Examining the cost burden imposed on European refining by EU legislation

Transcription

1 ENVIRONMENTAL SCIENCE FOR THE EUROPEAN REFINING INDUSTRY Examining the cost burden imposed on European refining by EU legislation Platts European Middle Distillates Conference Antwerp, Belgium Alan Reid Science Executive, Concawe 20th January 2015

2 Outline Introduction to Concawe EU Refining Costs: Historical perspective Additional costs burden to 2020: Estimated impact of EU legislative measures Conclusions 2

3 CONservation of Clean Air and Water In Europe Concawe was established in 1963 to conduct research on environmental issues relevant to the European petroleum refining, distribution and marketing industry Objectives: To acquire adequate scientific, economic, technical, and legal information on HSE issues To communicate the findings in order to improve understanding of these issues by the industry, authorities, and consumers Operating principles: Sound science Cost-effectiveness of options Transparency of results Our research reports are available at 3

4 Membership of the Association 42 members, representing ~100% of European refining capacity Open to companies owning refining capacity in the EU 4

5 Outline Introduction to Concawe EU Refining Costs: Historical perspective Additional costs burden to 2020: Estimated impact of EU legislative measures Conclusions 5

6 Comparative study of EU refining versus other regions: Solomon Associates is a US-based consultant to the global refining industry, specialising in performance benchmarking Refiners all over the world participate in the Solomon survey every two years Each refinery completes a questionnaire providing an extensive set of operating data Each participating company is presented with the confidential results showing: Relative position of its own refineries compared to anonymised aggregates of refineries in the region, and in other world regions Many different performance indicators (margins, energy efficiency, personnel costs, maintenance costs, etc.) Concawe requested Solomon Associates to supply historic data comparing performance indicators of EU refineries against other world regions over period 6

7 Comparative study of EU refining costs versus other regions: Performance Indicators: Gross Margin (GM =Value of products Cost of feedstocks) Cash Operating Costs (OPEX) Energy costs Personnel costs Other cash costs (e.g. maintenance material, insurance, catalysts,..) Net Cash Margin (NCM = GM OPEX) Regions: EU-28 (EU-27 + Croatia) US East Coast and Gulf Coast Middle East Russia (only 2008, 2010, 2012) Korea/Singapore India (only 2010, 2012) 7

8 Indexed Gross Margin Gross Margin (GM) Gross Margin in US $/bbl for all regions indexed relative to 100 in Year 2000 Source: Solomon Associates EU-28 Korea/Singapore Middle East US Gulf Coast US East Coast Growing demand (esp. China) improves GM until Financial Crisis in

9 Indexed Cash OPEX Cash Operating Expenses (OPEX) 400 Cash OPEX in US $/bbl for all regions indexed relative to 100 in Year 2000 Source: Solomon Associates [VALUE] EU-28 Korea/Singapore Middle East US Gulf Coast US East Coast From 2008, operating costs in the US fall relative to other regions EU-28 operating costs more than 300% over the period US operating costs only 34% 9

10 Indexed Energy Cost OPEX Energy Cost 600 OPEX Energy Cost in US $/bbl for all regions indexed relative to 100 in Year 2000 Source: Solomon Associates [VALUE] EU-28 Korea/Singapore Middle East US Gulf Coast US East Coast EU-28 energy costs by a factor of 3.8, reaching 63% of total cash OPEX in 2012 (vs. 52% in 2000) US energy costs by 26% over the same period reaching 28% of total cash OPEX in 2012 (vs. 53% in 2000) 10

11 Indexed Net Cash Margin Net Cash Margin (= GM OPEX) Net Cash Margin in US $/bbl for all regions indexed relative to 100 in Year 2000 Source: Solomon Associates [VALUE] [VALUE] EU-28 Korea/Singapore Middle East US Gulf Coast US East Coast EU-28 refining is trailing behind in terms of improvement in Net Cash Margin US refining has gained a significant competitive advantage, with Net Cash Margin improving by a factor of 2.22 over the period 11

12 Outline Introduction to Concawe EU Refining Costs: Historical perspective Additional costs burden to 2020: Estimated impact of EU legislative measures Conclusions 12

