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White Paper on EU Refining

A contribution of the refining industry to the EU energy debate

About Europia
EUROPIA, the European Petroleum
Industry Association, is the single voice
the European Refining & Marketing
Industry, the downstream sector of
Europes oil industry.

EUROPIA is a non-profit organisation


and whose 18 members account for
more than 80% of EU petroleum refining
capacity and some 75% of EU motor fuel
retail sales.

Membership

2 I europia White Paper on EU Refining - May 2010

EUROPIA as a leading Industry


Association aims at contributing pro
actively and constructively to the
development of policies to safeguard the
secure and sustainable manufacturing,
supply and use of petroleum products by
providing competent and expert advice
to the EU Institutions, Member State
Governments and the wider community.

Foreword

by Isabelle Muller, Secretary General


EUROPIA, the European Petroleum Industry Association, with the active support of all its member companies, conducted a
comprehensive study on the status of EU Refining to provide our stakeholders with strong background material on our industry.
The EU is entering a critical stage in its future economic and social development. This White Paper on EU Refining is a foundation on
which the industry wishes to build its contribution to the EU energy debate towards an EU Energy Strategy for 2050.
This reference document on EU Refining describes where the industry comes from, examines the current challenges and elaborates
the contributions of the sector to EU policies and its expectations in terms of regulation. It draws on statistics from publicly
acknowledged bodies. It aims at providing the comprehensive factual basis which will underpin the start of a constructive and
mutually beneficial dialogue between the EU policy makers and our industry to prepare the EU energy future.

We look forward to actively participating in this debate on EU Energy Strategy,

Isabelle Muller
Secretary General

3 I europia White Paper on EU Refining - May 2010

Table of contentS
Executive Summary........................................................................................................................................................... page 6
Abstract................................................................................................................................................................................... page 8
Introduction....................................................................................................................................................................... page 13
Chapter 1: The oil Refining Sector is a strategic European asset...................................................................... page 14
1.1. Oil refined products will remain key in Europe ............................................................................................................... page 15
1.1.1. Oil will remain the main part of the energy mix for the foreseeable future . .......................................................................... page 15
1.1.2. The EUs ability to meet domestic demand for refined oil products has important security, economic,
industrial and environmental advantages ........................................................................................................................... page 16

1.2. The EU Refining Industry contributes to EU mobility and economic value................................................................. page 17
1.2.1. A robust domestic Refining Industry underpins growth and competitiveness in the EU.......................................................
1.2.2. The EU Refining Industry is a major provider of highly skilled jobs and scientific and engineering expertise.........................
1.2.3. Refining is closely integrated with petrochemicals, contributing major value to the wider European economy.....................
1.2.4. Refiners provide important value to the wider EU industrial chain .......................................................................................

page 17
page 17
page 18
page 19

1.3. The EU Refining Industry continually improves the performance of its industrial operations.................................. page 20
1.3.1. The EU Refining Industry invests heavily in environmental performance, energy efficiency, safety and adaptation
to changing market demand . ............................................................................................................................................. page 20
1.3.2. Refiners have a strong track record in energy-efficiency gains, operational safety and environmental performance............. page 22

1.4. The Refining sector contributes actively to improving EU air quality with cleaner products . ................................. page 24

Chapter 2: The future of the European Refining Sector is being shaped by a complex and
challenging interplay of global and regional forces ..................................................................................................... page 26
2.1. The EU Refining Industry is exposed to international competition . ............................................................................ page 27
2.2. Overall demand is decreasing ........................................................................................................................................... page 28
2.2.1. EU demand for oil products is on a downward trend ......................................................................................................... page 28
2.2.2. Margins and capacity utilisation will remain under pressure . .............................................................................................. page 30
2.2.3. The European Refining Industry will have to adapt to this decreasing demand and low utilisation rate ............................... page 31

2.3. The imbalance between supply and demand patterns of oil products poses strong security of supply
and sustainability concerns . ............................................................................................................................................. page 32
2.3.1. Tax incentives and structural trends in transport are fuelling a growing mismatch between refinery
production and demand, with negative environmental and security-of-supply implications . ...............................................
2.3.2. The additional production of diesel in EU refineries will result in higher CO2 emissions in the EU . .......................................
2.3.3. The market imbalance increases dependency on external suppliers and customers ..........................................................
2.3.4. Alleviating the supply-demand imbalance would require substantial long-term investment .................................................
2.3.5. The US demand for gasoline and fossil gasoline will decrease ...........................................................................................
2.3.6. The combined effect of EU and US renewable energy objectives in transport will worsen Europes existing
gasoline overcapacity ........................................................................................................................................................

4 I europia White Paper on EU Refining - May 2010

page 32
page 34
page 35
page 36
page 37
page 39

2.4. Refining continues to adapt to changing crude slate .................................................................................................... page 40


2.4.1. The decline in North Sea production will require North West EU refineries to ship crude supplies from farther
afield and entail increased logistical challenge . .................................................................................................................. page 40

2.5. Applicable legislation imposes constraints and costs on EU refining operations ..................................................... page 44
2.5.1. Current and planned EU regulation places a heavy burden on an internationally exposed Refining Sector,
undermining security of supply and economic competitiveness ......................................................................................... page 45
2.5.2. IMO Legislation: Changes in shipping fuel specifications would require large-scale industry investment
in Europe and globally ..................................................................................................................................................... page 46

2.6. The actors of the Refining Industry are changing .......................................................................................................... page 48
2.6.1. Refiners in Asia and in the Middle East are adding capacity and entering the EU market .................................................... page 48
2.6.2. Russian producers are making inroads into the EU market ................................................................................................ page 50
2.6.3. Ownership changes in the EU refining landscape could weaken the economic strength of the EU Refining
Industry to face long term low margin periods as the industry has to face currently ........................................................... page 51

Chapter 3: The European Refining Industrys strategic contribution to Europes 2020


objectives and beyond .......................................................................................................................................................... page 52
3.1. The EUs Strategy for growth for 2020 and beyond requires reliable, affordable
and resource-efficient energy ........................................................................................................................................... page 53
3.2. A healthy and competitive EU Refining Industry is a key contributor to European citizens mobility
and to Europes industrial fabric . ............................................................................................................................. page 54
3.3. The Refining Industry is a major provider of skilled jobs, know-how and fiscal revenue which are
essential to inclusive growth ............................................................................................................................................. page 55
3.4. A coherent and realistic framework of policies and regulation is key ......................................................................... page 55
3.5. EUROPIAs request to the legislative debate for smart regulation . ............................................................................. page 56

CONCLUSION .......................................................................................................................................................................... page 57


ANNEXES .................................................................................................................................................................................. page 58
GLOSSARY ................................................................................................................................................................................ page 68
TABLE OF ILLUSTRATIONS . ............................................................................................................................................... page 69

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ExecUtive Summary
EUROPEAN REFINING IS A KEY
INDUSTRY TO ENABLE THE
TRANSITION TO A LOW CARBON
ECONOMY.
We acknowledge the long-term direction
promoted by the EU towards a lower
carbon economy and we want to
contribute to shape it.
We recognise that the EU is at a
crossroads and must now make
important decisions regarding its future.
It is essential, however, to take decisions
on the right basis as these will have
long lasting implications, many very
costly. Poor choices today may close
down paths to the most appropriate
solutions. Clear direction but no regret
policies should pave the way forward.
The transition to a lower Greenhouse
Gas society will be gradual and over a
long period of time. Although demand
will be met by various forms of energy,
government agencies and consultants
consistently assess that the EU
will continue to rely on oil-based
refined products for transport and
petrochemicals for many more years.
Indeed the IEA forecasts in its most
ambitious 450ppm CO2eq scenario that
80% of transport fuels will remain oil
based by 2030.
It is clear that, if the EU demand is not
satisfied by EU refiners, it will have to be
supplied by imports with implications on
energy security.

WILL WE CONTINUE TO MAKE


THESE PRODUCTS IN EUROPE?
Europe 2020 Strategy and the
initiatives for 2050 appear to ignore this

continued need for refined oil products


and therefore provide little basis for
continued willingness to invest in refining.
In other words, the crucial need for oil
product availability in Europe during the
transition receives hardly any attention.
The EU is creating, perhaps
inadvertently, the conditions for a
continuing disengagement by current
operators of refining in the EU. This is
resulting from ever increasing EU specific
regulatory compliance costs, which
damage EU refining competitiveness.
In such conditions, EU supply cannot
be taken for granted. Refineries located
in Russia and the Middle East and
other neighbouring regions, some
of whom benefit from subsidies and
favourable tax regimes, compete with
EU based refineries. The EU Refining
Sector should not be pushed into
an irreversible decline because this
will leave an increasing portion of EU
refined products to be met by imports.
This will impair the economics of supply
to the EU and the competitiveness of its
industry relative to other parts of the world.

WHAT DOES THE EUROPEAN


REFINING SECTOR OFFER TO
EUROPE?
Maintaining a significant refining basis
in the EU brings key value in a number
of strategic areas:
Security, through affordable and reliable
oil products for transport and industry,
which are essential to the EU economy.
Value creation, both through the
earnings of the downstream oil industry
and its contractors and suppliers;
through tax revenues and collection;

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and through the economic value of


integration with important downstream
sectors such as chemicals.
T
 echnology leadership: continued
development of world-class refinery,
fuel technology and know-how, both
to support EU car manufacturing and
to facilitate the breakthroughs required
for a more resource efficient and low
carbon Europe.
C
 ontrol over environmentally
responsible operations and production,
such as avoidance of carbon leakage.
J obs, most of which are scientific,
technical, and highly skilled, much
needed in Europe.

WHAT DOES THE REFINING


SECTOR REQUIRE FROM THE
REGULATORS?
We believe it is not in the EUs strategic
interest to force the decline of EU refining
and increasingly replace domestic
production with imports from non
EU countries. However, on the current
regulatory track, it appears as if the
EU is not sufficiently considering the
consequences of the loss of domestic
production.
We consider that providing a framework
that allows the EU Refining Industry to
sustain its global competitiveness should
become a recognised strategic priority.
In view of this, policies and legislation
having an impact on refining must not
impair the ability of the EU Refining
Industry to compete in a global market
and must be:
Objective and based on factual
assessment, taking into account the
cumulative costs of regulation.

Coherent and avoiding duplication or


contradiction.
Technology-neutral, allowing
technologies to compete on their
own merits.
Cost effective.
With the right conditions in place,
the EU Refining Sector will continue
to play a vital role in both supporting
economic activity as it has done over
the past century; and in developing

the energy products of the future


enabling a gradual transition to a low
carbon society.

THE WHITE PAPER ON EU


REFINING EXPLORES THE
STATUS OF OIL REFINING
IN EUROPE.
It considers where we have come from,
looks at the current challenges and
elaborates the contributions of this

7 I europia White Paper on EU Refining - May 2010

sector to EU policies and its expectations


of regulation. It draws on statistics from
publicly acknowledged bodies. It aims
at providing the comprehensive factual
basis which will underpin the start of
a constructive and mutually beneficial
dialogue between the EU regulators
and our industry to prepare the
EU energy future.

Abstract
Chapter 1:

The oil Refining Sector is a


strategic European asset.
(pages 14-25)
1.1. Refined oil products will remain
key in Europe (page 15).
Oil will continue to account for more
than a third of energy demand by 2030.
Therefore the EUs ability to meet domestic
demand for refined oil products has
important security, economic, industrial
and environmental consequences for both
the short and the long term.
1.2. The EU Refining Industry
contributes to EU mobility and
economic value (page 16).
As the main supplier of transportation
fuels in the EU the Refining Industry plays
an essential role in facilitating mobility, an
essential element of the economy.
The Downstream Oil Industry is a
major employer in the EU, providing
employment to 600 000 Europeans of
which 100 000 in refineries and 500 000
in logistics and marketing. Refining is a
major provider of highly skilled jobs and
scientific and engineering expertise. Oil
refiners are constantly investing in R&D
to improve process efficiency, safety,
product quality and environmental
performance and work closely with
academic and research institutions in
science and engineering.
Refining is closely integrated with
petrochemicals, contributing major
value to the wider European economy
by ensuring reliable supply of feedstock
material. The petrochemical sector itself
represents 241 billion in annual sales
and employs a further 778,000 people
in the EU.

In addition to transportation fuels and


petrochemical feedstock, refiners
provide important value to the wider
EU industrial chain producing bitumen
for road construction and roofing,
lubricants for use in transportation and
industry, high quality petroleum coke
for use in the metals industry, waxes,
solvents and a number of other products
for which there is demand both regionally
and globally.
1.3. The EU Refining Industry
constantly improves the performance
of its industrial operations (page 20).
European refiners have invested an
average $6 billion each year over the
past 20 years on measures to improve
environmental performance, energy
efficiency and safety and to react to
evolving market demand.
Since 1990, the EU Refining Industry
has improved its energy efficiency by
1% per year through, for example, the
widespread use of cogeneration and
advanced catalyst technology. Refiners
have a strong track record in operational
safety and environmental performance.
Operating safely is the primary concern
in refineries. Refineries are regulated
under the EU Seveso Directive and
comply with some of the most stringent
air quality (SOx, NOx and particulate
matter emissions), water quality and soil
protection rules in the world.
This has significantly reduced their
environmental footprint: the amount of
sulphur emitted by EU refineries has
halved since 1998. The quality of water
effluents has also greatly improved.

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1.4. The Refining sector contributes


actively to improving EU air quality
by producing and supplying cleaner
products (page 24).
EU refiners and car manufacturers
have long-term partnerships to jointly
develop new technologies aimed at
improving the efficiency of the fuelengine combination. Such partnerships
have provided multiple environmental
benefits and enabled the EU to lead in
many clean fuel and engine technologies
worldwide.
Technological advances developed by
European refiners contributed to the
phase-out of leaded gasoline in Europe.

Chapter 2:
The future of the European
Refining Sector is being shaped
by a complex and challenging
interplay of global and regional
forces (pages 27-51).
2.1. The EU Refining Industry is
exposed to international competition
(page 27).
The EU Refining Industry operates
between two global, open and
transparent markets: the market of crude
oil, and the market of refined products.

The high number of operators and


the transparent markets for crude and
products create a highly competitive
environment for these activities.
2.2. Oil demand is decreasing
(page 28).
Lower demand results from a drive
to increase energy efficiency and
substitution of oil with other energy
sources.
The global financial crisis has
accelerated this process. Capacity
utilisation dropped by more than 8%
compared to recent years. Refineries
profitability margins are expected to
remain under considerable pressure.
Gasoline-oriented refineries, which are less
adapted to current demand patterns, are
likely to be the most vulnerable.
The European Refining Industry will have
to adapt to this decreasing demand and
low utilisation rate. While some refineries
have been put up for sale, the lack of
buyers for many of these units raises the
prospect of further closures. Although
refiners can adjust for lower utilisation,
this is only economically viable for short
periods of time.
2.3. The imbalance between supply
and demand patterns of oil products
poses strong security of supply and
sustainability concerns (page 32).
Tax incentives and structural trends
in transport are fuelling a growing
mismatch between refinery production
and demand, having negative
environmental and security of supply
implications.

The shift to diesel began 20 years ago


and has contributed to excess gasolineproduction capacity and a shortage
of diesel production in the EU despite
refiners efforts at boosting diesel yields.
Eliminating the tax bias in favour of
diesel would help redress the balance
in demand. Additional production of
diesel in EU refineries will result in higher
CO2 emissions in the EU.
The market imbalance increases
dependency on external suppliers
and customers with consequences for
security of supply. The EU has significant
excess gasoline production capacity and
is unable to meet regional demand for
diesel, heating gasoil and jet fuel. The EU
has to import diesel and heating gasoil
from Russia, jet fuel is mainly shipped
from the Mideast and excess production
of gasoline is exported to the US. In
2020, it is expected that the US market
will no longer be able to absorb the
EU gasoline excess. This means that
European refiners will need to seek other
export markets or restructure, either
through divestments of gasoline units or
by shutting down complete refineries. This
second option will inevitably increase EUs
gasoil deficit and dependence on third
countries (in particular Russia).
Alleviating the demand-supply imbalance
would require substantial, long-term
investment. While the Refining Industry
continually adapts to change, there are
technical and economic constraints to
the speed and scope of transition. To
plug an annual gap of 30 million tonnes
of gasoil and jet fuel, the EU refining
sector would need to build about 20 large
hydrocrackers (at a cost of more than

9 I europia White Paper on EU Refining - May 2010

US$11 billion). The required investment


would be much larger if tighter marinefuel (marine gasoil) specifications came
into force under the International Maritime
Organisation.
Due to the long investment cycle in
refining, stable and predictable policy
is required to make such investments
possible. Europes existing gasoline
overcapacity will be further impacted by
policies to promote the use of biofuels
in transport fuels, which have been
introduced in the EU and US. While the
measures have contributed to reducing oil
consumption in transport, the increasing
use of ethanol in gasoline in Europe and
North America is aggravating the structural
imbalance in the EU market for refined
oil products.
2.4. The EU Refining Industry will
continue adapting to changing crude
slate (page 40).
The decline in North Sea production will
require North West EU refineries to ship
crude supplies from farther afield, which
may entail increased logistical challenge.
2.5. Applicable legislation imposes
heavy constraints and costs on EU
refining operations (page 44).
Current and planned EU regulation that
is not mirrored elsewhere places a heavy
burden on an internationally exposed
sector, which undermines economic
competitiveness.
The EU Refining Industry is directly
and indirectly affected by numerous,
overlapping and sometimes conflicting
EU directives and policy measures that
aim to reduce emissions of air pollutants

Abstract
and Greenhouse Gases and boost
renewable energy sources. Changes in
shipping fuel specifications will require
large-scale industry investment
in Europe and globally.

in an increasingly competitive and


resource-hungry global environment,
thereby supporting energy security in
Europe.

