“Global Competition & the Role for Europe’s Refineries & Fuels”
John Cooper, Director General
Warszawa, 31 March 2016
John Cooper, FuelsEurope: “Global Competition & the Role for Europe’s Refineries & Fuels”
•
About FuelsEurope
•
EU Refining challenges
•
EU Regulation overview
•
Fitness Check & High Level Group of Energy Intensive Industries
•
Competitiveness – Getting a complete picture
•
Addressing Climate Change & EU ETS Reform
•
Transport Decarbonisation
•
Conclusions
Page 2
John Cooper, FuelsEurope: “Global Competition & the Role for Europe’s Refineries & Fuels”
FuelsEurope represents 41 Member Companies ≈ 100% of EU Refining
John Cooper, FuelsEurope: “Global Competition & the Role for Europe’s Refineries & Fuels”
FuelsEurope represents the voice of the downstream sector of the EU oil industry
Crude
exploration
Crude
production
Upstream
Transport
Refining
Transport
Marketing
Downstream
Page 4
John Cooper, FuelsEurope:
“Global Competition
& the RoleOF
forOEurope’s
Refineries
& Fuels””
“IMPORTANCE
AND CHALLENGES
IL REFINING
IN EUROPE
The challenges faced by EU refineries
15 European Refineries closed in 2008-2014
Page 5
(1) source: Commission Refining Fitness Check, 2015
John Cooper, FuelsEurope:
“Global Competition
& the RoleOF
forOEurope’s
Refineries
& Fuels””
“IMPORTANCE
AND CHALLENGES
IL REFINING
IN EUROPE
EU Policies create additional competitive pressure for EU Refining
• Policies that affect product demand:
•
•
Alternatives to oil either mandated or subsidised – bio fuels/electricity
(RED - Renewable Energy Directive, FQD - Fuel Quality Directive)
Taxation has favoured diesel use over gasoline (ETD - Energy Taxation Directive)
• Policies that affect EU refining cost:
•
•
•
Carbon pricing: with partial protection from partial free allowances.
The EU ETS Reform will further reduce the competitiveness of EU energy intensive
industries
Energy prices (electricity) are impacted by subsidies/mandates to renewables
• Policies that affect refiners investments:
•
•
Ambitious new Industrial Emissions standards. (Industrial Emissions Directive)
Marine fuel sulphur limits go beyond IMO standards. (Sulphur Content of Marine
Fuels Directive)
Page 6
John Cooper, FuelsEurope: “Global Competition & the Role for Europe’s Refineries & Fuels”
Refining Competitiveness – support from EU institutions
• Refining Forum
• 6th EU Refining Forum took place on the 1st March 2016, Brussels
• High-Level speakers: Commissioner Arias Canete, DG Dominique Ristori, MEP Gardini,
Dutch Presidency, Mayor of Thessaloniki, CEO of Hellenic Petroleum & CEPSA, 19 Member
States (including Poland)
• Key topics: social and economic benefits of the refining industry, challenges ahead including
post Paris COP 21, Refining competitiveness vs international players, ETS and carbon
leakage
• Next EU Refining Forum confirmed for Autumn 2016
•
European Commission High-Level Group on Competitiveness
• An initiative launched by Commissioner Bienkowska early 2015 as a forum to discuss
challenges to the Energy Intensive Industries
• FuelsEurope selected as a member
• High-Level Conference on Energy-Intensive Industries took place on 15 February 2016
• Speakers: VP Katainen, Commissioner Bienkowska, Vazil Hudak – Minister of Economy of
Slovakia, Henk Kamp – Minister of Economic Affairs of the Netherelands, Philippe Sauquet,
President TOTAL & Alessandro Gilotti, CEO Raffineria di Milazzo
Page 7
John Cooper, FuelsEurope: “Global Competition & the Role for Europe’s Refineries & Fuels”
EU Refining Fitness Check – key conclusions
• Refinery was chosen as the first industrial
0,47€/
sector
barrel
for a sectorial Fitness Check.
• Study recognized the importance of EU refinery
for economy and security of supply
(0.9% of GDP, 1.3 million jobs, etc.).
• The average cumulative cost of the different
pieces of legislation reduced by 25% the
competitiveness of the sector in terms of the
decline in the observed net margin.
• The quantifiable regulatory cost impact resulting from EU regulations (2000-2012) was
0,47 €/barrel. This is a significant amount considering that in the last 5 years the average
refining gross margin ranged between 0 and 4 €/barrel.
• Recognition that significant additional regulatory costs are coming post 2012 (ETS, REF
BREF,…).
• FuelsEurope, as well as several Member States representatives attending the Refinery
Forum on 15th June 2015, recommended keeping the Fitness Check updated as a living
document and using it Check in any future impact assessment of legislative proposals
affecting the refining sector.
