Download PDF

The economic growth of the EU is importantly linked to the industry of refined oil products, which provides about 90% of the energy used in the transports sector and nearly 70% of the feedstock for the petrochemical industry. The share is estimated to remain around 80% in the next decade according to IEA (2013) estimates.

Intermediate and finished oil products are commodities less liquid than crude oil – especially those that meet quality and environment criteria required by the EU. Europe´s security of supply and economic growth importantly depend on retaining inland robust, efficient and flexible refining capacities. They are essential in the EU industrial value chain, with significant contributions to national budgets, major investments in technology and innovation, and skilled labor.

The competitiveness of the refining industry in Romania and the EU


Radu Dudãu

Energy Policy Group

Research Paper

November 2015

Executive summary

 

The economic growth of the EU is importantly linked to the industry of refined oil products, which provides about 90% of the energy used in the transports sector and nearly 70% of the feedstock for the petrochemical industry. The share is estimated to remain around 80% in the next decade according to IEA (2013) estimates.

Intermediate and finished oil products are commodities less liquid than crude oil – especially those that meet quality and environment criteria required by the EU. Europe´s security of supply and economic growth importantly depend on retaining inland robust, efficient and flexible refining capacities. They are essential in the EU industrial value chain, with significant contributions to national budgets, major investments in technology and innovation, and skilled labor. However, as IHS Energy shows, since 2009 until now, 26 European refineries were closed and some of them were turned into storage or blending units, with a lost aggregated capacity of 1.8 million barrels/day (mb/d).

Despite this contraction – caused by loss of competitiveness of European refining compared to other regions – Europe still has a refining overcapacity. Among the chief causes are: a tougher regulatory framework, higher energy price (four-fold increase in Europe, as opposed to two-fold in other parts of the world), weakening demand and intensified competition from India, China, Middle East or Russia. For instance, the Jamnagar refinery in India underwent an expansion targeted at export and increased capacities from 1.3 mb/d to 1.8 mb/d, roughly 13% of the entire EU refining capacity.

The European Commission started in 2012 an evaluation of the consistency and impact of the whole set of regulations on refineries. This Fitness Check[1] (2000-2012) concluded the aggregated cost of regulations is $0.5/bbl of throughput, from the total $2.1 total loss of profit margin in European markets against major competitors.

Not for lack of capital expenditures. With an average of around EUR4.5 bn invested annually in desulphurization, efficiency and modernization, emissions abatement and other state-of-the-art technologies[2], the EU refining industry is the world´s most energy efficient, and improving at a yearly rate of 1%. Yet, the EU burdensome regulatory environment risks causing an effect of relocation and carbon leakage.

The cost of regulation is the sum of compliance costs and opportunity costs. In order for investors to continue to capitalize refineries, they need a stable, predictable and reasonable regulatory framework, one that creates a level playing field globally and does not put unnecessary pressure on their competitive position.

With its limited energy-related carbon emissions globally (11%), the EU cannot effectively solve on its own the issue of global carbon emissions. Instead, the EU should be more efficient in persuading other industrial regions to set comparably ambitious standards of decarbonization and implement market-based emission trading schemes. At the same time, it ought to vigorously assist the developing economies in transferring and financing low-carbon technologies.

 

For the full research paper, please see PDF.

 


[1]  Conducted by Joint Research Center (JRC), EC´s internal scientific service.

[2] European Commission´s Competitiveness Report (2013) ranks the EU refining industry no. 1 in terms of process innovation, and no. 4 for product innovation among EU manufacturing industries.

 

Tags: , , , , , , , , , ,