2.6. The actors of the Refining Industry


are changing (page 48).
Refiners in Asia and in the Middle East
are adding capacity and entering the
EU market and are likely to use the EU
market as a temporary outlet for excess
production. Russias fiscal system
strongly encourages the export of
refined oil products over crude exports.
Ownership changes in the EU efining
landscape could weaken the economic
strength of the EU Refining Industry
and, along with it, the ability to survive
during long term low margin periods such
as the current one.

Chapter 3:

The European Refining Industrys


strategic contribution to Europes
2020 objectives and beyond
(pages 52-56).
3.1. The EUs Strategy for growth for
2020 and beyond requires reliable,
affordable and resource-efficient
energy (page 53).
We believe the European Refining Industry
has an essential role to play in underpinning
Europes drive towards smart growth.
Energy resources are a fundamental
requirement for transportation,
manufacture of goods and supply of light
and heat. It is generally acknowledged
that, even in the most advanced
scenarios, refined oil products will still
account for 80% of transport fuels in
Europe by 2030. A strong domestic
refining industry is a key strategic asset

3.2. A healthy and competitive EU


Refining Industry is a key contributor
to European citizens mobility and to
Europes industrial fabric (page 54).
The European Refining Industry is a
reliable partner to the entire supply chain
and a high-performing and resourceefficient industry, which ensures optimum
use of finite natural crude oil resources.
If the European Union wants to meet
its ambitious EU2020 targets, it
should not ignore but instead build
upon existing expertise within the
European industrial base. The EU
Refining Industry wishes to work with the
European institutions to develop forwardlooking, coherent and feasible transport
and industrial policies, including the
development of alternative fuels.

10 I europia White Paper on EU Refining - May 2010

3.3. The Refining Industry is a major


provider of skilled jobs, know-how and
fiscal revenue which are essential to
inclusive growth (page 55).
Future energy scenarios should be
balanced and energy landscape
transitions adequately managed.
EUROPIA strongly emphasises the need
to take into account the virtuous circle
of the three pillars of sustainability
which requires the reconciliation of
environmental, social and economic
demands. In this respect those three
pillars of the sustainability equation
are not mutually exclusive but can be
mutually reinforcing.
3.4. A coherent and realistic framework
of policies and regulation is key
(page 55).
The European Refining Industry needs
a coherent and realistic framework
of policies and regulation in order to
adequately plan the investments that
are necessary to adapt to increasing
decarbonisation and to major shifts in
demand for oil products.
A level playing field is also needed to
ensure that choices between technologies
and energy sources, including for refined
oil products, are based on merit, as
well as to ensure an efficient single
market for energy. With a view to the
2030 and 2050 horizon, the role of oil
should be acknowledged and realistic
policy objectives set. Views referring to
full decarbonisation by 2050 are, in this
respect, unrealistic under the current
circumstances and knowledge.
An EU framework should take due
consideration of the EUs global position
and the fact that EU environmental
legislation impacting the Refining
Industry is the most stringent
worldwide.

3.5. EUROPIAs request to the


legislative debate for smart regulation
(page 56).
Discussion and cooperation between
all stakeholders can improve the quality
and outcomes of legislation. A number
of principles should be ensured when
devising legislation affecting our sector:
Legislative proposals should be based
on comprehensive and rigorous impact
assessments; Legislation should avoid
contradiction and duplication; Legislation

should have a sound scientific basis;


Legislation should have clearly
established objectives and be
proportionate to the objectives set;
When pursuing environmental and social
objectives, legislation should avoid
undermining competitiveness;
Legislation should be considered within
an international, competitive context;
Newly favoured technologies and energy
sources should not be unfairly subsidised.

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Transport

Marketing

Refining

crude
exploration

transport

crude
production

12 I europia White Paper on EU Refining - May 2010

Introduction
In its Second Strategic Energy Review
of November 2008, the Commission
acknowledged that oil refining capacity
represents an important factor in ensuring
EU energy security and announced
the publication of A Communication
on Refining Capacity and EU Oil
Demand1 in 2010.
The European Commission (DG Energy)
expressed the need for more information
about the Refining Industry in order to
prepare this Communication and better
assess the impact of future legislative
proposals.
As a result, EUROPIA, the European
Petroleum Industry Association, started
the process of producing a White Paper
on EU Refining with the support of the
Refinery Task Force, Member
Companies and external consultants.
This comprehensive report aims at
providing compelling background
information on the EU Refining
Industry to the European Commission
(DG Energy) and EUROPIAs wider
stakeholder community.

T
 he second chapter describes how
a complex interplay of global and
regional forces is presently challenging
the EU Refining Industry and its
ability to continue supporting the EU
objectives of security of energy supply,
sustainability and competitiveness.
T
 he third chapter presents the
contribution that the Refining Industry
could provide to an EU strategy for
growth for 2020 and beyond. It also
describes the EU policy and legislative
framework that will enable the EU
Refining Industrys contribution and
that will ensure a level playing field for
the Refining Industry and its products.

The White Paper on EU Refining


comprises three chapters that address
the following issues:
T
 he first chapter describes the past
and present contribution of the
EU Refining Industry to the EUs
economy and economic welfare and
demonstrates that the oil refining
sector is a strategic European asset.

Communication from the Commission to the


European Parliament, The Council, The European
Economic and Social Committee and the Committee
of the Regions Second Strategic Energy Review
(SEC 2008-2794) (SEC 2008-2795)

13 I europia White Paper on EU Refining - May 2010

1. The oil refining sector is a


strategic European asset

14 I europia White Paper on EU Refining - May 2010

1. 1. Oil refined products will remain key in Europe


1.1.1. Oil will remain the main
part of the energy mix for the
foreseeable future.

Oil refining is part of a supply chain


that delivers many different products
to industrial customers and endconsumers. The ability to refine crude
within the EU is key to the regions
energy security of supply.

Oil will continue to play an important


role in the EUs energy mix in the
foreseeable future, accounting for
more than a third of energy demand
by 20302. Whether oil products will
continue to be refined and processed
in the EU is therefore of strategic
importance for the regions prosperity
and security.

As of March 2010, there are 98


crude-oil refineries in the EU, Norway
and Switzerland operated by 34 different
companies, as well as a number of
smaller specialty plants3. Together, they

account for 785 million tonnes of annual


refining4 capacity, or 17% of the worlds
total capacity and they produce 90% of
the energy needed for transport and 77%
of the feedstock for the petrochemical
steamcrackers within the EU.

2
3
4

PFC Energy, IEA 2009 Energy Outlook


Bitumen, lubricants
See annex for details on EU refineries

Primary Energy Demand In Europe

European Primary Energy Demand


Source: PFC Energy

Primary energy demand


(million tons oil equivalent)

2500

2000

1500

1000

500

Other
Coal

Hydro
Gas

Renewables

30
20

25
20

20
20

15
20

10
20

05
20

20

00

Nuclear

Oil

Source: PFC Energy

15 I europia White Paper on EU Refining - May 2010

Global Refining Capacity at end-2009


Global Refining Capacity at end - 2009
Source: PFC Energy

17%

24%

North
America

1.103.619 kt/year

EU27

9%

+ Norway
+ Switzerland

FSU

784.789 kt/year

411.952 kt/year

7%

4%

8%

30%

Latin
America

Africa

Middle
East

Asia
Pacific

333.490 kt/year

161.672 kt/year

380.592 kt/year

1.374,839 kt/year

From WP version 21/04/2010 : Pg4, Chap.1

1.1.2. The EUs ability to meet


domestic demand for refined
oil products has important
security, economic, industrial and
environmental advantages.
An independent regional refining system
ensures a reliable supply of oil-derived
products. Crude oil is an openly traded,

global commodity and most EU refineries


process different types of crude. If supply
from a specific source is disrupted, crude
is sourced from elsewhere with limited
impacts on the refining process and on
the consumer. European refiners have
successfully adapted to such disruptions
of crude supply in the past.

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EU oil product specifications are among


the most stringent in the world.
The current EU refining system produces
fungible product grades that meet the
same specifications in all Member States.
This ensures that cross-border trade
within the EU is not problematic.

The EU refining Industry is diversified


and flexible enough to cope with supply
or production disruptions to maintain a
reliable supply to the market.
An example of this was seen in
December 2005, following a major oil
storage fire in the UK serving the Greater
London area and Heathrow airport.
Customers were supplied with fuels
from other terminals and road tanker

distribution was adjusted to extend


delivery areas. This ability to adapt the
utilisation of refineries, transportation
and logistics, located in the EU, means
that customer product shortages are an
extremely rare occurrence.

greater risk of disruption. Dependence


on a few, large scale refineries in Asia
or the Middle East will increase the risk
that unforeseen disruptions could lead
to product supply problems, and greater
price volatility.

On the contrary, reliance on imports


of refined oil products from outside
the EU would expose consumers
and industrial customers to a much

1.2. The EU Refining Industry contributes to EU mobility and


economic value.
1.2.1. A robust domestic refining
industry underpins growth and
competitiveness in the EU.
Demand for transportation fuels has
a strong correlation with economic
growth. Even as the EU makes progress
in reducing the Greenhouse Gasses
in the transport sector, oil-based fuels
will continue to play an important role
in developing a sustainable European
transport system. The ability of the EU
Refining Industry to meet demand as the
economy recovers from the current crisis
will be an important supporting element
of recovery.

Mobility of people and goods is an


essential element of social welfare and
economic competitiveness and a pillar
of European integration. As the main
supplier of transportation fuels in the
EU, the Refining Industry plays an
essential role in facilitating mobility.
Kerosene for air transport, gasoline and
diesel for road transport and gasoil and fuel
oil for marine transport remain important to
maintain EU standards of living.

17 I europia White Paper on EU Refining - May 2010

1.2.2. The EU Refining Industry is


a major provider of highly skilled
jobs and scientific and engineering
expertise.
The EU Refining Industry plays a major
part in Member States economies, both
on a direct and indirect basis. Refineries
provide work to approximately 100,000
employees and contractors. Typically it
is considered that indirect jobs represent
around 50% additional jobs many also in
highly skilled technical positions, logistics
and marketing provide around 500,000
jobs. In addition, the Refining Industry
supports employment in the engineering,
building and infrastructure industries,
which supply services and equipment.

has been at the cutting edge of new


product technologies and petrochemical
integration.

Oil refiners are constantly investing in


research and development to improve
process efficiency, safety, product quality
and environmental performance. They
work closely with academic and research
institutions in science and engineering;
indeed many partnerships have been
struck between the oil industry and
academic institutions5.

In 2009, over 77% of the EU


petrochemical feed was provided from
nearby refinery-supplied products. In
order to produce basic chemicals such
as ethylene and propylene - the building
blocks needed to make other high
value added chemicals, plastics and
pharmaceuticals - the petrochemicals
sector relies on a wide range of refinerysourced inputs. The existence of a
thriving Europe-based Refining Sector
is therefore of critical importance to
the European petrochemicals sector.

1.2.3. Refining is closely


integrated with petrochemicals,
contributing major value to the
wider European economy.
The EU Refining Industry ensures
reliable supply of feedstock material
for the petrochemical sector, which
represents 241 billion in annual sales
and employs 778,000 people in the EU6.

components, especially gases, are


difficult to transport, making their
exchange economically viable over short
distances only, usually by direct pipeline
connection.
Given their interdependency, many
of the EUs petrochemical complexes
are located at or near refining
complexes. Out of 58 steam cracker
petrochemical units in the EU, 41 of
them are integrated with refineries
located on average less than two
kilometres away. This close proximity
gives rise to many other synergies, such
as product pipeline interconnectivity,
shared ports and common utility
services including energy optimisation.

This is a symbiotic relationship,


as the petrochemical sector sells
back products that add value to
refineries, such as hydrogen (used for
The exchange of feedstock and
Exchangedesulphurisation)
Between Reneries
andcomponents
Petrochemical Plants
and other
by-products betweenFeedstock
refineries and
used for blending into fuels.
petrochemicals plants stimulates
This interdependence is reinforced
competitiveness in large industrial
See annex page 67 for examples
Source: European Chemical Industry Council
by logistical links: many intermediate
clusters. The EU Refining Industry
5
6

Feedstock Exchange BeTWeen rEfineries and Petrochemical plants


Source: CEFIC European Chemical Industry Council

Feedstocks supplied 77%


Off gases and LPG
Propylene
Naphtha
VGO, Gasoil and Fuel Oil

Petrochemical products

Petrochemical
Plants

Refineries

Key product returns


Hydrogen
Low sulfur fuel oil
Raffinate

18 I europia White Paper on EU Refining - May 2010

Ethylene
Propylene
Butadiene
Benzene
Toluene
Xylene

To manufacturing
and other industry

1.2.4. Refiners provide important


value to the wider EU industrial
chain.
In addition to transportation fuels and
petrochemical feedstock, the European
Refining Industry also plays an
important role in the more specialised
industrial value chain.

high quality petroleum coke for use in


the metals industry, waxes, solvents
and a number of other products for
which there is demand both regionally
and globally. Many of these specialty
products are difficult to manufacture
and highly specialised. They are
typically produced only by a small
number of refineries worldwide.

EU refineries produce bitumen for road


construction and roofing, lubricants
for use in transportation and industry,

This is why refineries are often found at


the centre of regional business hubs,
Products
and their Uses
with Rened
many small
and medium-sized

5.5% Naphtha

0.5% Sulphur

Chemical
feedstock
Fertilizer
Rened
Products
and
their
Uses
refineD products FROM eU REFINERIES
and
their
uses
Source: IEA

1.2% Lubricants
Transportation and industry
0.5% Coke
Electrodes for metals industry

5.5% Naphtha
Chemical feedstock
1.2% Lubricants
Transportation and industry
0.5% Coke
Electrodes for metals industry
40.5%
Diesel
Motor fuel
Gasoil
Heating,
marine fuel,
industrial fuel
40.5%
Diesel
Motor fuel
Gasoil
Heating,
marine fuel,
industrial fuel

businesses located around them.


These businesses are often highly
dependent on specialty products
made by the local refinery, which
ensures secure and ready access to
feedstock. If their supplying refinery
closes, many of these businesses will
face a difficult future as purchasing
and shipping the necessary
feedstock from further away is often
impractical or uneconomic.

14.9% Fuel Oil


Fuel for power generation,
marine fuel

0.5% Sulphur
Fertilizer

0.1% Waxes
Industry

14.9% Fuel Oil


Fuel for power generation,
6.8% Kerosene
marine fuel
Heating, cooking,
aviation fuel
0.1% Waxes 2.2% Aromatics
Industry
Chemical feedstock

EU-27 Refinery
Production in 2007
(excludes Bulgaria, Lithuania and Romania)

0.1% Paraffin
6.8% Kerosene
Industry
Heating, cooking,
aviation fuel
2.2% Aromatics
Chemical feedstock

EU-27 Refinery
Production in 2007

0.1% Paraffin
Industry

(excludes Bulgaria, Lithuania and Romania)

21.7% Gasoline
Motor fuel

0.2% White Spirit


Paint industry, cosmetics

3.3% Bitumen
Road construction,
21.7% Gasoline
Motor fuel
2.5% LPG roofing
Heating, cooking,
chemical feedstock

Industry
14.7%

0.2% White Spirit


Paint industry, cosmetics

3.3% Bitumen
Road construction,
2.5% LPG roofing
Heating, cooking,
chemical feedstock

Industry
Main
Uses
14.7%

Heating
& Power
21.7%

Transport
63.6%
Main Uses

Transport
63.6%

Heating
& Power
21.7%
Source IEA

From WP version 21/04/2010 : Pg13, Chap.1

19 I europia White Paper on EU Refining - May 2010

Source IEA

From WP version 21/04/2010 : Pg13, Chap.1

1.3. The EU refining industry continually improves the


performance of its industrial operations.
1.3.1. The EU Refining Industry
invests heavily in environmental
performance, energy efficiency,
safety and adaptation to changing
market demand.
The EU Refining Industry continues
investment and maintenance
programmes to meet increasingly
stringent fuel specifications and
emission standards. Such investments
have led to tangible improvements:

F
 uels with a reduced presence
of chemical substances such as
sulphur, benzene, lead and aromatic
compounds, which help reduce
emissions of pollutants during
combustion;
Higher octane levels in gasoline and
cetane levels in diesel for improved
engine performance and lower
emissions;
Reduced emissions of nitrous oxide,
sulphur dioxide and particulates during
production.

European refiners have invested an


average $6 billion each year over the past
20 years in desulphurisation capacity of
distillates and gasoline, the upgrading
of production facilities and processes,
the installation of emission abatement
equipment, and energy savings.
Following a switch to fully unleaded
gasoline, this culminated with the
industrys full transition to the production
of sulphur-free motor fuels in 2009.

