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The EU's refining sector needs to further shrink to survive. This was the grim message relayed during the Seventh annual European refining markets conference', held in Brussels on 19 September. At stake is its inability to adapt to internal EU demand, something that Rosneft, the Russian world-leading oil giant, is ready to take advantage of. On the other hand, the EU is losing its main export in petrol to the US, which is becoming self-sufficient thanks to its shale oil reserves. In spite of this the policy goal of the European Commission is to maintain a presence in the domestic refining sector, according to a presentation delivered by Luis Delgado Sancho, head of the Commission's Joint Research Centre (JRC).

Since 2008, some ten refineries have been closed, accounting for 8% of the sector's capacity. There is too much of an emphasis on petrol and not enough on diesel. "Demand for petrol is declining fast. This and increasing demand for diesel and jet fuel are causing problems for a refining system that was built to make petrol and is only slowly adapting to these changes," says Chris Beddoes, director-general of CONCAWE, the oil companies' European association for environment, health and safety in refining and distribution.

Add to that the impact of EU legislation, specifically Article 7a of the Fuel Quality Directive (FQD) concerning greenhouse gases, the refining BREF of the Industrial Emissions Directive (IED), concerning best practices, and carbon pricing. Beddoes says: "What Europe can do is not to impose burdens on its own sectors. Regarding the implementation of the refining BREF of the IED, we ask that it be applied in a way that allows maximum flexibility to achieve results with the best possible means. To look at the cost-effectiveness, and that we're not asked to apply techniques that can't be justified on an affordability basis."

The European Commission, meanwhile, has been articulating its concern for the sector, with Energy Commissioner Gunther Oettinger initiating the EU refining roundtable in May 2012, leading to the creation of the EU refining forum last April, where the leading EU refining bodies voiced their concerns about their industry's future. Addressing last week's conference, Sancho outlined the Commission's fitness check of the sector, which aims to deliver its conclusions by September 2014. Included in the scope of the fitness check is the Emissions Trading System (ETS). "Refineries still don't know how many allowances they'll get for free [under the ETS], we have political interference in pricing and the uncertainty of a review on carbon leakage in the next year: This is not the kind of environment needed for investment. We still support the ETS but we need to look at what we're doing and what the rest of the world is doing and get a balance," said Beddoes.


Russian distillate exports to Europe have reportedly increased by 60% and are predicted to increase for the next four years. In his keynote speech at the conference, Didier Casimiro, vice-president of commerce and logistics at Russia's Rosneft, spoke of the growing supply and demand for Russian refined diesel and how their refining sector benefits from favourable tax incentives. "Pressure from Russia is going to increase with the changes in their tax regime; if they have greater incentive to upgrade their systems and export products to the extent that it is diesel and gasoil that we need. They're going to throw a lot of money at it. With these tax changes are going to come strong incentives," says Beddoes.

The US, meanwhile, is, in the words of Seth Kleineman, Citigroup's global head of energy strategy, "striding towards energy independence". As their domestic needs are now derived from shale oil, their net oil imports have dropped from 12.5% in 2006 to 6% in 2012, while their net exports have increased. Oil data from the US Energy Information Administration (EIA) showed how refineries on the Gulf coasts are operating at full speed. Kleineman elaborated on how this made the situation all the more difficult for European refinery operators.

With the energy shortages arising out of the Russian-Ukranian dispute fresh in the memory, how well prepared is Europe for an energy supply crisis, which given the high cost of and dependence on exports is something that weighs heavily on both European domestic and industrial consumers' minds. "We were heavily involved in the early stages of the security of supply directive (see box) in that it gave maximum flexibility to the member states," stated Beddoes.

Directive on security of supply

Council Directive 2009/119/EC aims to secure a reliable oil supply in the EU by obliging member states to keep a minimum stock of crude oil and petroleum products, and to put in place emergency procedures in case of a shortage.The member states must maintain a minimum stock corresponding to 90 days of average daily net imports or 61 days of average daily inland consumption. These stocks have to be readily and physically accessible. Each member state has to set up a central stockholding body (CSE) for stock maintenance. Each state has to update an information register of these stocks, a copy of which is sent to the European Commission once annually.
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Publication:Europe Energy
Geographic Code:4EXRU
Date:Oct 2, 2013

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