security in an era of geopolitical upheaval. Whilst Europe’s dwindling domestic crude oil production results in an increasing dependency on oil imports from overseas, our security of supply has been enhanced by making EU refineries flexible, reliable, and capable of processing a variety of crude sources. Due to the unrivalled liquidity of crude oil in the global market of commodities, if political instability, trade sanctions or any other kind of disruptions endanger the availability of one or more crude oils, other sources are readily available to make up the shortfall.
Refined products already are supplied from refineries located outside the EU. However, increasing the dependency of the EU consumer from non-EU refineries implies a growing risk in terms of security of supply. Not all oil products have the same liquidity in the commodity markets as crude oils. Furthermore, the number of suppliers capable of producing intermediate and finished oil products of the quality needed in Europe is more restricted.
In the case of product supply disruptions (for political, economic or ‘force majeure’ reasons), EU consumers and the EU industrial systems could face a shortage and/or a price spike. Also, the strategic implications of a secure supply of oil products for essential civil and military use (e.g. jet fuels, diesel, etc.) cannot be underestimated. A robust domestic refining industry is absolutely essential to keep Europeans and their businesses moving.
The contribution to the EU economy
Mobility is a key component of our living standards, and is intrinsically linked to economic growth. Today, while renewable energy, electricity and other alternative technologies are increasingly utilised in transport, refined petroleum products are - and will remain for many years - the prominent energy source. This is due to a unique and tremendously successful combination of continuous technology advancements in the internal combustion engine and of affordable and high- quality liquid fuels. The European refining industry is key in helping to make the required mobility more affordable for consumers and businesses.
The EU refining industry also provides Europeans with jobs, many of which require professional expertise and are well paid.
Refined products represent the main feedstock for the petrochemical industry, with which to produce petrochemical intermediates and finished products, such as plastics. The high integration of refineries and steam crackers in the EU boosts the competitiveness of the petrochemical industry, which significantly contributes to Europe’s overall GDP, and provides many more jobs, beyond those within the refining industry itself. In more general terms, the integration of the refining sector in the EU industrial supply and value chain, is an essential condition for the recovery of the EU economy.
A highly technological industry with a continued focus on innovation
Over the past 25 years, European refiners have invested an average of €4.5 billion annually, towards the desulphurisation capacity of distillates and gasoline, the upgrading of production facilities and processes, the installation of emission abatement equipment, and numerous energy savings measures. Following the switch to fully unleaded gasoline, this marked the industry’s full transition to the production of clean motor fuels in 2009.
The continued improvement of oil product qualities have seen the most striking results in the dramatic reduction of sulphur content in road transport, heating, and marine fuels, which also require significant investments by EU refiners.
The EU refining industry has reduced its environmental footprint by continuously investing in the development of increasingly energy-efficient technologies and processes. The use of cogeneration and advanced catalyst systems allows for even more energy gains. Since 1990, the refining sector has been improving its energy efficiency at an average rate of 1% per year, with EU refineries high in the rankings of the most energy-efficient in the world.
European refiners, in order to comply with some of the world’s most stringent air and water quality (SOx, NOx and particulate matter emissions), and soil protection rules, have also invested in new technologies within this sphere. This has significantly reduced their environmental footprint, cutting in half the amount of sulphur emitted by EU refineries since 1998.
As the quality of water effluents has also greatly improved, refineries, over the past 30 years, have decreased their oil discharge in water tenfold.
EU refining: worldwide leader in refining technology innovation
The strong capacity of the refining industry to innovate has encouraged the continuous development of cleaner fuels, and the setting of worldwide standards for transportation fuels.
The European Commission’s Competitiveness Report, published in 2013, recognises that the EU refining industry is at the forefront, ranked no. one in terms of process innovation, and ranked no. 4 for product innovation amongst all EU manufacturing industries.
EU refining, a technology and innovation driven industrial sector, requires a highly skilled workforce to run its activities. The Competitiveness Report ranks the EU refining industry in second place amongst manufacturing industries, with regard to skill and knowledge intensity share of total employment.
The pressure remains amid many looming threats on the refining industry
EU Refining faces persistent competitive pressure: in the period 2008-2014, some17 refineries shut down in the EU, adding up to an 8% capacity decline, and the loss of some 10,000 direct and 40,000 indirect jobs. This is not good news for the EU economy, and is also detrimental to the global environment: the manufacturing of oil products in the EU refineries is, on average, considerably less carbon intensive, when compared with the rest of the world. The relocation of refining capacity from the EU to other regions of the world, would, subsequently, result in a 35% increase in GHG emissions.
As the pressure on EU refining remains somewhat relentless, with more pending closures announced, and refineries under threat in several countries, FuelsEurope emphasises the importance of undertaking a thorough and objective assessment. An assessment that looks carefully at how legislation affects costs and competitiveness, and takes into due consideration, comments from stakeholders, most notably, from those directly concerned – the Member States and industry.
A competitive legislative framework is an essential condition to encourage investment. Companies are used to managing certain types of uncertainty – such as changes in the market, evolutions in technology, and a competitive landscape – but they also depend on a predictable legislative framework.
If this is lacking, it discourages investment decision makers, and puts the EU at a disadvantage, with respect to regions of the world where industries enjoy a stable and predictable regulatory framework.
Technology neutrality and a rational approach to the cost of carbon are also essential elements of a competitive legislative framework.
EU refiners want to continue investing in Europe, but need reassuring conditions to do so. There is a clear need for predictable and non-discriminatory regulations in the EU to ensure a level playing field globally, and the freedom for European refining companies to operate under market forces.
Alessandro Bartelloni, Policy Director, FuelsEurope