Global Competition & the Role for Europe s Refineries & Fuels. John Cooper, Director General

Transcription

1 Global Competition & the Role for Europe s Refineries & Fuels John Cooper, Director General Warszawa, 31 March 2016

2 John Cooper, FuelsEurope: Global Competition & the Role for Europe s Refineries & Fuels About FuelsEurope EU Refining challenges EU Regulation overview Fitness Check & High Level Group of Energy Intensive Industries Competitiveness Getting a complete picture Addressing Climate Change & EU ETS Reform Transport Decarbonisation Conclusions Page 2

3 John Cooper, FuelsEurope: Global Competition & the Role for Europe s Refineries & Fuels FuelsEurope represents 41 Member Companies 100% of EU Refining

4 John Cooper, FuelsEurope: Global Competition & the Role for Europe s Refineries & Fuels FuelsEurope represents the voice of the downstream sector of the EU oil industry Crude exploration Crude production Transport Refining Transport Marketing Upstream Downstream Page 4

5 John Cooper, FuelsEurope: IMPORTANCE Global Competition AND CHALLENGES & the Role OF for OIL Europe s REFINING Refineries IN EUROPE & Fuels The challenges faced by EU refineries 15 European Refineries closed in (1) source: Commission Refining Fitness Check, 2015 Page 5

6 John Cooper, FuelsEurope: IMPORTANCE Global Competition AND CHALLENGES & the Role OF for OIL Europe s REFINING Refineries IN EUROPE & Fuels EU Policies create additional competitive pressure for EU Refining Policies that affect product demand: Alternatives to oil either mandated or subsidised bio fuels/electricity (RED - Renewable Energy Directive, FQD - Fuel Quality Directive) Taxation has favoured diesel use over gasoline (ETD - Energy Taxation Directive) Policies that affect EU refining cost: Carbon pricing: with partial protection from partial free allowances. The EU ETS Reform will further reduce the competitiveness of EU energy intensive industries Energy prices (electricity) are impacted by subsidies/mandates to renewables Policies that affect refiners investments: Ambitious new Industrial Emissions standards. (Industrial Emissions Directive) Marine fuel sulphur limits go beyond IMO standards. (Sulphur Content of Marine Fuels Directive) Page 6

7 John Cooper, FuelsEurope: Global Competition & the Role for Europe s Refineries & Fuels Refining Competitiveness support from EU institutions Refining Forum 6th EU Refining Forum took place on the 1st March 2016, Brussels High-Level speakers: Commissioner Arias Canete, DG Dominique Ristori, MEP Gardini, Dutch Presidency, Mayor of Thessaloniki, CEO of Hellenic Petroleum & CEPSA, 19 Member States (including Poland) Key topics: social and economic benefits of the refining industry, challenges ahead including post Paris COP 21, Refining competitiveness vs international players, ETS and carbon leakage Next EU Refining Forum confirmed for Autumn 2016 European Commission High-Level Group on Competitiveness An initiative launched by Commissioner Bienkowska early 2015 as a forum to discuss challenges to the Energy Intensive Industries FuelsEurope selected as a member High-Level Conference on Energy-Intensive Industries took place on 15 February 2016 Speakers: VP Katainen, Commissioner Bienkowska, Vazil Hudak Minister of Economy of Slovakia, Henk Kamp Minister of Economic Affairs of the Netherelands, Philippe Sauquet, President TOTAL & Alessandro Gilotti, CEO Raffineria di Milazzo Page 7

8 John Cooper, FuelsEurope: Global Competition & the Role for Europe s Refineries & Fuels EU Refining Fitness Check key conclusions Refinery was chosen as the first industrial sector for a sectorial Fitness Check. Study recognized the importance of EU refinery for economy and security of supply (0.9% of GDP, 1.3 million jobs, etc.). The average cumulative cost of the different pieces of legislation reduced by 25% the competitiveness of the sector in terms of the decline in the observed net margin. 0,47 / barrel The quantifiable regulatory cost impact resulting from EU regulations ( ) was 0,47 /barrel. This is a significant amount considering that in the last 5 years the average refining gross margin ranged between 0 and 4 /barrel. Recognition that significant additional regulatory costs are coming post 2012 (ETS, REF BREF, ). FuelsEurope, as well as several Member States representatives attending the Refinery Forum on 15th June 2015, recommended keeping the Fitness Check updated as a living document and using it Check in any future impact assessment of legislative proposals affecting the refining sector. Page 8