20. EU refiners continuously make large investments,

Historical Refinery Investment


cost
EU-25
(million
Dollars)
exceeding $6 billion
perin
year
during
the past 12
years
Source: Purvin & Gertz
Historical Refinery Investment Cost in EU-25
14,000

12,000

10,000

8,000

6,000

4,000

2,000

0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Investment Cost

Unit: Million dollars

Maintenance/Investment Cost

The continued tightening of oil product


norms and emissions standards under
the EUs Fuel Quality Directive and
2020 Climate and Energy Package
will require significant investments by
EU refiners in the years to come. Key
anticipated legal constraints include the
lowering of the sulphur content in heating
and marine fuels, stricter emission trading

rules (auctioning of carbon permits),


and higher biofuel blending quotas.
Capital expenditure associated with
previously announced refining projects
to be built in the EU within the next six to
eight years was in the order of $45 billion7.
However, in a context of low refining
margins, for strategic or economic

34 billion
14 billion
9 
PFC Energy: 6 to 8 years is the usual outlook term for new projects
7
8

20 I europia White Paper on EU Refining - May 2010

reasons, many of these projects, may


not be implemented and the latest
estimate is that only some $18 billion8
might be spent improving the European
refining system in the next six to eight
years9 , again depending on economic
conditions.

GASOLINE Desulphurisation Capacity In THE EU


European FCC-Pretreatment Capacity
Source: PFC Energy

Dieselization of Passenger cars in EU27


European FCC-Pretreatment Capacity
70,000

Capacity (ktons/year)

60,000
50,000

Dieselization of Passenger cars in EU27

40,000

European FCC-Pretreatment Capacity

30,000
70,000
20,000
60,000

09
20

05
20

01
20

97
19

30,000

93

0
40,000

19

Capacity (ktons/year)

10,000
50,000

20,000
10,000

Source: PFC Energy

09
20

05
20

97

19

19

93

350,000
DISTILLATE Desulphurisation
Capacity In THE EU
European Distillate Hydrotreating Capacity

20

01

European Distillate Hydrotreating Capacity

300,000
250,000

Source: PFC Energy

European Distillate Hydrotreating Capacity

200,000
150,000
350,000
100,000
300,000
50,000
250,000

09
20

05
20

01
20

97
19

19

150,000

93

0
200,000

100,000
Source: PFC Energy

50,000

9
20
0

5
20
0

1
20
0

7
19
9

19
9

Capacity (ktons/year)

Capacity (ktons/year)

Source: PFC Energy

Source: PFC Energy

21 I europia White Paper on EU Refining - May 2010

1.3.2. Refiners have a strong track


record in energy-efficiency gains,
operational safety, environmental
performance.

efficiency, through energy integration


and efficiency investments. Moreover,
the widespread use of cogeneration and
advanced catalyst technology allows
further energy gains. Since 1990, the
refining sector has improved its energy
efficiency by 1% per year.

The EU Refining Industry has


reduced its environmental footprint
by continually improving its energy

Safety is the primary concern in


refineries. This ongoing vigilance
minimises the risk of accidents in the
workplace and incidents that could
impact workers, and local communities
in the proximity of refineries. This has
significantly reduced the number of
personal injuries in the industry.

EU Refineries Energy Intensity Index

Source: Solomon AssociatesEU Refineries Energy Intensity Index and Specific Energy Consumption
94
92

Energy intensity Index

-13%

90
88
86
84
82
80
78
1990

1992

1994

1996

1998

2000

2002

2004

Energy Intensity index

Three-year rolling average personal incident statistics


Source: Solomon Associates
average personal incident statistics
relating
the EUropean
downstream oil industry
relating to the
EUropeanto
downstream
oil industry

Source: CONCAWE
12
10
8
6
4
2

7
20

05

-0

5
20

03

-0

3
20

01

-0

1
-0
99
19

19

97

-9

AIF: All Injuries Frequency (per million hours worked)


LWIF: Lost Workday Injuries Frequency (per million hours worked)

22 I europia White Paper on EU Refining - May 2010

residents, and put in place regular,


continuous checks and inspections of
refineries.

Refineries are also bound by the EU


Seveso Directive since 1982, which
directs them to undertake studies on
health, safety and environmental risks
associated with their installations. They
are required to act on the findings of
these studies, implement incident and
emergency plans, cooperate with other
installations that could be affected by an
incident, ensure information to nearby

This has significantly reduced their


environmental footprint: the amount of
sulphur emitted by EU refineries has been
halved since 1998.

European refiners have continually


invested to comply with some of the
most stringent air quality (SOx, NOx and
particulate matter emissions), water quality
and soil protection rules in the world.

The quality of effluents has greatly


improved. Over the past 30 years
refineries have decreased their oil
discharge in water 10 fold.

SO2 emission in relation to refineries throughput

SO2 emissions in relation to refinery output

Tonnes Sulphur/kilotonne of refinery throughput

Source: CONCAWE
1,8
1,6
1,4
1,2
1
0,8
0,6
0,4
0,2
0
1979

1982

1985

1989

1992

1995

1998

2002

2006

Source: Concawe

Quality of refinery water effluent

Oil discharged in water

Source: CONCAWE
50
45
40

30
25
20
15
10
5

08
20

04
20

00
20

97
19

93
19

90
19

87
19

84
19

81
19

78
19

74
19

69

19

Oil discharged in water

35

Oil discharged with aqeous effluents (thousand tonnes/yr)


Oil discharged per reported throughput (g/tonne)

23 I europia White Paper on EU Refining - May 2010

1.4 The Refining sector contributes actively to improving EU


air quality with cleaner products
Refiners have implemented
environmental protection and resource
efficiency in close partnership with the
automotive sector.
Some EU refiners and car
manufacturers have established
long-term partnerships to jointly
develop new technologies aimed at
improving the efficiency of the fuelengine combination. Such partnerships
have provided multiple environmental
benefits and enabled the EU to lead in
many clean fuel and engine technologies
worldwide as well as fuel specifications.
A recent example is the Partnership
for Fuels and Vehicles Research
which involves many refiners and car
manufacturers in Europe through

CONCAWE the oil companies


European association for environment,
health and safety in refining and
distribution and EUCAR the European
Council for Automotive R&D.
The fuels and vehicles partnership has
been running since 2000 and is currently
in its fourth phase. The Well to Wheels
study, which aims at developing a
cooperative and consensual approach
to alternative fuels in terms of energy
use and Greenhouse Gas emissions,
has been published in several iterations
since 2003. The study has helped car
manufacturers and refiners anticipate
EU regulation and participate effectively
in European stakeholder forums on
alternative fuels.

The approach has reinforced the working


relationship between auto makers and
refiners, and helped cooperation with
regulators. This has led, among other
things, to joint work on assessing
emissions from ethanol-blended fuels
and a biomass-to-liquid-fuels testing
project currently underway.
The phase-out of leaded gasoline in
Europe and in other parts of the world
would have been far more difficult
without the technological advances in
refining enabled by European refiners.
Under the impetus of regulation and
cooperation with the automotive
sector, EU refiners have continuously
improved the quality of their products
with sharply reduced levels of sulphur,

28. EU refining contributes actively to air quality improvement through cleaner fuels

Emissions reductions of main pollutants FROM NEW CARS WITH reference TO 1995 LEVELS
Source: CONCAWE

Road Transport

140

Emissions (% of 1995 level)

120

100

80

60

40

20

0
1990

1995

2000

2005

Carbon Monoxide (CO)

Volatile Organic Compound (VOC)

Nitrogen Oxides (NOx)

Benzene

Particulate Matter Diesel (PM-diesel)

Sulphur Oxides (SO2)

24 I europia White Paper on EU Refining - May 2010

2010

lead, aromatics, olefins, benzene


and PAH (Polycyclic aromatic
hydrocarbon.)
Such advances in quality have allowed
car manufacturers to introduce
environmental improvements such as
catalytic converters.

Road Diesel Sulphur Specifications

Off-Road Diesel Su

EU Road Diesel Sulphur Specifications


Source: PFC Energy & European Union

6000

5000

5000

max. sulphur content (ppm)

4000
3000

Sulfur Content (ppm)


2000
1000

4000
3000
2000
1000

1ppm = 0,0001%

25 I europia White Paper on EU Refining - May 2010

11
20

05
20

00
20

95
19

90
19

85
19

75

19

19

11
20

05

00

20

95

20

90

19

85

19

80

19

19

75
19

80

9
19

90
19

85
19

75
19

11
20

05

00

20

20

95
19

90
19

85
19

80

75

19

19
max. sulphur content (ppm)

max. sulphur content (ppm)

The automotive
Road Diesel Sulphur Specifications
Off-Road Diesel Sulphur Specifications
and oil industrys
EU Heating Gasoil Sulphur Specifications
Source: PFC Energy & European Union
cooperation helps
then to6000
retain a
6000
competitive edge
5000
5000
in global
markets.
It ensures
4000
4000 that the
EU remains at the
3000
3000
forefront of fuel and
engine 2000
innovation
2000
and a pace setter of
1000
1000
fuel specifications.

80

19

max. sulphur content (ppm)

In the 1990s, the EU implemented


legislation to reduce atmospheric
pollution from motor vehicles. Refiners
and car manufacturers worked together
because, while catalytic convertors made
it possible to limit the amount of noxious
elements entering the atmosphere,
sulphur present in fuels prevented
catalytic convertors from functioning
correctly.

6000

2. The future of the European


refining sector is being
shaped by a complex and
challenging interplay of
global and regional forces

26 I europia White Paper on EU Refining - May 2010

2.1. The EU refining industry is exposed to international


competition
The EU Refining Industry operates
between two global, open and
transparent markets: the market of crude
oil, and the market of refined products.

The development of these two markets


in which crude oil and refined products
are freely traded allows each business
segment (exploration-production, refining,
marketing) to operate independently.

The high number of operators in each


segment and the transparent markets
for crude and products create a highly
competitive environment for these
activities.

EU Refining operates between two open markets

Crude Oil
Exploration &
Production

Refining

Crude Market

Product
Distribution &
Sales

Products Market

27 I europia White Paper on EU Refining - May 2010

The refinery margin reflects the


difference between the market value of
the combination of products produced
by the refineries and the cost of buying
the crude oil at market price and the
operating costs incurred in the refining
process.
A comparative of the operating costs
and energy efficiency of refineries in

competing regions would be informative


on the relative competitiveness.
The EU refining industry operates in a
transparent, open and global market basis,
for raw materials, intermediates and final
products. In addition, Refining is certainly
one of the few well established industrial
activities where marginal cost efficiency
based decisions are taken on a daily basis.

We are therefore particularly exposed


to European industrial limitations and
consequently any disturbance of what
is one of the largest existing global
trade balances in the planet will have
immediate consequences for the EU.

2.2. Overall demand for refined products is decreasing


2.2.1. EU demand for oil products
is on a downward trend.
Despite the economic rebound under
way, demand for oil products in the EU
is unlikely to gain to pre-crisis levels.
Shrinking demand results from a drive
to increase energy efficiency across all
sectors and from the substitution of oil
with other fuels such as renewables and
natural gas. The crisis has accelerated a
process that was already underway.

13

Trends vary for different types of


refined products, but the overall
picture is of a 20% drop in demand
by 2030 compared to 200613.
This forecast is based on the prospects
of a less carbon intensive economy: an
increased efficiency of vehicle engines,
the use of biodiesel and ethanol in
transport fuels, the shift in electricity
production from fuel oil to renewables,
the introduction of flex fuel hybrids and
full electric vehicles and the gradual
substitution of heating oil by natural

Based on PFC Energy demand forecasts

28 I europia White Paper on EU Refining - May 2010

gas. In addition, the forecast includes


improved energy efficiency from
industry to households, an increasingly
environmentally conscious public and
finally EU legislation driving energy
efficiency and lower carbon intensity.
There are many uncertainties around
this scenario; the views of PFC Energy
consultant are presented as an example.

EU refined Product Demand14


Sources: Historical data: IEA and Local Sources. Forecasts: PFC Energy

EU Refined Product Demand


1,000

consumption (million tonnes)

LPG

Gasoline
Kerosene

600

Gasoil
Fuel Oil

400

Other
200

0
2000

14

Naphtha

800

2005

2010

2015

2020

2025

2030

The forecast does not take into account the likely demand increase of additional 15 MT of gasoil to the shipping industry (MARPOL specifications).

Source: Historical data: EIA and Local Sources. Forecasts: PFC energy

During 2009, total oil product


demand in the EU plus Norway and
Switzerland dropped 1.3% from the
previous year. Motor fuel demand
shrank as consumers felt the effect
of high crude prices on pump prices
in the second half of 2008. Diesel
demand was hit primarily by a reduction
in commercial transport in
the EU. Jet fuel demand flagged as
private travellers curtailed vacation

plans and businesses limited travel.


Heating oil demand initially appears
to have bucked the trend. However,
closer inspection shows that strong
demand in the second half of 2008
and the first half of 2009 was primarily
Tableau in France and
supported by consumers
(to be redrawn)
Germany replenishing
stocks. Fuel oil
demand, which is likewise in structural
decline, was depressed by the decline in
international shipping activity.

29 I europia White Paper on EU Refining - May 2010

Source: Historical data: IEA and Local Sources. Forecasts: PFC Energy
4%
3%
2%

CAGR

1%
0%
-1%
-2%
-3%
-4%
-5%
Gasoline

Kerosene

2000 - 2005

15

2005 - 2010

Gasoil

2010 - 2015

Total

Fuel Oil

2015 - 2020

2020 - 2030

CAGR: Consumption Average Gross Rate

2.2.2. Margins and capacity


utilisation will remain under
pressure.

Gasoline-oriented refineries, which are


Capacity utilisation dropped by more
less adapted to current demand patterns,
than 8% compared to recent years
are likely to be the most vulnerable.
and by 6% in 2009 from the previous
year. Despite an expected rebound
According to the leading consultant
as Europe exits the recession in 2010,
Wood McKenzie, the projection of future
refineries margins are expected to
margins for EU refiners will remain low in
remain under considerable pressure
the long-term.
and maintaining profitability during
Source: Historical data: IEA and Local Sources. Forecasts: PFC Energy
the next 10 years will be a challenge.

After several years during the mid-1990s


during which EU refineries margins were
above the historical average, profitability
has started to decline in a context of
falling demand.

Margin Outlook - nwe GROSS margin for fcc cracking brent


Source: Wood Mackenzie

6.0
NWE Brent Cracking
$/bbl (Real $ 2009)

5.0

NWE Brent Cracking


$/bbl (Nominal)

$/bbl

4.0

NWE Brent Cracking


$/bbl (Real $ 2009)
NWE Brent Cracking
$/bbl (Nominal)

The gross margin


is calculated from
the gross products
worth of the products
produced by the
refinery minus the cost
of the crude delivered
to the refinery.

3.0
2.0
1.0

15

20
1

20
1

20
1

20
0

20
0

20
0

20
0

20
0

19
9

19
9

19
9

30 I europia White Paper on EU Refining - May 2010

20

13

20

eu refined product consumption growth 15

Source: Wood Mackenzie

2.2.3. The European Refining


Industry will have to adapt to
this decreasing demand and low
utilisation rate.

closures, although a demand rebound


was anticipated. Today the market
fundamentals point in the opposite
direction.

Some refineries have been put up for


sale. The lack of buyers for many of
these units raises the prospect of further
closures. Although refiners can adjust for
lower utilisation, this is only economically
viable for short periods of time.

The immediate effect of lower demand and


lower margins has been a reduction in the
utilisation of refining capacity in the EU.
Many refiners have cut back output in
response to significant oversupply in a
number of different product categories,
particularly gasoline. Other refiners
have been forced to take more drastic
action by idling or closing down plants.

Although demand shocks in the past (for


example the 1979 oil crisis) have resulted
in significantly lower utilisation rates
for the European Refining Industry,the
situation today is quite different. In the
1980s, oil price shocks led to widespread
reduction in demand and refinery

impact of external shocks on european refining CAPACITY


Source: BP Statistical Review, PFC Energy
36. Capacity and Utilisation of European Refineries

1200000

120%

100%

800000

80%

600000

60%

400000

40%

200000

20%

Utilised Capacity
Idle Capacity
Utilisation

1
2
3
4
5

Restructuring of the European industry following the second oil crisis.


Recession in early 1990s
Impact of economic downturn in Asia
Minor recession in some EU countries
6% year drop in utilisation due to economic crisis.

31 I europia White Paper on EU Refining - May 2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

0%
1982

0
1980

Capacity (1,000 tonnes)

1000000

Utilisation rate

3
1

2.3. The imbalance between supply and demand patterns


of oil products causes strong security of supply and
sustainability concerns.
2.3.1. Tax incentives and structural
trends in transport are fuelling
a growing mismatch between
refinery production and demand,
with negative environmental and
security-of-supply implications.
Most EU refineries were initially
configured to meet demand for gasoline
and fuel oil and have struggled to meet
growing demand for diesel in recent
years. At that time, gasoline to diesel
ratio was 2 to 1. It is now inversed to
1 to 3 and might reach 1 to 4 by 2020.
On an energy content basis, diesel
carries a substantially lower tax burden
than gasoline. Spurred on by favorable
excise taxes on diesel, the shift to
diesel from gasoline began 20 years
ago and has contributed to excess

gasoline-production capacity and


a shortage of diesel production in
the EU - despite refiners efforts at
boosting diesel yields.

cars as the majority of older vehicles


were gasoline powered. In addition,
many of the replacements were smaller,
more fuel efficient gasoline cars.