13 Concawe report no. 11/14, Dec

14 EU Emissions Trading Scheme (EU ETS) costs EU ETS Phase III runs from 2013 to 2020 Emission allowances are distributed by auction in this period Refining is among the sectors qualifying for free allowances, based on a sectoral benchmark Cross-sectoral correction factor (CSCF) cuts the total free allocation over period by 11.6% (about 95 Mt) EU refining will receive about 67% of its baseline emissions as free allowances in 2013, reducing to 58% in 2020 (instead of about 71% without the CSCF) About 60 Mt allowances to be purchased by EU refineries in 2020 CO2 price in 2020 Estimated cost to EU refiners (purchase of CO2 allowances) Low High /t G /a $/bbl EU refining emissions assumed to remain constant at 144 Mt/a CO 2 14

15 Industrial Emissions Directive (IED) costs The IED sets emission limit values on the effluents of industrial installations to air and water Compliance with the range of Associated Emission Levels (AELs) achievable with the Best Available Techniques (hence BAT-AELs) is required by October 2018 Many refineries will need to invest: Electrostatic precipitators, Wet gas scrubbers, Super Claus, Selective Catalytic Reduction,. Water Framework Directive may lead to additional water effluent treatment measures, over and above the IED requirements. Cost scenario in 2020 Low High Emissions to air (SO2, NOX and dust only) Estimated cost (capital and operating cost) Emissions to water Estimated cost (capital and operating cost) Total estimated cost to EU refiners G /a $/bbl M /a $/bbl not estimated G /a $/bbl

16 REACH legislation costs Significant additional burden on product suppliers into the EU market Development of methodologies required for the assessment of UVCBs * and in the preparation of the registration dossiers Registration fees Total of these costs incurred for all EU refineries estimated at 130 M Potential costs for additional testing estimated at 50 M On-going costs of about 50 M /a for additional admin personnel. Cumulative once-off costs Capital charge M M /a On-going cost M /a Total estimated cost to EU refiners M /a 77 $/bbl 0.02 * UVCB: Substance of Unknown or Variable composition, Complex reaction products or Biological materials 16

17 Sulphur in Liquid Fuels Directive (Marine Fuels) costs Concawe 2013 study estimated the costs of EU refining investments required to meet reduced Marine Fuels %S limits 10 G for the ECA 0.1% S limit in G for the 0.5% S limit, assuming all non-eca bunker fuel sold in the EU meets that specification in 2020 Refiners also face a sizeable extra energy bill as well as carbon costs Uncertainties on timing of the IMO 0.5% global limit and alternative abatement measures for ships (scrubbers, LNG, etc.) Some compensating incremental revenue from higher value refined products but very difficult to predict % of non-eca EU bunker 0.5% S Estimated cumulative investment Capital charge Estimated additional operating costs Total estimated cost to EU refiners G G /a G /a Low (50%) High: 100% G /a $/bbl

18 Renewable Energy Directive (RED) costs RED forces the introduction of biofuels and renewables into transport fuels Ethanol displaces refined gasoline from the demand pool Refiners respond by reducing crude throughput by about 45 Mt/a to reduce production of refined gasoline Cost impact on refining can be estimated as a loss of margin due to reduced throughput Calculation uses notional average EU refining net margin of 3 $/bbl (NOT to be taken as representative of current or historic margins) Total estimated cost to EU refiners (2020) G /a 0.70 $/bbl

19 Estimated cost to EU refiners ($/bbl) Estimated cost to EU refiners ($/bbl) Cumulative cost impact of EU legislation in Low cost scenario High cost scenario Baseline opex ETS IED REACH RED SLFD (MFD) Baseline opex ETS IED REACH RED SLFD (MFD) The cumulative cost of meeting all these legislative challenges in 2020 is in the region of $/bbl (including annualised investment costs)

20 Outline Introduction to Concawe EU Refining Costs: Historical perspective Additional costs burden to 2020: Estimated impact of EU legislative measures Conclusions 20

21 Conclusions Operating costs are not expected to improve by 2020 Energy costs are not expected to benefit from the US shale gas boom until US LNG export terminals are operational EU legislation will impact EU refineries costs Investment costs for new equipment Increased Operating costs: process energy, hydrogen, additional treatment chemicals and catalysts Uncertainties could make it difficult to economically justify additional refining investments Competitiveness of EU refineries will continue to be under pressure 21

22 For More Information Our technical reports are available at no cost to all interested parties Concawe Website: Thank you for your attention Any questions? Picture: ExxonMobil 22