Page 8
John Cooper, FuelsEurope: “Global Competition & the Role for Europe’s Refineries & Fuels”
A look at the future: cumulative cost impact of EU legislation in 2020
11.5
11.0
Estimated cost to EU refiners ($/bbl)
10.5
12.0
Competitive
2020
Low cost scenario disadvantage for
EU refineries
11.5
11.0
10.0
9.5
9.0
8.5
8.0
7.5
7.0
6.5
2020
High cost scenario
10.5
Estimated cost to EU refiners ($/bbl)
12.0
10.0
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
6.0
Baseline
opex
ETS *
IED
REACH
RED
SLFD
(MFD)
Baseline
opex
ETS *
IED
REACH
RED
SLFD
(MFD)
 The cumulative competitive disadvantage can be estimated in the range of 0.7 – 1.95$/bbl
* - For EU ETS, ‘low cost scenario assumes 16.5 €/t CO₂, high cost scenario 30 €/t CO ₂
Source: Concawe, “The estimated forward cost of EU legislation for the EU refining industry”
Page 9
John Cooper, FuelsEurope:
“Global Competition
& the RoleOF
forOEurope’s
Refineries
& Fuels””
“IMPORTANCE
AND CHALLENGES
IL REFINING
IN EUROPE
Relocation of EU refining capacity is a lose-lose proposition
1. A LOSS FOR THE EU ECONOMY
2. A LOSS FOR ENVIRONMENT
Every 100 units
of CO₂ emissions
reduced in the
EU are replaced
by 135 units
outside the EU*
3. A LOSS FOR SECURITY OF SUPPLY
*Source: Vivid Economics for UK DECC – Case study on Refining - Carbon leakage prospects under Phase III of the EU ETS and beyond
Page 10
John Cooper, FuelsEurope: “Global Competition & the Role for Europe’s Refineries & Fuels”
Cost build-up for EU refineries vs non-EU export oriented refineries
 Generic EU refinery, 200 kbd  Generic Middle-East refinery, 250 kbd  $ / bbl of crude
1.7 $ / bbl
2014
IED 1.45
ETS(2)0.27
EU-only
Regulatory cost
4.1 $ / bbl
1.2
Energy(3)
COMPETITIVE
DISADVANTAGE
1.3 $ / bbl
≈2.0 Product
freight to EU(1)
0.4
0.6 Energy(3)
Maintenance
Maintenance 2.8 $ / bbl
1.7
1.7
& Other
& Other
Labour Labour
NOTE:
(1) Product freight to EU - $/bbl of product delivered to the EU
(2) ETS – estimated average impact on EU refineries in phase IV
(3) Energy costs for purchased energy only
- Assumed identical crude cost
1.2
Crude cost
Crude cost
Source: Solomon Associates, Concawe
Page 11
John Cooper, FuelsEurope: “Global Competition & the Role for Europe’s Refineries & Fuels”
FuelsEurope recognizes that climate change is a global challenge,
requiring global solutions
Page 12
John Cooper, FuelsEurope: “Global Competition & the Role for Europe’s Refineries & Fuels”
Expected evolution of ETS cost for EU refineries from phase II to phase IV
(1)
(2)
(3)
Source: Concawe, based on Linear Reduction Factor 1.74% per year & impact of CSCF, assuming total EU refining throughput at 650Mt/y
Source: Concawe, based on the 15th July 2015 COM proposal for ETS revision Linear Factor 2.2% per year é estimated impact of CSCF, assuming EU refining
throughput at 600 Mt/y, 0.5% yearly improvement in carbon efficiency and cost of ETS certificate at 30€/ton
Note that in Phase II surplus allowances to the estimated value of 750 M€ were allocated (source: JRC draft refining fitness check report)
Source: Concawe & WoodMackenzie
Page 13
Investment cost in bln $
60
2.3
50
55
2.1
40
Investment
50
1.3
30
2.5
Distillation capacity additions
2
40
35
1.5
1.1
21
20
0.6
10
1
18
0.4
12
0.3
12
0.2
0.5
0
0
Middle East
China
Other Asia
Latin America
Africa
US & Canada Russia & Caspian
Europe
Jamnagar refinery, India
Expansion - for Export - underway from 1.3 Mbpd to 1.8 Mbpd (=13% of EU refining capacity)
Source: OPEC, World Oil Outlook 2014
Page 14
Capacity additions (mb/d)
Investments in global refining industry:
jobs and growth are going elsewhere
John Cooper, FuelsEurope:
Competition
& the Role
for Europe’s&Refineries
& Fuels”
“G“Global
LOBAL AND
EU ENERGY
CHALLENGES
TRANSPORT
ISSUES
Indicative Carbon Costs in Transport & Power Sector
Cost in $/Tonne
Carbon mitigated or reduced
$500+
Transport
range
Power
Focus of transport
energy GHG
policies
Bar width indicates scope
of decarbonisation available
Focus of
Power
Generation
GHG policies
range
A true market in GHG reduction would support
the next lowest cost technologies
$80
* Economy-wide carbon price
$20
Focus of
vehicle
efficiency
policies
Fuel switching
in power
Efficiency
Renewables in
power
Reforestation*
CCS*
1st Gen Advanced
Biofuels
Transport
Electrification
* Carbon sequestration will increase the available carbon budget
Page 6
“GLOBAL AND EU ENERGY CHALLENGES & TRANSPORT ISSUES
Conclusions
• European refineries compete in a highly competitive global market for refined
petroleum products
• High costs for energy & regulatory compliance create a significant cost
disadvantage versus export-oriented refineries outside of EU
• Energy costs are expected to continue to be the biggest element of international
competitive disadvantage
• ETS costs will rise as a result of Phase IV adding to the competitive
disadvantage, and necessitating full carbon leakage protection
• Ambitious regulatory targets for EU refiners create the need for effective carbon
leakage measures to prevent an increase in global emissions and the relocation
of EU industry and jobs
• We should keep Europe’s fuels and other strategic oil products refined in the
EU
• Transport decarbonisation strategies should take consideration of cost of
carbon abatement and offer flexibility to avoid highest cost approaches
Page 16
THANK YOU
FOR YOUR
ATTENTION
This document was presented by John Cooper
Contact:
John.Cooper@fuelseurope.eu
Lukasz.Pasterski@fuelseurope.eu
FuelsEurope
165, Boulevard du Souverain
1160 Brussels - Belgium
T: +32 2 566 91 00
www.fuelseurope.eu