But the rise of the diesel-powered car


isnt the only factor at play. The continued
growth in truck transport in the EU,
driven by internal market and external
trade, has contributed to spurring
diesel demand.

Eliminating the tax bias in favour


of diesel would help redress the
imbalance in demand. But even
so, without significant investment to
reincrease conversion of heavy streams
(fuel oil) in medium distillates (diesel &
kerosene), the market imbalance will
be maintained in the medium term as a
result of fleet life cycle.

The widespread introduction of car


scrapping incentives in 2009 reinforced
this trend. While sales of new gasoline
cars exceeded those of diesel cars in
2009 (65% vs 35% for diesel16 in EU 27
and 54% vs 46 % in EU 1517), the net
increase in diesel passenger cars still
outstrips the net increase in gasoline

16
17

Source PFC Energy


Source ACEA

37. Dieselization of passenger cars in EU-27 is steadly increasing

EVOLUTION OF dieselisation of passenger cars in THE EU-27


Source: PFC Energy from local sources

35%
30%
25%
20%
15%
10%
5%

32 I europia White Paper on EU Refining - May 2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

0%
1992

diesel cars as % of total passenger car fleet

40%

EVOLUTION OF PRODUCT DEMAND IN THE EU


Source: Wood McKenzie 2010

10.Road fuel demand in the EU:


Diesel continues its strong growth , gasoline demand is declining
210

2.30

200
2.10

190
180

1.90

150

1.50

140
130

1.30

120
1.10

110
100

0.90

90
0.70

Gasoline
Diesel
Ratio

33 I europia White Paper on EU Refining - May 2010

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

80

Diesel/Gasoline Ratio

1.70

160

1990

Million tonnes/year

170

2.3.2. The additional production of


diesel in EU refineries will result in
higher CO2 emissions in the EU.

extract more diesel from heavier product


streams, increasing energy consumption
and CO2 emissions.

EU refiners are already engaged in


heavy investments that introduce more
energy intensive processes in order to

STRUCTURE OF EU PRODUCT DEMAND vs structure of refinery productions


Source: CONCAWE

Increasing diesel production

80

60

40

20

Fuel & Loss (% on crude oil)

10

Yield (% on crude oil)

100

LPG
Naphtha
Gasoline
Kero/Jet
Gasoil / Diesel
Heavy fuel oil
Fuel & Loss

0
2005 Demand

High gasoline
Simple
refinery

High diesel

Complex
refinery

32.EU refinery CO2 emissions could grow due to diesel demand increase

EUROPES INCREASING DEMAND FOR DIESEL CONTRIBUTES TO INCREASED refining INDUSTRIAL


CO2 EMISSIONS
Net Well-To-Wheel CO impact of increased dieselisation
2

Source: CONCAWE

Source: IMO

CO2 emissions from EU refineries (Mt/a)

170

2015 Reference

160

150

2015 Low Demand

140

130

120
1.0

1.4

1.8

2.2

2.6

3.0

Diesel/Gasoline production ratio

Increasing the diesel-to-gasoline


production ratio therefore leads to an
increase in refineries CO2 emissions,
as more energy is needed and on
purpose hydrogen production to crack

molecules into additional diesel. As a


result, the increase in CO2 emissions in
refineries negates the diesel engines
benefits, increasing Well to Wheel
emissions which undermines the original

2005 Base

34 I europia White Paper on EU Refining - May 2010

purpose. The Well to Wheel CO2


balance is thus vital when examining
the overall impact of fuel choices in the
EU.

2.3.3. The market imbalance


increases dependency on external
suppliers and customers.

gasoil currently are mainly imported from


The EU has significant excess
Russia while jet fuel is mainly shipped
gasoline production capacity but is
the Mideast;
unable to meet
regional
demand
for
Gasoil Trade Flows To/Fromfrom
Europe
2009 as well as to absorb
net jet
flows
in This
million tons
excess production of gasoline, which is
diesel, heating gasoil and
fuel.
mainly exported to the US.
makes the EU heavily reliant on other
countries for imports: diesel and heating

The growing market imbalance also has


consequences for security of supply.

Gasoil Trade Flows To/From Europe 2009


22.1

Gasoil Trade Flows FROM/TO Europe 2009


4.8
net flows in million tonnes

net flows in million tons

FSU

Source : PFC Energy

North
America

295
EU Demand

22.1
4.8
FSU
North
America

295
EU Demand

Gasoline Trade Flows To/From Europe 2009


net flows in million tons

Gasoline Trade Flows FROM/TO Europe 2009


net flows in million tonnes
Source : PFC Energy

29

Gasoline Trade Flows To/From Europe 2009


net flows in million tons

102

North
America

EU Demand

29

North
America

6.9
102

EU Demand
Africa

6.9

Africa

35 I europia White Paper on EU Refining - May 2010

2.3.4. Alleviating the supplydemand imbalance would require


substantial, long-term investment.

Whilst EU refiners currently export


gasoline mainly to the US, the export
markets in the future may be very
different. In 2020, it is expected that the
US market will no longer be able to absorb
the EU gasoline excess. In addition, over
the period 2010-2020, the combined
EU demand for diesel and heating oil
is forecast to remain flat while gasoline
should fall by 2 to 3% per year.

The Refining Industry continually adapts


to change. As in any market-driven
industry, however, there are technical
and economic constraints to the speed
and scope of transition. New capacity
planning typically is a 5- to 10-year
process and new plants are expected to
operate for at least 20 years.

This means that European refiners


would need to seek other export
markets to replace the US market and
to absorb the increased surplus of
gasoline resulting from falling demand
in the EU.

Refiners, engineering firms and catalyst


manufacturers are constantly working
to improve the diesel yield from existing
production capacity. Further boosting
diesel and jet-fuel yields, however,
would require investment in new,
better-suited refining installations. To
plug an annual gap of 30 million tonnes
of gasoil and jet fuel, the EU Refining
Sector would need to build about 20
large hydrocrackers at a cost of more
than US$ 11 billion18 19.

Without new export markets for EUs


gasoline surplus, it is likely that the EU
Refining Industry will adjust this surplus
through reducing gasoline production.
This will materialise through restructuring,
either through disinvestments of gasoline
units (such as FCC, reformer) or by shutting
down entire refineries. This second option
will inevitably increase EUs gasoil deficit
and thus its dependence on third countries
(in particular Russia) for gasoil imports.

Such tighter marine fuel specifications


represent around 15 million tonnes of
additional marine gasoil demand, which
is equivalent to the output of a further
10 hydrocrackers at a cost of around
US$ 6 billion20. (This investment would
come on top of the 20 such facilities for
automotive diesel output as described
above). If such investments are
not made in the EU, the regions
dependence on imports will increase.
Such a move would have an effect on
the EU Refining Sector. Refiners would
be required to invest heavily to boost
marine gasoil output and eliminate fuel

As we have seen above, the growing


dieselisation of the EUs automobile
fleet, if left unchanged, could have
18

severe consequences in terms of import


dependence. The required investments
would be much larger if tighter marinefuel specifications come into force under
the impulse of the International Maritime
Organisation. As a first step, a reduction in
the maximum sulphur contents permitted in
maritime Emission Control Areas scheduled
for 2015 effectively will require all ships in
the relevant areas currently the English
Channel, Baltic Sea to burn marine gasoil
instead of fuel oil.

Source: PFC Energy 19 8.5 billion

20

4.6 billion

21. Changing demand patterns have driven refinery


investments from FCC* to hydrocracking

fcc and hydrocracking capacity IN european refineries


350

35

300

30

250

25

200

20

150

15

100

10

50

0
1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

*Fluid Catalytic Cracking

FCC
Hydrocracking
Percent of crude distillation

36 I europia White Paper on EU Refining - May 2010

2010

2012

% of crude distillation

Million tonnes per year

Source: Overview of the Oil Industry, Purvin


& Gertz
Inc, 2009 capacity at European refineries
FCC
and Hydrocraking

oil (which would struggle to compete for


the Asian market with abundant Russian
fuel oil). Due to the long investment cycle
in refining, stable and predictable policy
is required to make such investments
possible.

2.3.5. The US demand for gasoline


and fossil gasoline will decrease.
PFC Energy anticipates that US demand
for refined gasoline has peaked. The
current crisis has cut demand and

encouraged US consumers to opt for


lighter, more efficient vehicle models.
Furthermore, the US has implemented
new Corporate Average Fuel Economy
(CAFE) standards which require
substantial improvements in the efficiency
of passenger cars and light trucks.
These standards impact SUVs and will
significantly reduce the role this class
of vehicle plays in the overall vehicle
fleet. PFC Energy believes that the new
standards will cause a fundamental shift
in the make up of the US vehicle fleet,

US Product Demand
US Product Demand

us productS demand*
Source: Historical data: EIA
Forecasts: PFC Energy

(Forecasts include bio-components)


(Forecasts include bio-components)

consumption
consumption
(million
(million
tonnes)
tonnes)

1,000
1,000

LPG
LPG
Naphtha
Naphtha
Gasoline
Gasoline
Kerosene
Kerosene
Gasoil
Gasoil
Fuel Oil
Fuel Oil
Other
Other

800
800
600
600
400
400
200
200
0
02000
2000

2005
2005

2010
2010

2015
2015

2020
2020

2025
2025

us gasoline demand*

2000

consumption
consumption
(million
(million
tonnes)
tonnes)

2030
2030

Source: Historical data: EIA


Source: Historical data: EIA

Source: Historical data: EIA


Forecasts: PFC Energy
450
450
400
400
350
350
300
300
250
250
200
200
150
150
50
50
0
02000

with lighter, Asian and European-style


vehicles preferred. The role that biofuels
play is also expected to increase, with
ethanol backing out more and more
refined gasoline from the motor fuel
pool. All of these factors will conspire
to keep future demand for refined
gasoline in the US lower than 2005
levels.

US Gasoline Demand
US Gasoline Demand

(Forecasts include bio-components)


(Forecasts include bio-components)

Ethanol
Ethanol
Gasoline
Gasoline

2005
2005

2010
2010

2015
2015

2020
2020

2025
2025

2030
2030
Source: Historical data: EIA
Source: Historical data: EIA

37 I europia White Paper on EU Refining - May 2010

PFC Energy anticipates that the


mandated volumes for cellulosic ethanol
will have to be significantly reduced and/
or delayed due to the long lead-in time
for the technology.

The US Environmental Protection


Agency (EPA) recently finalised the
implementation rules for the updated
Renewable Fuel Standard (RFS), also
called RFS II. These rules seek to better
account for lifecycle Greenhouse Gas
emissions and mandate increasing
yearly volumes of biofuels (corn ethanol,
cellulosic ethanol, biomass based diesel,
and other advanced biofuels); the total
biofuels volume mandate in 2022 is
100.000 Mt/y (36 billion gallons per year).

US Renewable Fuel Standard - Original EISA MANDATE


US Renewable Fuel Standard - Original EISA
US Renewable Fuel Standard - Original EISA

Source: PFC Energy

million
million
tonnes
tonnes
per
per
year
year

120
120
100
100
80
80
Other Advanced
Other
BiofuelAdvanced
Biofuel
Biodiesel
Biodiesel

60
60
40
40

Cellulosic Ethanol
Cellulosic Ethanol

20
20

Conventional Ethanol
Conventional Ethanol

20 20
22 22

20 20
20 20

20 20
18 18

20 20
16 16

20 20
14 14

20 20
12 12

20 20
10 10

20 20
08 08

20 20
06 06

0
0

Source: PFC Energy


Source: PFC Energy

US Renewable Fuel Standard - PFC Expected

US Renewable Fuel Standard - PFC Expected


US Renewable Fuel Standard - PFC Expected

Source: PFC Energy

100
100
80
80
Other Advanced
Other
BiofuelAdvanced
Biofuel
Biodiesel
Biodiesel

60
60
40
40

Cellulosic Ethanol
Cellulosic Ethanol

20
20

Conventional Ethanol
Conventional Ethanol

20 20
22 22

20 20
20 20

20 20
18 18

20 20
16 16

20 20
14 14

20 20
12 12

20 20
10 10

20 20
08 08

0
0

20 20
06 06

million
million
tonnes
tonnes
per
per
year
year

120
120

Source: PFC Energy


Source: PFC Energy

38 I europia White Paper on EU Refining - May 2010

2.3.6. The combined effect of


EU and US renewable energy
objectives in transport will
worsen Europes existing gasoline
overcapacity.
The EU and the US have introduced
policies to promote the use of biofuels in
transport fuels. While the measures have
contributed to reducing oil consumption
in transport, the increasing use of
ethanol in gasoline in Europe and

The EUs objectives differ significantly from


those in the US in their magnitude and
implementation. The EU is aiming for 5.75%
of renewable energy use in transport by
2010 and for 10% by 2020. These targets
can be partly met with other renewable
energy sources such as electricity, but
biofuels will likely remain the dominant

21

ETBE: Ethyl Tertio Buthyl Ester

Marine Fuel Consumption

Transport Energy Mix EU-27


Source: PFC Energy

Marine Fuel Consumption

Transport Energy Mix EU-27


Transport Energy Mix EU-27

100%

Consumption
(1,000 (1,000
tons) tons)
Consumption

means of compliance. (Due to exceptions


and variations in implementation by each
Member State the effective EU targets are
slightly lower, at about 5.4% and 9.3%,
respectively.) Member States can meet the
requirements via blending ethanol, ETBE21
or biodiesel into the motor fuels pool. To
date EU biofuels production has shown
bias towards biodiesel, which comprised
around 70% of total biofuels production in
2008 and 2009.

North America is aggravating the


structural imbalance in the EU market
for refined oil products.

100%
80%
80%
60%
Ethanol

60%
40%

Gasoline
Ethanol

40%
20%

Biodiesel
Gasoline
Diesel
Biodiesel

20%
0
2005

2010

2015

2020

2025

2030

2005

2010

2015

2020

2025

2030

Diesel

0
Source: PFC Energy

Transport Energy Mix United States


Transport Energy Mix in United States

Source: PFC Energy

Source: PFC Energy

Consumption
(1,000 (1,000
tons) tons)
Consumption

100%

Transport Energy Mix in United States

100%
80%
80%
60%
Ethanol

60%
40%

Gasoline
Ethanol

40%
20%

Biodiesel
Gasoline
Diesel
Biodiesel

20%
0

Diesel

2005

2010

2015

2020

2025

2030

2005

2010

2015

2020

2025

2030

Source: PFC Energy


Source: PFC Energy

39 I europia White Paper on EU Refining - May 2010

Unlike EU legislation, the US Renewable


Fuel Standard specifies volumes for
corn ethanol, cellulosic ethanol, biomass
based diesel, and other advanced
biofuels. According to PFC estimates,
this heavy ethanol bias will see ethanol
representing 9% of US gasoline supply
by 2010. This figure will grow to as much
as 16% by 2020. This represents a
major problem for European refiners
since each additional barrel of ethanol
in the US gasoline blend limits
opportunities for European refiners
to export surplus gasoline to the US.

After accounting for the energy content


differences (one barrel of ethanol
displaces only 0.66 barrels of gasoline)
and expected compliance levels as well
as fuel efficiency and market demand
changes, PFC estimates that demand
for crude refined gasoline will decline
by 20-25% in the EU and by 10-15%
in the US from 2010 to 2020. This will
aggravate already low utilisation rates at
EU refineries as production capacity will
significantly outstrip demand.
PFC Energy expects the EU to slightly
miss both the 2010 and 2020 targets

with respect to biofuels, with compliance


around 80% in 2010 and 75% in 2020.
The remainder of the 2020 target could
be at least partially met with other energy
sources such as electric vehicles, to the
extent electricity is renewably produced.
The 2010 shortfall is due in large part
to the collapse of the B100 market in
Germany after removal of economic and
fiscal incentives. The 2020 shortfall is a
result of resource/cost challenges facing
domestic EU production as well as high
international demand for Brazils export
supply, and lagging progress in 2nd- and
3rd-generation biofuels.

2.4. Refining continues to adapt to changing crude slate


2.4.1. The decline in North Sea
production will require North
West EU refineries to ship crude
supplies from farther afield
and entail increased logistical
challenge.
Falling output from North Sea oil fields
will change the pattern of supply and the
quality of crude available in the EU.
Supply to EU refineries will continue to
diversify. Crude imports on average will
be of a slightly heavier grade and contain
more sulphur. This will entail minor
increases in refining costs, energy use
and hence carbon emissions.

Due to the global nature of the crude


market, however, the refining industry
does not expect significant difficulty to
access appropriate crude supplies and in
managing changes in quality.

The graph illustrates the slight adaptation


in crude quality.

The decline in North Sea production will


require North West EU refineries to ship
crude supplies from farther afield and entail
increased logistical challenge.

40 I europia White Paper on EU Refining - May 2010

EU Crude Import Quality

EU Crude Import Quality


Source: PFC Energys Crude Trade Flow Model

1.40
Urals

Sulfur Content (%)

1.20
1.00

2020

2010

0.80
0.60
0.40
Brent

0.20
0
30.0

32.0

34.0

36.0

38.0

40.0

API (degrees)

Source: PFC Energys Crude Trade Flow Model

Supply from the North Sea is expected


to drop to 20% of total EU crude intake
by 2020 from the current 30%22.
A number of refineries in North West
Europe configured to process light,
sweet23 North Sea crude will need to

22
23

seek similar supply from other sources or


invest in conversion and hydro-treatment
to process heavier, sourer crudes. Light,
sweet crude will be supplied from farther
afield, with Africa and the Caspian region
the most likely sources. Heavier crudes

will likely be Urals-type crude from


Russia. Middle Eastern heavy crude will
play a more prominent role for refineries
located in Greece and Turkey.

Source: PFC Energy


Crude oil contains sulphur. The sulphur content of different crude oils can vary significantly with sweet (low sulphur) Saharan crudes such as Algerian Zarzaitine containing as little
as 0.07% and sour (high sulphur) Venezuelan crudes such as Boscan containing as much as 5.50%. Sulphur is removed from oil products by a process called hydrotreating.
This process involves vaporizing the oil product in the presence of hydrogen and a catalyst. The reactions that occur enable the sulphur to be extracted from the oil product.

41 I europia White Paper on EU Refining - May 2010

Flows into / out of Europe (net, 1.000 b/d)

CHANGE IN NET CRUDE FLOWS INTO EUROPE 2010-20


Total Liquids Flows: Includes Crude + NGLs
Change from 2010 to 2020
Flows less than 2.5 million tonnes are omitted
Source: PFC Energys Crude Trade Flow Model.*

4.6
59.3

5.3

4.2

9.2

NW Europe 3.5

5.3

16.2

North-West Europe

59.3

Rest of Europe

3.5

54.8

6.1

4.6
17.1

FSU
and Central Asia

Rest of
Europe

15.1

15.1
USA

16.2

Middle East

54.8

3.5
17.1

Latin
America

3.5 N Africa
9.2

6.1

Net increase in flows


Net decrease in flows

4.2

FSU: +54.8 million tons


Middle East: +31.2 million tons
Africa: +14.7 million tons

W Africa

Net Decreases
North Sea: -64.6 million tons
Latin America: -20.6 million tons

From WP version 21/04/2010 : Pg22, Chap.2


* Green arrows and numbers reflect increases in trade flows. Red numbers and arrows indicate a decrease in trade flows.

Sourcing crude from further afield


represents a greater logistical risk.
EU refiners may face reliability issues
tied to pipeline links from Russia and
the Caspian, to shipping from Russias
Baltic ports and through the notoriously
congested Bosporus Straits. In addition,
suppliers such as Russia and Kazakhstan
are planning pipelines to the East and
may prefer shipping crude to Asia.

Moreover, several ports on the North


African coast and in the Black Sea are
susceptible to disruption in the winter
months due to weather conditions,
and supply from West Africa has been
hampered by several lengthy disruptions
in recent years.
Some central Eastern Europe Refineries
are located very closely to the Eastern
EU border and thus strongly exposed to

42 I europia White Paper on EU Refining - May 2010

fuels import from countries where there


is not the same intensive pressure from
environmental and climate legislation.
Furthermore, the majority of the oil
infrastructure was built in very specific
economic conditions which resulted
in relatively low energy efficiency, high
environmental impact and a poor
pipeline system.

kEY CRUDE LOGISTICS - rUSSIA AND CASPIAN

RUSSIA

5
To Baltic

BPS I&II

ESPO

To Pacific

DRUZHBA
To Central Europe

Brody

4
Odessa

To

Aktau

SINO-KAZAKH

To China

Batumi
Baku
AZERBAIJAN

ED

Ceyhan

Bosporus seems likely to remain a


bottleneck for Caspian crude.

The BTC is operating at around 37


million tonnes, which is below its
50 million ton capacity. Expansion
is unlikely unless integrated with
Kazakhstans trans-Caspian plans.

Novorossisyk
Tuapse

Bourgas
Alexandropolis

KAZAKHSTAN

Tengiz

Key ports on the Caspian have been


or are being expanded to boost
export capacity.

CPC is currently stretched, averaging


38 million tonnes of exports in 2009
- well above its capacity. Plans to
expand capacity to 70-80 million
tonnes are looking more likely.
BPS II is scheduled for completion by
end-2012. It is likely that Russia will
seek to have Kazakh crude diverted
into the new Baltic line, although the
bulk of exports will be Russia crude.

43 I europia White Paper on EU Refining - May 2010

CHINA

It is unlikely that Caspian crude will


be exported east via the ESPO.

Capacity of the Kazakh-China


pipelines are set to increase.
Russian crudes also exported via
these links.

Crude Export Terminal


Crude Pipeline

2.5. Applicable legislation imposes constraints and costs on


EU refining operations
triple objectives of ensuring Europes
competitiveness, sustainability and
security of supply, and also avoiding
conflicting regulation.

2.5.1. Current and planned EU


regulation places a heavy burden
on an internationally exposed
refining sector, undermining
security of supply and economic
competitiveness.

Environmental and fiscal legislation


creates a heavy and sometimes
conflicting burden on the EU Refining
Industry and often places it at a major
competitive disadvantage compared to
refiners based in Russia, the Middle East
and Asia. The impact of such measures
must be carefully assessed:

The EU Refining Industry is directly and


indirectly affected by numerous EU
directives and policy measures that aim
to reduce emissions of air pollutants and
Greenhouse Gases, cut overall energy
consumption, support energy security
and boost renewable energy sources and
technologies.

a) EU Climate Package and Emissions


Trading System
The EU Climate Package aims at three
major targets:
A 20% reduction in Greenhouse Gas
emissions from 1990 levels;
Increasing the share of renewables in
the energy mix to 20%;
A 20% cut in energy consumption.

Given the strategic role of oil refining,


the EU must ensure that legislation
and policies affecting energy issues
in general, and Refining particularly,
adopt a balanced and coherent
approach, taking into account the

The 20-20-20 targets are intended to


reduce the EUs dependency on
imported fuels and set the pace of a
new global industrial revolution.
The Refining Industry will play its
part to meet these targets through
participation in the Emissions Trading
System24. In recognition of its exposure
to international competition the Refining
Industry, in common with many other
energy intensive industries, has relief from
the full cost of CO2 emission allowances
through partial free allowances based on
refinery carbon efficiency. In addition to the
incentive created by a market-set carbon
price, efficiency gains will be encouraged
by allocating free CO2 allowances to those
refineries that meet a benchmark based
upon the 10% most efficient units.
24

 nd other commitments coming from other Directives


A
such as FQD and RED.

38. Incremental GHG Emissions

EU REFINING INDUSTRY incremental ghg emissions


Source: CONCAWE

225

The more stringent


the fuel specifications
are, the more
energy is needed
and hence CO2
emissions increase.
Additional demand
for diesel increases
CO2 emissions, in
addition potential
new specifications
and marine fuels
specification change
to distillates could
increase CO2 in
refineries.

CO2 emissions (Mt/a)

200

175

150

125

100
Base case
2005

Product quality
2005-2020

Change in
demand profile
2005-2020

Assumed efficiency
improvements
2005-2020

Potential
product quality
changes

44 I europia White Paper on EU Refining - May 2010


Concawe

The details on how this benchmark


will be established remain to be
determined, and this will be crucial to
the competitiveness of the sector as
a whole and especially to the viability
of many refineries based in the EU.
Current indications are that the refining
industry would have to buy about 25%
of its allowances to maintain activity.
Together with the additional cost of
CO2 in purchased electricity, this will
cost the refinery sector over 1 billion
a year based on a price of 30 per ton
of CO2. This additional burden is a
serious concern for an industry that
is expected to remain under severe
financial pressure for many years.
Until regions around the world introduce
similar carbon constraints, the ETS will
jeopardize Europes competitiveness
and will encourage refiners to relocate
their facilities to other regions that
have less ambitious environmental
policies. This could expose the EU in
terms of security of supply and economic
competitiveness.
Despite the 20-20-20 objectives, there
are significant pressures inflating CO2
emissions from refining. According to
the European Oil Industry environmental
research group CONCAWE, this is due
to a combination of factors, including
the higher energy needed to meet
higher fuel-quality standards and to
boost diesel production. The energy
intensive nature of such changes will
more than offset expected efficiency
improvements during the same period.
Furthermore, the possible shift to marine
diesel from marine bunker fuels will likewise
require the use of more energy intensive
production techniques.
b) Industrial Emissions Directive
(formerly known as the Integrated
Pollution Prevention and Control
Directive - IPPC)
EU legislators are close to adopting an
Industrial Emissions Directive (IED) which
would replace the Integrated Pollution
Prevention and Control (IPPC) Directive
before Member States have had the
time to properly implement the original
measure.

The Industrial Emissions Directive (IED)


incorporates the key elements of several
existing directives that aim to limit key
atmospheric pollutant emissions from
industrial sources through permitting
restrictions. Industrial facilities account for
a share of the EUs emissions of sulphur
dioxide (SO2), nitrogen oxides (NOx), dust
and volatile organic compounds (VOCs).
The EU Refining Industry believes
that the three pillars of the original
IPPC Directive which are the
integrated approach, the use of Best
Available Techniques (BAT) and the
consideration by local permitting
authorities of local conditions are
helping to deliver cost effective
environmental protection.
The Thematic Strategy for Air Pollution
(TSAP) has been developed to achieve
the agreed overall EU health and
environment objectives in the least costly
manner. The Thematic Strategy for Air
Pollution (TSAP) indicates that Emission
Limit Values (ELV) should not be uniform
across the EU but determined in function
of their impact. As a consequence,
overly stringent EU-wide binding limits
in the Industrial Emissions Directive (IED)
proposal are in conflict with this approach
of EU wide optimisation.
c) Energy Taxation Directive
The taxation of energy is an important
driver of choices made by industrial and
individual consumers. The proposed
Energy Taxation Directive (ETD)
revision is an opportunity to create a
level playing field across the EU for
all energy products, based on their
energy content and CO2 emissions.
Minimum levels of tax are set for most
traditional energy products used in
various sectors of the economy.
Member States usually exceed these
minima and favour certain products
according to their own national priorities.
This has contributed to significant
distortions in patterns of consumption.
The tremendous growth in use of diesel
and the reduction in the use of gasoline
for automobiles is one example which
has had far-reaching consequences in

45 I europia White Paper on EU Refining - May 2010

the consumption of different fuels


and in the investment choices of the
auto industry.
The suggested Energy Taxation
Directive (ETD) revision could eliminate
the hidden subsidy of certain energy
products such as diesel and the
associated market distortions and make
economic choices more neutral, based
on the true energy merits of energy
used in transport or other sectors. To
foster energy efficiency, the most rational
way is to tax energy products in direct
relationship to their energy content.
Creating a level playing field is vital for
environmental and economic reasons.
As alternative energy sources gain ground
- in transport in particular with biofuels
and electricity - consumers should be
encouraged to make rational choices. If
energy products are also taxed on their
CO2 emissions, this tax element too should
be based upon real emissions when energy
is consumed, the CO2 emitted during
production being covered by the Emissions
Trading System.
d) Renewable Energy Directive
The Directive requires EU Member States
to boost the share of renewable energy
in overall energy consumption to 20% by
2020 and to 10% in the transport sector.
Countries have been assigned specific
targets based on their 2005 share of
renewable energy production and percapita GDP, while interim targets will be
introduced to ensure progress towards
the 2020 target.
EU fuel suppliers are increasing the
share of renewable-sourced fuels in
transport fuels and aim at meeting the
10% target by 2020. They are however
facing uncertainties on the sufficient
availability of sustainably produced
biofuels and whether the EU vehicle
fleet will be capable to accommodate
the resulting high concentration
of biofuels in diesel and gasoline
delivered at the pump.
e) Fuel Quality Directive
The revised Directive replaces a
decade-old Directive and establishes new

environmental requirements for gasoline


and diesel fuel, ensuring a reduction in
their air pollutant emissions. Road fuels
became sulphur free, in addition to other
technical specifications.
As a new objective, the revised Directive
sets binding targets for the reduction
of lifecycle Greenhouse Gas emissions
of fuels, placing the responsibility of
compliance on fuel suppliers. As of 2011,
fuel suppliers will be required to report
lifecycle GHG emissions per unit of fuel
supplied. They will have to meet a
lifecycle GHG reduction target of at
least 6% by 2020 compared to a 2010
baseline, which is now closely aligned
to the 10% renewable fuels target of
the Renewable Energy Directive.
The Commission is currently working
out guidelines on how to calculate the
GHG emissions of fossil fuels, which has
been left open in the revised Directive.
EUROPIA has strongly recommended
using industry average default values for
fossil fuels such as diesel, gasoline, CNG
and LPG. The 6% lower Greenhouse
Gas reduction target for road fuels is now
closer aligned to the 10% renewable
fuels target of the Renewable Energy
Directive, because this target will be
predominantly met by blending biofuels.

international waters are covered by global


specifications. In Europe, the Baltic Sea
and the North Sea are known as Emission
Controlled Areas (ECAs, formerly known
as sulphur emission controlled areas or
SECAs) where specifications are notably
tighter.
Marine engines using fuel oil are very cost
and energy efficient. Fuel oil is readily
available in EU harbours in 1%-sulphurgrade for use in ECAs and in 3.5%
sulphur-grade to meet MARPOLs global
specifications. In addition, the EU has
implemented tighter rules limiting the
sulphur content of fuels burned in ports
and inland waterways to 0.1%, which is
ten times lower than the current level set
for ECAs.
The tightening of the MARPOL
specifications scheduled in the
next decade presents a number
of challenges for the EU Refining
Industry. Onboard scrubbers are a
potential alternative to meet the IMO
sulphur legislation in a cost-efficient way
and with low overall CO2 emissions.

By 2015, the maximum permissible


sulphur content in ECAs is scheduled
to be cut to 0.1%, well below what
is feasible for marine bunker fuel oil,
which means that marine fuel demand
in ECAs will likely be met by marine
gasoil. Current marine fuel use in EU
ECAs is estimated at 20 million tonnes,
of which most is bunker fuel oil. The
tighter limits mean that EU refiners will
likely need to supply an additional 15
million tonnes of gasoil to the shipping
industry five years from now. As stated
earlier, producing an additional 15 million
tonnes of gasoil would require investment
of US$ 6-7* billion in order to build 10
upgrading projects. If these investments
are not made in Europe, reliance on
imports will increase.
A second challenge is the proposed
tightening by the IMO of the MARPOL
global specifications to 0.5% sulphur
from the current 3.5% in 2020.
Global marine fuel demand is expected
to increase from 200 million tonnes in
2010 to 250 in 2025.

Emission controlled areas (ECAs) IN THE EU

2.5.2. IMO Legislation: Changes


in shipping fuel specifications
would require large-scale industry
investment in Europe and
globally.
Fuel used in marine transport is regulated
by the International Convention on the
Prevention of Pollution from Ships,
known as MARPOL 73/78 or the
MARPOL Convention. This sets limits on
ship exhaust emissions and also limits
the sulphur content of fuel that can be
burned at sea.
Those limits are due to be tightened
during this decade. This will create
massive demand for new distillates,
requiring large investments by EU
refiners to ensure domestic supply.
MARPOL provides two categories of
specifications. All sea areas including
* 4,6 - 5,4 billion

46 I europia White Paper on EU Refining - May 2010

global marine fuel sulPHur specifications 21


Source: IMO

Global Marine Fuel Sulphur Specifications


5%

Bunker fuel sulphur limits

Global

*SECA

0
2000

2005

2010

2015

2020

2025

* SECA: Sulphur Emission Controlled Area

Source: IMO

Global
Marine Fuel
SulphuraSpecifications
limits,
however,
will require
massive,
world-wide
shift from
fuel oilbytoEuropia)
gasoil.
(same graph
powered
This would require an additional 100
hydrocracking projects globally in the
next decade at a cost of some

Without the proposed specification


changes, the global refining industry
is capable of meeting the anticipated
5%
increase in demand. Moving ahead
with the proposed tighter sulphur
4

$60 billion*. Increased gasoil


production will entail increased
hydrogen consumption and
associated CO2 emissions.
*4
 6 billion

marine fuel consumption in the EU


Source: PFC Energy

Global

Marine Fuel Consumption in the EU


*SECA

Consumption (1,000 tonnes)

250,000

200,000

2000

2005

2010

2015

2020

2025

Forecast
Total Marine
Fuel Demand

Global

Source: IMO

*SECA

Fuel Oil

If new ECA legislation is enforced


there is a strong likelihood that post2015 marine fuel demand in the EU
will be predominantly gasoil.

150,000

100,000

Gasoil

50,000

0
2000

2005

2010

2015

2020

2025

2030
Source: PFC Energy

Marine Fuel Consumption

00 tonnes)

250,000

200,000

47 I europia White Paper on EU Refining - May 2010


150,000

If new IMO legislation is enforced

Forecast
Total Bunker
Demand
Fuel Oil

Cons

50,000

0
2000

2005

2010

2015

2020

2025

2030
Source: PFC Energy

Global Marine fuel consumption


Source: PFC Energy

Marine Fuel Consumption

Consumption (1,000 tonnes)

250,000
Forecast
Total Bunker
Demand

200,000

If new IMO legislation is enforced


there is a strong likelihood that post2020 marine fuel demand globally
will be predominantly gasoil.

150,000

100,000

Fuel Oil
Gasoil

50,000

0
2000

2005

2010

2015

2020

2025

2030
Source: PFC Energy

2.6. The actors of the refining industry are changing


2.6.1. Refiners in Asia and in the
Middle East are adding capacity
and entering the EU market.
High refining margins and a buoyant
outlook for oil product demand driven by
robust growth in the developing world led
to a large number of refining investments
around the world in the five years
to 2007.
While many of these projects
notably in China and in South East
Asia focused on satisfying local
demand, some projects in India and
the Middle East are also capable of
producing high quality fuels for export
to the EU and the U.S. Furthermore,
since emerging economies are seeking
to align their product specifications with
European and U.S. norms, many of these
new refineries are producing fuels that
can be sold in Europe and appear to be
targeting these markets.

The onset of the global economic crisis


has dampened demand in Europe
and in North America. Regardless of
current market conditions, however,
new refineries are expected to come on
stream in the next few years in China,
India and the Middle East. With limited
domestic demand for high-quality fuels
those refiners will still seek to export their
produce to the EU.
Upstream integration and cheap power
supply in the Middle East, and low
labour costs, economies of scale (due
to the large size of many new facilities)
and tax incentives in India provides
these refiners with a competitive edge
over their European counterparts. It is
therefore possible that Middle Eastern
and Indian players will seek to acquire
logistical and marketing assets to
penetrate the EU market.

48 I europia White Paper on EU Refining - May 2010

Indian and Middle Eastern refiners


are likely to use the EU market as a
temporary outlet for excess production,
whilst local markets grow sufficiently
to absorb production. Over time, the
combination of domestic market growth
and tightening product specifications
could see them refocus on their domestic
markets. In the meantime, however, they
will place added competitive pressure on
the EU refinery system.
In China, meanwhile, the governments
stated objective is to remain self sufficient
in motor fuels. This has resulted in a
large number of new refineries coming
on stream in recent years. Even in
the wake of the global financial crisis,
Chinese economic and oil product
demand growth has been robust and
the production capacity of the Chinese
refining system is expected to increase
in the next decade. Chinese companies
have also started looking at refining
opportunities overseas, mostly for import
back into China.

Bulk of Global Capacity Additions will be in the Middle East and Asia
Source: PFCEnergy

Bulk of Global Capacity Additions will be in the Middle East and Asia

Middle East

30

Status of Topping Capacity Additions

Topping Capacity Additions

Bulk of Global Capacity Additions2500


will be in the Middle East and Asia

2000

20 Status of Topping Capacity Additions


30
15
25
10
20
5
15
0
10

On
Delayed
Schedule

On Cancelled
Hold

unrisked capacity (mb/d)


unrisked capacity (mb/d)

number of projectsnumber of projects

25

india

number of projectsnumber of projects

25

Status of Topping Capacity Additions


On
Delayed
Schedule

1000
0
2010 2011 2012 2013 2014 2015 2016 2017 2018
500

10
20
5
15

On
Delayed
Schedule

On Cancelled
Hold

Topping Capacity Additions


2010 2011 2012 2013 2014 2015 2016 2017 2018

2000

15
25

0
10

1500
500

On Cancelled
Hold

20 Status of Topping Capacity Additions


30

Topping Capacity Additions

2000
1000

2500
0

unrisked capacity (mb/d)


unrisked capacity (mb/d)

30
0

2500
1500

2500
1500

2000
1000

Includes 700+ mb/d


Jamnagar III
Topping Capacity Additions

Includes 700+ mb/d


Jamnagar III

1500
500

1000
0
2010 2011 2012 2013 2014 2015 2016 2017 2018
500

0
Delayed
On
Schedule

On Cancelled
Hold

2010 2011 2012 2013 2014 2015 2016 2017 2018

49 I europia White Paper on EU Refining - May 2010

2.6.2. Russian producers


are making inroads into the
EU market.

However because this is a tax based


incentive, Russian refiners are reluctant to
invest on this uncertain basis.

Russias fiscal system strongly


encourages the export of refined oil
products over crude exports. This
has led to integrated Russian refiners
processing crude in low complexity
refineries and exporting large volumes of
gasoil and fuel oil into European markets.

In addition to increased competition in


EU markets, European refiners are facing
increased competition in their traditional
export markets. A glut of new refining
capacity is forcing refiners to look for
more distant export markets. It is likely
that the profitability of EU refining will

suffer further as export-related risks and


costs increase.

Russian Export Duty System

russian export duty system


Source: PFC Energy

Export Tax Induced Refining Margin

200

Tax (USD/tonne)

160

120

Tax Induced
Refining Margin

80

40

0
0

50

100

150

200

250

300

350

400

450

Urals Price (USD/tonne)


Urals
Gasoil
Fuel Oil

Until July 2004, the product export tax was fixed at 90% of the crude export tax
Following a fiscal reform introduced in August 2004, the tax on both fuel oil and
gasoil was reduced to 65%of the crude export duty
Pricing is determined according to the following formulas:
- Crude tax = 65% x (Ural - $185/tonne) + $29.6/tonne
- Clean product tax = 41,6% x (Ural - $185/tonne) + $31.1/tonne
- Dirty product tax = 22,4% x (Ural - $185/tonne) + $16.3/tonne

50 I europia White Paper on EU Refining - May 2010

2.6.3. Ownership changes in


the EU refining landscape could
weaken the economic strength of
the EU Refining Industry to face
long term low margin periods as
the industry has to face currently.
The International Oil Companies are
reducing refining capacity in Europe,
generally by sale of assets, while
independent and merchant refiners

(without upstream or marketing interests)


have grown in Europe. External regional
players are also taking increased interest
in Europe; they could be seeking to
integrate further downstream in EU
markets and investing in European
refining and marketing to get closer to
the European consumer.

introductions will require from all refiners


considerable long-term investments and
commitments, and the financial capacity
to support these investments.

Compliance to future EU regulation for


new specifications and new biofuels

Potential move in ownership for refineries sales under discussion (2010)


Source: PFC Energy

Potential move in ownership for refineries sales under discussion

Kilo-tonne Sulphur per million tonne of refinery throughput

Current ownership (%)

Potential Shift (%)

50
44
40

36

35

33

30
20

20

16
12

10
4
0

Majors
National and Regional Players
Independent and Merchant Refiners
Extra-regional Players

51 I europia White Paper on EU Refining - May 2010

3. The European refining


industrys strategic
contribution to Europes
2020 objectives and beyond

52 I europia White Paper on EU Refining - May 2010

EUROPIA, and the European Refining


Industry is, and will continue to be, a
reliable partner to European legislators
and decision makers by constructively
implementing applicable EU legislation
and by appropriately cooperating with
the relevant EU institutions to devise
coherent future policies for Europe.
The refining sector has constantly
contributed to the development of
legislation (Emissions Trading System,
Energy Taxation Directive, Air Quality,
etc) and supported the need to strike

the right balance between the three


potentially conflicting objectives of
energy security, sustainability and
competitiveness.
EUROPIA wishes to contribute to the
definition of those new policies so that
they are defined in such a way that take
into account the specificities of our
industry, which, while being strategic
for Europe in many ways, has at the
same time a global reach and faces at
the moment a number of significant

challenges that seriously threaten our


continued viability in Europe.
In this respect, it should be of
the foremost importance that the
continued provision of secure, reliable
and affordable supplies of refined
oil products to the EU economy be
safeguarded by providing a coherent
European framework, which does not
widen European refiners competitive
gap compared to refineries based in
other parts of the world.

3.1. The EUs Strategy for growth for 2020 and beyond
requires reliable, affordable and
resource-efficient energy.
EUROPIA welcomes the efforts of the
European Commission to develop an
integrated vision for a stronger Europe.
If, as intended by the EU2020 strategy,
Europe is to emerge stronger out of the
crisis and remain an attractive industrial
location in 2020 and beyond, it is
crucial to develop a holistic vision which
guarantees the necessary coherence,
predictability and legal certainty for
companies to engage in the long
term investments needed to meet the
common challenges ahead.
In that respect, the European Refining
Industry, as a key contributor to
the competitiveness of the overall
European industrial fabric, has an
essential role to play.
Indeed energy resources are a
fundamental input for transportation,

manufacture of goods and supply of


light and heat throughout the whole of
the European Union and in our
everyday lives.
The strategic nature of energy resources
will thereby not diminish in the years
to come but rather it will be strongly
reinforced. A strong domestic refining
industry is a key asset to access the
increasingly sought-after crude oil
resource in an increasingly competitive
and resource-hungry global
environment, thereby supporting
energy security in Europe.
At a global level, if Europe is to maintain
its leadership position, we cannot afford
to weaken Europes Refining Industry.
Indeed, while energy resources can either
be produced from fossil fuels or from
renewables, the potential of renewables

For instance, the International Energy Agency indicates


that according to the, even in their 450ppm scenario
with global CO2-equivalent emissions stabilised in 2020
at their 2002 level, refined oil products will account for
80% of transport fuels in Europe by 2030.

26 

53 I europia White Paper on EU Refining - May 2010

is today and will continue to be in


the foreseeable future, a limited and
relatively expensive source due to
multiple technical, infrastructure and
financial constraints. As a result, it is
generally acknowledged26 that, even in
the most advanced scenarios, refined
oil products will still account for 80% of
transport fuels in Europe by 2030.
The European refining industry has
therefore a major role in the EU energy
landscape, present and future.
And, with its long-standing history of
reliability and major contribution to
European economical and social growth,
the EU refining industry wishes to be
an integral partner as well in devising
such an overall energy strategy for
Europe.

3.2. A healthy and competitive EU Refining Industry is a key


contributor to European citizens mobility and to Europes
industrial fabric.
A healthy and competitive domestic
EU Refining Industry is a key facilitator
of the mobility of goods and citizens that
lies at the heart of the single market and
borderless travel.
The EU-based Oil Refinery Industry
is a crucial element providing the
necessary security of supply needed
along the value chains.
In particular due to the refining sector
close integration to industries such
as petrochemicals, maintaining a
strong oil refining base in Europe is
key to guaranteeing economic value,
technology, innovation and employment
throughout the supply chain.
Further the European Refining
Industry underpins all main European
high technology sectors including
chemicals, plastics, automotive,
transport, logistics, consumer goods,
leisure, tourism, etc.
The European Refining Industry is not only
a reliable partner to the other European
industries along the supply chain but it is
also a high-performing partner.

27

A highly resource-efficient industry:


The EU Refining Industry is a highperforming partner and a highly resourceefficient industry which ensures optimum
use of finite natural crude oil resources,
thereby underpinning Europes drive
towards smart growth.
Thanks to continuing investments in
technology and research, and to a
culture of strong operational
performance, Europes refineries seek
to squeeze all the value possible out of
every drop of oil. They make ever more
advanced and clean products while
minimising emissions, contributing
to improving air quality and efforts to
mitigate Greenhouse Gas emissions.
Refined oil products, including specialty
products such as waxes, solvents,
bitumen and lubricants, are technology
intensive goods.
Research and Innovation, the key to the
future: The EU Refining Industry feels that
in an increasingly challenging environment
Europe needs to make more efforts to
make sure that companies are provided
the right framework conditions which
allow them to make the necessary

investments to stay ahead of


competitors, maintain their innovation
leadership and secure economic and
social prosperity.
If the European Union wants to meet its
ambitious EU2020 targets it should not
ignore but build on existing expertise
within the European industrial base.
In that respect the European Refining
Industry boasts worldwide leadership
and expertise in a wide number
of fields from energy-efficiency
technologies to expertise in extracting
all the value possible from every drop
of oil, every water resource we utilise,
and every energy molecule we recover.
Last but not least the European
Refining Industry is an essential player
in delivering the high-quality, clean fuels
needed to make broader environmental
objectives a reality in practice. Without
the know-how, expertise and massive
investment in research and development
of the European Refining Industry,
energy efficiency in transport and
other fields would not be possible.
The EU Refining Industry wishes to
work with the European institutions to
develop a forward-looking, coherent
and feasible transport policy, including
the development of alternative fuels.
However, ever increasing operational
energy efficiency and developing cleaner
products requires massive, technologyhungry investment and the support
of highly skilled engineers and trained
workers. And also the investments
in research and in our people, staff
and researchers, require sufficient
predictability and a degree of stability
and clarity into the future, in particular
regarding the legislative framework,
policy options and viable scenarios in
Europe for our industry.


Sustainability
as defined at 2005 World Summit and by the Bruntland Commission of the United Nations on March20,1987:
sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

54 I europia White Paper on EU Refining - May 2010

3.3. The Refining Industry is a major provider of skilled jobs,


know-how and fiscal revenue which are essential
to inclusive growth.
Tapping in our know-how potential:
The downstream oil industry is a
major employer in the EU, providing
employment to 600,000 Europeans, of
which 100,000 in refineries and 500,000
in logistics and marketing. Refining is
thus a major provider of qualified jobs in
a vast number of European regions all
throughout the European Union.

worker mobility and lifelong training.


Finally, the refining sector is a key
contributor to state revenue. The
oil refining and distribution industry
provides 240 billion a year in duties
and taxes from fuel sales in the EU.
We are a de facto major contributor
to state revenues, which make the
European social model a reality.

The vast majority of that employment


is highly specialised and includes
engineering and technical and highskilled experts. The European Refinery
Industry moreover invests massively in
the education and continuous training of
our staff. In this sense, as a high-tech,
skills dependant sector, we welcome and
support EU extensive efforts regarding

In that respect we feel that the European


institutions should apply due care and
strive to reach a balance when devising
future energy scenarios and manage any
energy landscape transitions also from
this particular point of view: social and
economical. Many millions of European
citizens rely now more than ever on
affordable energy options for their

everyday lives and jobs.


EUROPIA strongly emphasises the need
to thereby take into account the virtueous
circle of the three pillars of sustainability
which require the reconciliation of
environmental, social and economic
demands.
In this respect we firmly request
European institutions to consider that
those three pillars of the sustainability27
equation are not mutually exclusive,
and can be mutually reinforcing.
EUROPIA believes that attending to
Europe futures needs is not incompatible
but should build upon the due care to the
commitments of the present.

3.4. A coherent and realistic framework of policies


and regulation is key.
The European Refinery Industry needs
a coherent and realistic framework
of policies and regulation in order to
adequately plan any investments,
which might prove necessary to adapt
to the increasing decarbonisation
and to major shifts in demand for oil
products.
A level playing field - regulation, taxation
and pricing mechanisms will ensure that
choices between technologies and energy
sources including for refined oil products
are based on their own respective merit.
Ensuring an efficient single market
for energy: It is necessary to avoid
bottlenecks in the single market for
energy, which still today continue to
prevent an efficient functioning of the
internal market for energy thereby creating
hidden costs to the European economy
and undermining the
EUs global competitiveness.
Anchoring ambitious policy objectives
in the right framework conditions should
create the right conditions to encourage
and not impede the necessary
transformation towards smart,
sustainable and inclusive growth.

In this respect, with a view to the


2030 and 2050 horizon, the European
Refining Industry encourage EU
policymakers to acknowledge the role
that the Oil Refining Industry plays
and set realistic policy objectives. In
this context, the views referring to full
decarbonisation by 2050 are unrealistic
under the current circumstances and
knowledge.
Taking due consideration of the
EUs global position: From a global
perspective, the European Refining
Industry would like to stress the fact that
EU environmental legislation impacting
the refining industry is the most stringent
worldwide.
G
 enerally speaking the EU has
the most stringent environmental
legislation, followed by Japan, with the
US lagging behind in most categories.
While China and the US recognise the
threat of climate and change and the
need for action, they have not
yet taken any specific and
mandatory steps.
It is also worth noting that, contrary to
the EU policies, some countries such
as the US invest heavily in renewables

55 I europia White Paper on EU Refining - May 2010

development programmes, without


penalising energy sources based on
fossil fuels. Thus, they preserve their
security of supply while safeguarding
the competitiveness of their economies
at the same time.
A long term vision which takes due
consideration to the Refining Industry
long investment cycles: Long term
policy strategies are essential to set clear
objectives and milestones for policy
makers and businesses. A predictable
policy strategy favours long term plans
and encourages investments.
However, if policies provide guidelines,
the rules are set by legislation. Hence,
legislation has to reflect the spirit of the
policy strategy to avoid putting at risk
future industrial projects and investments.
EUROPIA encourages EU legislators
to take into account the reality and the
complex interactions between the global
and regional economic and political forces
at play as well as the fact that billion-euro
refinery investments are based on a 20- to
30-year horizon.
The future must be prepared without
jeopardizing the present needs and
economic values.

3.5. EUROPIAs request to the legislative debate for smart


regulation.
The Refining Industry looks forward to
cooperating with the EU institutions
to develop a common path forward.
EUROPIA strongly believes that adequate
cooperation can accelerate the shift
toward a more sustainable economic
model for the European Union. In that
respect, we believe that the following
principles should be ensured when
devising legislation affecting our sector:
1) Legislative proposals should
be based on comprehensive and
rigourous impact assessments.
Fully understanding the short, medium
and long term implications of any
legislative proposal will help the industry
to prepare for change. Understanding
the long-term implications of proposed
legislation, including implementation
measures at EU and national level, is
critical for an industry such as refining
which faces many uncertainties and a
global realignment.
2) Legislation should avoid
contradiction and duplication.
Legislation that is contradictory or that
duplicates other regulatory measures
increases the complexity and cost
of compliance. An example is the
current biofuels legislation where there
is overlap between two major related
pieces of legislation, the Renewable
Energy Directive (specifying the amount
of transport energy originating from

renewable sources, including biofuels)


and the Fuel Quality Directive (mandating
a 6% reduction in fuel carbon emissions).
To facilitate compliance, it would be best
to harmonise the relevant parts of the
two Directives to avoid situations where a
supplier might be in compliance with one
but not the other.
3) Legislation should have a sound
scientific basis.
Where possible, legislation should
take into account up-to-date scientific
knowledge.
4) Legislation should have clearly
established objectives.
Where possible, legislation should involve
measurable targets in order to facilitate
assessment by regulators and industry.
5) When pursuing environmental and
social objectives, legislation should
avoid undermining competitiveness.
Legislation should be proportionate to
the objectives set.
A stable and proportionate regulatory
framework is of utmost importance for
an investment intensive industry such
as the Refining Industry. In the past,
challenges similar to those the industry
faces today have resulted in large-scale
restructuring. To address the future
operating environment, it is crucial to
maintain the ability of EU refiners to
continue investing in Europe.

56 I europia White Paper on EU Refining - May 2010

The Refining Industry will invest in order


to continue operating as environmental
legislation tightens further. EUROPIA
also foresees the need to invest to add
capacity, for instance, in order to produce
required higher quality fuels. In that
respect too, a stable environment is vital
given the long investment cycles and the
size of investment required.
6) Legislation should be considered
within an international, competitive
context.
Legislation should take into account the
global competitive landscape in order
to avoid that producers willing to adopt
stringent or costly rules would be at an
economic disadvantage.
In that sense, each legislative measure
added in the EU without being replicated
elsewhere represents an incremental
operating cost for EU refiners, to
which those in other regions are not
exposed. Examples include the Industrial
Emmissions Directive (IED), EU Emissions
Trading Scheme (ETS), etc.
7) Newly favoured technologies and
energy sources should not be unfairly
subsidised.
The EU Refining Industry has benefited
from few subsidies or public finance
handouts compared to other energy
providers.

CONCLUSION
European Refining is a key industry to
enable the transition to a low carbon
economy.
Oil will continue to play an important
role in the EUs energy mix for the
foreseeable future, accounting for more
than a third of energy demand by 2030.
Whether oil products will continue to
be refined and processed in the EU is
therefore of strategic importance for the
EUs prosperity and security. A robust
domestic Refining Industry underpins
growth and competitiveness in the
EU. Despite a decrease in overall EU
oil demand, in 2030, 80% of transport
fuels will still be derived from oil.
Oil products are not only transport fuels:
Refining is also closely integrated with
petrochemicals, contributing major
value to the wider European economy,
extending to the wider EU industrial
chain. EU Refining is a significant
provider of highly skilled jobs, both
directly and indirectly, and is a key
contributor to Member States revenue
through taxation. Finally, EU Refining
is a responsible industry, continually
improving its environmental
performance both in its operations
and in its products.
The future of European Refining is
shaped by a complex and challenging
interplay of global and regional forces.
EU Refining is exposed to international
competition as it operates between two
global, open and transparent markets
for crude and products. The European

Refining Industry will also have to adapt


to decreasing demand and low utilisation
rates. Tax incentives and structural
trends in transport are also fuelling a
growing mismatch between refinery
production and demand. Diesel imports
from Russia and gasoline exports to the
USA are critical to rebalance EU demand
and supply. This has broad implications
for EUs energy security. Alleviating
this supply-demand imbalance
would require substantial long term
investment. Further dieselisation will
also result in higher CO2 emissions
in the EU. In addition, increased
competition from refiners in Russia,
Asia and the Middle East, together
with changing ownership of European
refineries are all modifying the EU refining
landscape. Current and planned EU
regulations also place a heavy burden
on EU Refining and often put it at a
competitive disadvantage with refiners in
Russia, Middle East and Asia.
The present regulatory framework could
force the decline of EU Refining beyond
the adaptation needed to declining
demand. If domestic production is
increasingly replaced with imports from
non EU countries, the EU will lose the
essential contribution that EU Refining
can offer to the Strategy for growth
for 2020 and beyond. Reliable and
affordable energy products and
raw materials, jobs, revenues, and
technology are essential elements
for a successful transition to a low
carbon economy.

57 I europia White Paper on EU Refining - May 2010

This is why the EU policy and


legislative framework should allow
the EU Refining Industry to sustain its
global competitiveness.
In view of this, policies and legislation
having an impact on refining should be:
Objective and based on factual
assessment, taking into account the
cumulative costs of regulation
Coherent and avoiding duplication or
contradiction
Technology-neutral, allowing
technologies to compete on their
own merits
Cost effective
EUROPIAs White Paper on EU Refining
is the industrys contribution to prepare
the debate on the EU energy future.
EUROPIA wishes to cooperate with
policy makers to devise the long term
policies and strategic analysis of the
energy sector for 2030-2050. Due to
its long investment cycles, the Refining
Industry can provide decisive input in
these important long term discussions.
EUROPIA looks forward to
cooperating actively with the
European Institutions to this
debate essential for the EU future.

ANNEXEs
annex 1. PFC Energy Global Scenario Description
annex 2. Refineries in the EU27 plus Norway and Switzerland
annex 3. Integration of Refining and Petrochemical Industries
annex 4. Examples of Technological Partnerships
with the EU Refining Industry
annex 5. North Sea Crude Production

annex 1. PFC Energy Global Scenario Description


The world economy grows at a rate of
2.2% annually on average during the
forecast period through 2025. In the next
few years, oil product demand is weak
due to global recession as well as impact
from the recent price hike.
Recovery from the current economic
downturn begins in 2010 for the US,
with Europe and Asia recovering more
slowly. Oil product demand also recovers
as the economy grows. However,
demand recovery is gradual as countries,
especially OECD countries, have adopted
regulations and technologies to improve
efficiencies during the past years of
rising oil prices coupled with energy and
environmental security concerns.

OPEC and other producing countries


continue to add capacity during this
time despite some project delays. With
capacity additions and slower demand
growth, spare capacity grows and
loosens supply constraints. This trend will
tend to dampen crude price spikes in the
medium term. Refiners also see a decline
in their margins as product spreads
narrow and utilisation rates remain low
due to soft demand.
Non-OPEC production starts reaching
peak production capabilities in the late
2010s. Despite growth in alternative fuels
supply and demand management efforts,
oil product demand growth outpaces
capacity additions by OPEC, resulting

58 I europia White Paper on EU Refining - May 2010

in spare capacity decline. As oil prices


with a concern for peak production
of OPEC, countries seek additional
measures to lower dependency on oil.
Alternative fuels continue to gain market
share and oil intensity continues to fall
with conservation measures. Oil demand
starts to decline in latter years and, as a
result, crude prices start to fall.

annex 2. Refineries in the EU-27 plus Norway and Switzerland


Source: PFC Energy

EU Rening capacity at end-2009

GERMANY
123,065 Kt/year
13 refineries

DENMARK
8,756 Kt/year
2 refineries

NORWAY
17,282 Kt/year
2 refineries

SWEDEN
21,590 Kt/year
3 refineries

FINLAND
13,244 Kt/year
2 refineries

NETHERLANDS
65,918 Kt/year
6 refineries

LITHUANIA
9,995 Kt/year
1 refinery

POLAND
24,688 Kt/year
2 refineries

UK
93,600 Kt/year
9 refineries

CZECH
REPUBLIC
8,298 Kt/year
2 refineries

IRELAND
3,548 Kt/year
1 refinery
SLOVAKIA
5.597Kt/year
1 refinery
BELGIUM
39,131 Kt/year
3 refineries

HUNGARY
8,096 Kt/year
1 refinery

PORTUGAL
15,203 Kt/year
2 refineries

ROMANIA
18,856 Kt/year
4 refineries

SPAIN
64,467 Kt/year
9 refineries

FRANCE
100,156 Kt/year
13 refineries

SWITZERLAND
6,147 Kt/year
2 refineries

AUSTRIA
10,190 Kt/year
1 refinery

ITALY
100,597 Kt/year
14 refineries

GREECE
20,990 Kt/year
4 refineries

BULGARIA
4,998 Kt/year
1 refinery

Source: PFC Energy


From WP version 21/04/2010 : Pg37, Annexes

59 I europia White Paper on EU Refining - May 2010

EU land-based oil pipelines


Source: CONCAWE, April 2003, revised in 2006
FINLAND

GULF OF
BOTHNIA

Shetland
Islands
Mongstad

Naantali

NORWAY

Flotta

Porvoo

GULF OF
FINLAND
Helsinki
Helsingfors

Oslo

SWEDEN

Slagen

Tallinn
Stockholm

8"

36"

SK

8"

24"

Fos sur Mer

La Muela

Savona
12"

Etang de
Berre

Puget S. Argens

12"

16"

0"

Grenoble
10"
Chivasso
Volpiano 20"
Sannazzarro

AUSTRIA
Wuermlach

AWP

Stozok

10"

Jedlicze

SLOVAKIA

10"

8"

20" & 28"

Tiszai

Bratislava
Eger
Komarom
Budapest
Gyor
Dunai
Szolnok
Szzhalombatta
Kecskemt
Zalai

Debrecen

HUNGARY

Arluno
Rho
&1

Turbigo
Trecate

Lacchiarella
Piacenza
Cremona

SLOVENIA

Visco
24"

Mantova

"

SPMR
16"/12"/10"

8"

Pamplona

Collombey
Etrembieres

20"

Miranda
"

24"

SWITZERLAND

8"

tro

12

Genve
St. Julien

32"

10"

Villette de Vienne

Lugos

8"

"
40

"
CEPS 12

Lyon
Feyzin

Bec dAmbes

Neustadt
Vohburg
Zistersdorf
Altheim
8"
St. Valentin
Mnchen
Wien
Steinhoering 12" Burghausen
16"
Schwechat

Bern

FRANCE

SEPL 24" & 40"

Parentis

Cressier

Ingolstadt

"

"

Cazaux

R,26

10"

Gorlice
Czechowice

CZECH REP.

TAL-IG,40

Guagnot

TAL-O

Pardubice

12"

Reichstett

8"

Pauillac

10"

10"
"

Trzebinia

Praha

Karlsruhe

Metz 16"

10

Litvnov
Kralupy

Oppau

18

Orleans

POLAND

Bhlen

Floersheim

18"

Ludwigshafen
Jockgrim

10"

Warszawa

Zeitz

28"

"
12

12"

Villeperdue
Grandpuits
20" Chaunoy

"

Roissy

Tours

Verdon

16

0"

14"

GERMANY
R2

Donges

Wesseling

LUXEMBURG
Luxembourg

10"

16"

12"

Leuna

Godorf

Geleen

RM

Paris
Coignieres
Orly
Chartres

12"

8"

Vigny

28"
20"

Gelsenkirchen

BELGIUM

TRAPIL 10"/12"/20"

Seefeld
Berlin
Misburg

16"

8"

"
20
"
14"

RP

"

Lingen
Wesel

Antwerpen Venlo

Brussel
Bruxelles

12"

Rouen
P. Couronne

20" 16

"R

RRP 36"

Feluy
12"

24

16

Hamburg

Schwedt

10

8"

8"

Gonfreville
P. Jerome
Gravenchon

Schipol

Rotterdam

24"

10"

Le Harve
Caen

BAY
OF
BISCAY

6"6"

Amsterdam
Europoort

8" Purfleet

EL

Vilnius

NW
O2
8"

NETHERLANDS

34"

10"

8"

Hamble Gatwick Staines


Flandres

Vern

LITHUANIA

Rostock

Brunsbttel

London
Thames Estuary

10"

CH A N N

Mazheikiai
Klaipeda

8"

22"

Wilhelmshaven

8.6"

"

10
12"+

16"

10"+6"

10" 10"

"

6"

8"

LISH

14"

London Airport

Fawley

ENG

10"

14"

Avonmouth
Wytch Farm

Heide

36"

Northampton

"

4"

10"

12"

10"

Immingham

Nottingham

12"

16"
6"

12

Pembroke

Kbenhavn

22"

10

Milford Haven

B A LT I C
S E A Butinge

Kalundborg

Killingholme
10"

12"

Stanlow 6.8"

LATVIA
Liepaja

Fredericia

12"

Uttoxeter
Wolverhampton
Birmingham

20"

N. Tees

Ventspils

KATTEGAT
6"

DENMARK

UNITED
KINGDOM

23"

14"

N O R T H
S E A

IRISH
Eastham
Dublin SEA
Partington
Baile tha Cliath
Tranmere 6.10" Manchester

Gteborg

Edinburgh

Belfast

IRELAND

RA

ER

AG

Grangemouth

"

20"
12"

Lysekil

Finnart

ESTONIA

Nynshamm

Cruden Bay

Inverness

Trieste

Pecs

Ljublijana

8"

Firenze

8"

ROMANIA
Cimpina

Pto. Marghera
Rovigo
Porto Tolle
16"Busalla Fiorenzuola
Sermide
Genoa 12" Arcola
Ostiglia
22"/12"
La Spezia
Calenzano
22"/26"

Livorno

Szeged

Ticleni

Falconara
Pleven

Monzalbarbe
Zaragoza 10"

8"

Gerona

Lerida

ITALY

10"

"

12
12"

Tarragona

Barcelona

Sofija

ADRIATIC
SEA

12"

Pantano di Grano
Civitavecchia
Roma
Fiumicino
16
Pomezia
"

BULGARIA

Varna
Burgas
Otman

Izmit

10

"

Castellon

Midia
Craiovie

Gaeta
Thessalonki

Valencia

Taranto
M. Alpi

20"

10

"

Alicante
Sarroch

TYRRHENIAN
SEA

Cartagena

ap Base, Lovell Johns Ltd, England. April 2003

M E D I T
E R R
A N
E A
N

GREECE

AEGEAN
SEA

Milazzo

Gela

Augusta

IONIAN
SEA

Priolo

Crude oil
Oil products

60 I europia White Paper on EU Refining - May 2010

Athinai

Aliaga

annex 3. Integration of Refining and Petrochemical Facilities


Industry as it serves as an outlet for
However, the petrochemical sector
Not only does the Refining Industry play a
excess light distillate not demanded
cannot exist without its feedstock link to
vital role in supplying the EU markets with
within the transport sector. In addition
the regions refining industry. For 2009,
critical transport fuels and oil products,
to oil products, the refineries also supply
it is estimated that over 77% of the EU
the industry also has a symbiotic
refinery-grade propylene (RGP) for
petrochemical feed was provided from
relationship with another significant
further processing within petrochemical
refinery-supplied products. In order
contributor to the local economies,
complexes to produce chemical- and
to produce its most basic chemicals,
the petrochemical sector. According
polymer-grade propylene.
ethylene and propylene, the sector
to CEFIC, the European Chemical
consumes a wide range of refineryIndustry Council, the EU region in 2007
The two industries are interdependent to
sourced inputs. The spectrum of
accounted for nearly 30% of global
an extent. This is based upon logistical
feeds ranges from off-gases to heavier
chemical sales of 1,820 billion, and was
links, with many products difficult to
products such as vacuum gasoil. Given
second only to the Asia Pacific region.
transport, making the exchange of
the high consumption of middle distillates
Of these sales, nearly 45% accounted for
products economically and commercially
within the transport sector, the regions
base chemicals, or petrochemicals and
viable over short distances only.
petrochemical feed slate is heavily
their respective derivatives; as a result,
weighted towards the lighter end of the
this sector represents 241 billion in
Betweenin Reneries
and Petrochemical
AsPlants
the industry gives, it also receives;
2009, it is estimated
that
sales and employs anFeedstock
estimated Exchangespectrum;
the petrochemical sector routinely
over two-thirds of the cracker feed was
778,000 people, both of which are
sells back products that add value
naphtha with 83% of the feed being
sizable contributors of value to the
to refinery, such as hydrogen (used for
naphtha or lighter. This consumption
EU-27 economies.
desulphurisation), low sulphur fuel oil
of naphtha is crucial for the Refining

Feedstock Exchange BeTWeen rEfineries and Petrochemical plants


Source: CEFIC European Chemical Industry Council

Feedstocks supplied 77%


Off gases and LPG
Propylene
Naphtha
VGO, Gasoil and Fuel Oil

Petrochemical products

Petrochemical
Plants

Refineries

Key product returns


Hydrogen
Low sulfur fuel oil
Raffinate

61 I europia White Paper on EU Refining - May 2010

Ethylene
Propylene
Butadiene
Benzene
Toluene
Xylene

To manufacturing
and other industry

high sulphur streams to meet MARPOL


standards; lastly, raffinate is a stream that
can readily be blended into a refiners
gasoline pool. Other products are also
Renery / Steam
Cracker
the EU
transferred
between
theSites
two in
industries;
depending on the configurations of

and raffinate (used for gasoline blending).


Hydrogen is used for desulphurisation
and hydrocracking of heavy fuels which
is needed to meet the Euro sulphur
specifications; low sulphur fuel oil is
beneficial in that it can be blended with

the integrated refinery/petrochemical


complexes, aromatic concentrate can
be transferred from one to the other to
produce benzene, toluene and xylenes.

Refinery / Steam Cracker Sites in the EU


Renery / Steam Cracker Sites in the EU

Source: PFC Energy

Notes:

Renery Location

Renery Location

Steam Cracker
Location
Steam Cracker
Location
Integrated
Renery
/ Steam
Cracker
Location
Integrated
Renery
/ Steam
Cracker
Location

Notes:
reneries
in total
9898
reneries
in total
steam
crackers
5858
steam
crackers
in totalin total
4141
directly
integrated
reneryrenery
steam crackers
in total
directly
integrated
steam crackers
in total

From WP version 21/04/2010 : Pg39, Annexes

From WP version 21/04/2010 : Pg39, Annexes

N.B. With a threshold of 50bbl/d or 2.5 mt/y, 111 reneries in total is incorrect.
Europia anounces 98 reneries in total in (EU) = EU-27+NO+CH

N.B. With a threshold of 50bbl/d or 2.5 mt/y, 111 reneries in total is incorrect.
Europia anounces 98 reneries in total in (EU) = EU-27+NO+CH

Given the interdependency, many of the


EU petrochemical complexes are located
at or near many refining complexes.
Out of 58 installed steam crackers
(fundamental petrochemical unit), 41 of
them are integrated with refiners at an
average distance of 2 kilometers away.
Even the non-integrated remaining
crackers are relatively close at an average

distance of 148 kilometers to nearby


refineries. This close proximity gives rise
to many synergies, such as product
pipeline interconnectivity, shared ports
and common utility services. Pipelines
ease the transfer of bulk product and
significantly reduce transport costs;
these connections promote long-term
relationships between refiners and

62 I europia White Paper on EU Refining - May 2010

petrochemical operators. Shared ports


and common utility services can also
lead to cost reductions.
Thus, the integration between the refining
and petrochemical sectors results in
logistical and operating cost advantages
for both of the sectors.

Renery Sites in the EU

Refinery Sites in the EU


Source: PFC Energy

Renery Location

Notes:
98 reneries in total
Multiple reneries at some locations

Steam Cracker Sites in the EU

From WP version 21/04/2010 : Pg39, Annexes


N.B. With a threshold of 50bbl/d or 2.5 mt/y, 111 reneries in total is incorrect.
Europia anounces 98 reneries in total in (EU) = EU-27+NO+CH

Integrated Renery / Steam Cracker Sites in the EU

Steam Cracker Sites in the EU


Renery Location

Renery // Steam
Cracker
Sites in the EU Sites in the
Notes:
IntegratedIntegrated
Refinery
Steam
Cracker
EU
98 reneries in total

Source: PFC Energy

Multiple reneries at some locations


From WP version 21/04/2010 : Pg39, Annexes
N.B. With a threshold of 50bbl/d or 2.5 mt/y, 111 reneries in total is incorrect.
Europia anounces 98 reneries in total in (EU) = EU-27+NO+CH

Integrated Renery / Steam Cracker Location


Integrated Renery / Steam Cracker Location

Notes:
Notes:
41 41
directly
renery
steam
crackers
directlyintegrated
integrated renery
steam
crackers
in totalin total
Multiple
sites
some
locations
Multiple
sitesintegrated
integrated atat
some
locations
Geographicalproximity
proximity ofof
other
sites
that that
are not
Geographical
other
sites
are not
directly
integrated facilitates
delivery
of feedstock
directly
integrated
facilitates
delivery
of feedstock

Steam Cracker location

Steam Cracker location

Notes: Notes:
58 steam
crackers
in total
58
steam
crackers in total
Multiple steam crackers at some locations

From WP version 21/04/2010 : Pg39, Annexes

From WP version 21/04/2010 :


Multiple steam crackers at some locations
N.B. With a threshold of 50bbl/d or 2.5 mt/y, 111 reneries in total is incorrect.

From WP version 21/04/2010 : Pg40, Annexes

From WP version 21/04/2010 : Pg40, Annexes

N.B. With a threshold of 50bbl/d or 2.5 mt/y, 111 reneries in total is incorrect.
Europia anounces 98 reneries in total in (EU) = EU-27+NO+CH

N.B. With a threshold of 50bbl/d or 2.5 mt/y, 111 reneries in total is incorrect.
Europia anounces 98 reneries in total in (EU) = EU-27+NO+CH

63 I europia White Paper on EU Refining - May 2010

Europia anounces 98
reneries
total in (EU) of
= EU-27+NO+CH
N.B.
With ain threshold
50bbl/d or 2.5

mt/y, 111 rener


Europia anounces 98 reneries in total in

EU-27 Installed Steam Cracking Capacity Source: PFC Energy


Country

Crackers

Capacity (KTA)

Country

Crackers

Capacity (KTA)

Austria

500

Netherlands

3980

Belgium

2490

Poland

700

Bulgaria

400

Portugal

415

Czech Republic

520

Romania

450

Finland

380

Slovakia

210

France

3385

Spain

1570

Germany

14

5755

Sweden

625

Hungary

620

UK

2840

Italy

2170

58

27010

Total EU-27

EU-27 Steam Crakers in Operation Source: PFC Energy


Country

Crackers

Capacity (KTA)

Austria

500

Belgium

Bulgaria
Czech Republic
Finland
France

Crackers

Capacity (KTA)

Netherlands

3980

2490

Poland

700

150

Portugal

415

520

Romania

380

Slovakia

210

3135

Spain

1570

Germany

14

5755

Sweden

625

Hungary

620

Italy

1925

UK
Total EU-27

2840

53

25815

EU-27 Cracker Demographics Source: PFCEnergy

EU-27 Cracker Demographics Source: PFC Energy


Refinery Integration

Country

Number

Type

Number

Capacity (KTA)

Yes

41

Gas*

1530

No

17

Liquids

51

24285

Total EU-27

58

Total EU-27

53

25815

64 I europia White Paper on EU Refining - May 2010

2009 Estimated Steam Cracker Feedslate (KT) Source: PFC Energy


Country

Ethane/Propane

Condensate

Naphtha

VGO & Heavier

Austria

Belgium

95

418

754

1204

3840

Bulgaria

27

96

30

Czech Republic

Finland

91

600

541

241

706

France

Germany

1122

5293

408

64

1381

9563

2123

Hungary

651

371

436

Italy
Netherlands

30

3469

803

4436

180

4484

220

Poland

389

1036

Portugal

736

Romania

Slovakia

93

455

Spain

358

2954

386

Sweden

Refinery Off-Gas

LPG

71

54

896

UK

1713

11

593

1929

168

Total EU-27

1713

4436

267

6833

37183

5116

2009 Estimate of Refinery Transfers To Steam Crakers (KT) Source: PFC Energy
Country

Refinery Off-Gas

RGP

LPG

Naphata

VGO & Heavier

Austria

90

418

754

Belgium

95

213

1204

3840

Bulgaria

27

96

30

Czech Republic

45

91

600

541

Finland

73

241

706

France
Germany

502

898

3367

237

64

615

1171

7845

2123

Hungary

77

Italy

363

30

2255

652

Netherlands

208

180

1502

220

Poland

82

389

1036

Portugal

736

Romania

Slovakia

93

455

Spain

351

358

2954

386

Sweden

71

46

54

896

UK

11

598

593

1929

168

267

3269

5748

28971

4358

Total EU-27

65 I europia White Paper on EU Refining - May 2010

2009 Estimate of Upstream Transfers To


Steam Crackers (KT) Source: PFC Energy
Country

2009 Estimate of Remaining Feedstock


Supplied (KT) Source: PFC Energy

Ethane

Propane

Condensate

Austria

Belgium

Bulgaria

Czech Republic

Finland

France
Germany

LPG

Naphtha

VGO & Heavier

Austria

Belgium

Bulgaria

Czech Republic

Finland

France

224

1926

171

Germany

210

1718

Hungary

Hungary

651

371

436

Italy

Italy

1214

151

Netherlands

4436

Netherlands

2982

Poland

Poland

Portugal

Portugal

Romania

Romania

Slovakia

Slovakia

Spain

Spain

Sweden

Country

Sweden

UK

1173

540

UK

Total EU-27

1173

540

4436

1085

8211

758

Total EU-27

2009 Estimate of Craker Product RetuRns To


Refineries (KT) Source: PFC Energy
Country

Hydrogen

LS Fuel Oil

Raffinate

Austria

16

28

52

Belgium

74

124

231

Bulgaria

Czech Republic

15

60

61

Finland

13

25

39

France

89

229

308

Germany

168

594

640

Hungary

19

88

73

Italy

53

206

218

122

260

434

Poland

20

33

66

Portugal

10

18

35

Romania

Netherlands

Slovakia

13

25

Spain

48

141

177

Sweden

17

23

47

UK

116

81

202

Total EU-27

790

1931

2616

66 I europia White Paper on EU Refining - May 2010

annex 4. E
 xamples of Technological Partnerships with
the EU Refining Industry
research and development is only
possible due to the access permitted via
the refining partners to the large scale
industrial facilities, enabling realistic
testing of developed processes. Once
this new technology, which could play
a key role in reducing CO2 emissions
from industrial installations, is tested
in this context, it can be more easily

The European CO2 Technology Centre


at Mongstad, in Norway, is an example
of this. Partners Statoil, Gassnova
and Shell Norway are in the process
of constructing the center, which will
develop processes for the capture of
CO2 emissions from the nearby refinery
and power plant. Although primarily
government funded, the new technology

deployed all over the world. Ensuring


the continuing strength of the European
Refining Industry is thus crucial for the
promotion of R&D and new technology
development.

annex 5. North Sea Crude Production


production in the period to 2030.
By 2030, daily production will be
approximately one sixth of production
levels in 2000.

PFC Energys global liquid supply


forecasts indicates that even with
exploration, the most likely scenario is
for an exponential decrease in crude

North Sea Crude Production


Source: PFC Energys Global Liquid Supply Forecast

North Sea Crude Production


7,000

Production (1000,b/d)

6,000
5,000
4,000
3,000
2,000
1,000
0
2000

2005

2010

2015

2020

2025

2030

Source: PFC Energys Global Liquid Supply Forecast

67 I europia White Paper on EU Refining - May 2010

Glossary
Commonly used terms and definitions.

Geographical Terms:




EU Refers to European Union 27 countries plus Norway plus Switzerland


EU 27 Refers to European Union 27 countries
Europe Refers to all European countries
SECA Sulphur Emission Controlled Area
ECA Emissions Controlled Area

Refining Terms:
Refinery Crude oil refinery with processing capacity in excess of 2.5 million tonnes / year.
Atmospheric distillation The process by which crude oil is distilled. The process separates gases, naphtha, kerosene and gasoil
from the crude oil. The remaining part of the crude oil (atmospheric residue) is sent to the vacuum distillation unit to be distilled
further. The unit in which this process takes place is called an atmospheric distillation unit or topping unit.
Vacuum distillation Vacuum distillation separates atmospheric residue into vacuum gasoil (VGO) which is a feedstock for cracking
units (FCC and hydrocracker) and vacuum residue which is either a feedstock for deep conversion units such as a coker or can be
used as fuel oil. The unit in which this process takes place is called a vacuum distillation unit or topping unit.
Deep conversion Conversion of atmospheric or vacuum residue into light products.
Coking Coking is a deep conversion process by which residue is converted into coker gasoil and coke. This process involves
breaking long hydrocarbon chains into shorter ones. The unit in which this process takes place is called a coker.
Cracking Process by which the long hydrocarbon chains present in heavy streams are broken down into the shorter chains of light
products. The refining and petrochemical industries use cracking processes for conversion purposes.
Hydrocracking Hydrocracking involves breaking hydrocarbon chains into shorter chains in the presence of heat,
a catalyst and hydrogen. This results in the production of low sulphur naphtha, kerosene and gasoil.
The unit in which this process takes place is called a hydrocracker.
FCC Fluid catalytic cracking is the most common type of cracking to produce gasoline in which the catalyst behaves like a fluid.
The unit in which this process takes place is called an FCC.
Thermal cracking Thermal cracking involves breaking hydrocarbon chains into shorter chains in the presence of heat.
The unit in which this process takes place is called a thermocracker.
Reforming A refining process that converts straight run heavy naphtha with a low octane number (40 - 60) into high octane
(commonly from 95 to over 100) reformate for use as gasoline.
Hydrotreating Hydrotreating is the process by which sulphur is removed from oil products.
A hydrotreating unit is the unit where the process takes place.
Refinery complexity Measures the ability of a refinery to convert heavy products into lighter products
or to improve the quality of products.
Hydroskimming refinery A simple refinery consisting of an atmospheric distillation tower and reforming and hydrotreating capacity.
Cracking refinery A refinery comprising a configuration including a cracking unit (FCC, hydrocracker or thermocracker).
This type of refinery is more complex than the hydroskimming refinery.

Product and Fuel Terms:


Feedstock Raw material fed into a refining / petrochemical unit for processing.
Alternative fuels Fuels derived from a feedstock other than crude oil. Includes biofuels and gas-based fuels such as compressed
natural gas (CNG) and liqufied natural gas (LNG).
Octane The measurement of the tendency of gasoline to self ignite.
Cetane The measurement of the tendency of diesel to self ignite.

68 I europia White Paper on EU Refining - May 2010

table of illustrations
European primary energy demand.................................................................................................................page 15
Global refining capacity at end 2009..............................................................................................................page 16
Feedstock exchange between refineries and petrochemical plants................................................................page 18
Refined products from EU refineries and their uses........................................................................................page 19
Historical refinery investment cost in EU-25 ..................................................................................................page 20
Gasoline desulphurisation capacity in the EU.................................................................................................page 21
Distillate desulphurisation capacity in the EU..................................................................................................page 21
EU refineries energy intensity index................................................................................................................page 22
Average personal incident statistics relating to the EU Downstream Oil Industry.............................................page 22
SO2 emissions in relation to refinery output....................................................................................................page 23
Quality of refinery water effluent.....................................................................................................................page 23
Emissions reductions of main pollutants from new cars with reference to 1995 levels....................................page 24
EU road diesel sulphur specifications.............................................................................................................page 25
EU heating gasoil sulphur specifications........................................................................................................page 25
EU refining operates between two open markets...........................................................................................page 27
EU refined product demand...........................................................................................................................page 29
EU refined product demand consumption growth..........................................................................................page 30
Margin outlook NEW gross margin for FCC cracking Brent.........................................................................page 30
Impact of external shocks on European refining capacity...............................................................................page 31
Evolution of dieselisation of passenger cars in the EU-27...............................................................................page 32
Evolution of product demand in the EU..........................................................................................................page 33
Structure of EU product demand vs structure of refinery productions............................................................page 34
Europes increasing demand for diesel contributes to increased refining industrial CO2 emissions..................page 34
Gasoil trade flows from/to Europe 2009.........................................................................................................page 35
Gasoline trade flows from/to Europe 2009.....................................................................................................page 35
FCC and Hydrocracking capacity in European refineries................................................................................page 36
US product demand......................................................................................................................................page 37
US gasoline demand.....................................................................................................................................page 37
US Renewable Fuel Standard original EISA mandate..................................................................................page 38
US Renewable Fuel Standard PFC expected..............................................................................................page 38
Transport energy mix EU-27..........................................................................................................................page 39
Transport energy mix United States...............................................................................................................page 39
EU crude import quality.................................................................................................................................page 41
Change in net crude flows into Europe 2010-20............................................................................................page 42
Key crude logistics Russian and Caspian....................................................................................................page 43
EU refining industry incremental GHG emissions............................................................................................page 44
Emissions controlled areas (ECAs) in the EU..................................................................................................page 46
Global marine fuel sulphur specifications.......................................................................................................page 47
Marine fuel consumption in the EU................................................................................................................page 47
Global marine fuel consumption.....................................................................................................................page 48
Bulk of global capacity additions will be in the Middle-East and Asia..............................................................page 49
Russian export duty system...........................................................................................................................page 50
Potential move in ownership for refineries sales under discussion (2010).......................................................page 51
Annexes:
Refineries in the EU-27 plus Norway and Switzerland....................................................................................page 59
EU land-based oil pipelines............................................................................................................................page 60
Feedstock exchange between refineries and petrochemical plants................................................................page 61
Refinery / steam cracker sites in the EU.........................................................................................................page 62
Refinery sites in the EU..................................................................................................................................page 63
Integrated refinery / steam cracker sites in the EU.........................................................................................page 63
EU-27 installed steam cracking capacity.......................................................................................................page 64
EU-27 steam crackers in operation................................................................................................................page 64
EU-27 crackers demographics......................................................................................................................page 64
2009 estimated steam cracker feedslate.......................................................................................................page 65
2009 estimate of refinery transfers to steam crackers....................................................................................page 65
2009 estimate of upstream transfers to steam crackers.................................................................................page 66
2009 estimate of remaining feedstock supplied.............................................................................................page 66
2009 estimate of cracker product returns to refineries...................................................................................page 66
North Sea crude production..........................................................................................................................page 67

69 I europia White Paper on EU Refining - May 2010

70 I europia White Paper on EU Refining - May 2010

71 I europia White Paper on EU Refining - May 2010

Editor : Isabelle Muller

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