9 Estimated cost to EU refiners ($/bbl) Estimated cost to EU refiners ($/bbl) John Cooper, FuelsEurope: Global Competition & the Role for Europe s Refineries & Fuels A look at the future: cumulative cost impact of EU legislation in Low cost scenario Competitive disadvantage for EU refineries High cost scenario Baseline opex 6.0 ETS * IED REACH RED SLFD Baseline ETS * IED REACH RED SLFD (MFD) opex (MFD) The cumulative competitive disadvantage can be estimated in the range of $/bbl * - For EU ETS, low cost scenario assumes 16.5 /t CO₂, high cost scenario 30 /t CO ₂ Source: Concawe, The estimated forward cost of EU legislation for the EU refining industry Page 9

10 John Cooper, FuelsEurope: IMPORTANCE Global Competition AND CHALLENGES & the Role OF for OIL Europe s REFINING Refineries IN EUROPE & Fuels Relocation of EU refining capacity is a lose-lose proposition 1. A LOSS FOR THE EU ECONOMY 2. A LOSS FOR ENVIRONMENT Every 100 units of CO₂ emissions reduced in the EU are replaced by 135 units outside the EU* 3. A LOSS FOR SECURITY OF SUPPLY *Source: Vivid Economics for UK DECC Case study on Refining - Carbon leakage prospects under Phase III of the EU ETS and beyond Page 10

11 John Cooper, FuelsEurope: Global Competition & the Role for Europe s Refineries & Fuels Cost build-up for EU refineries vs non-eu export oriented refineries Generic EU refinery, 200 kbd 1.7 $ / bbl IED 1.45 ETS (2) 0.27 EU-only Regulatory cost 4.1 $ / bbl 1.2 Generic Middle-East refinery, 250 kbd $ / bbl of crude 2014 COMPETITIVE DISADVANTAGE 1.3 $ / bbl 2.0 Energy (3) Energy (3) Maintenance Maintenance 2.8 $ / bbl & Other & Other Labour Labour Product freight to EU (1) NOTE: (1) Product freight to EU - $/bbl of product delivered to the EU (2) ETS estimated average impact on EU refineries in phase IV (3) Energy costs for purchased energy only - Assumed identical crude cost Crude cost Crude cost Source: Solomon Associates, Concawe Page 11

12 John Cooper, FuelsEurope: Global Competition & the Role for Europe s Refineries & Fuels FuelsEurope recognizes that climate change is a global challenge, requiring global solutions Page 12

13 John Cooper, FuelsEurope: Global Competition & the Role for Europe s Refineries & Fuels Expected evolution of ETS cost for EU refineries from phase II to phase IV (1) Source: Concawe, based on Linear Reduction Factor 1.74% per year & impact of CSCF, assuming total EU refining throughput at 650Mt/y (2) Source: Concawe, based on the 15 th July 2015 COM proposal for ETS revision Linear Factor 2.2% per year é estimated impact of CSCF, assuming EU refining throughput at 600 Mt/y, 0.5% yearly improvement in carbon efficiency and cost of ETS certificate at 30 /ton (3) Note that in Phase II surplus allowances to the estimated value of 750 M were allocated (source: JRC draft refining fitness check report) Source: Concawe & WoodMackenzie Page 13

14 Investment cost in bln $ Capacity additions (mb/d) Investments in global refining industry: jobs and growth are going elsewhere Investment Distillation capacity additions Middle East China Other Asia Latin America Africa US & Canada Russia & Caspian Europe Jamnagar refinery, India Expansion - for Export - underway from 1.3 Mbpd to 1.8 Mbpd (=13% of EU refining capacity) Source: OPEC, World Oil Outlook 2014 Page 14

15 Cost in $/Tonne Carbon mitigated or reduced John Cooper, FuelsEurope: GLOBAL Global AND Competition EU ENERGY & the Role CHALLENGES for Europe s & Refineries TRANSPORT & Fuels ISSUES Indicative Carbon Costs in Transport & Power Sector $500+ Transport Power range Focus of transport energy GHG policies range Bar width indicates scope of decarbonisation available Focus of Power Generation GHG policies A true market in GHG reduction would support the next lowest cost technologies Focus of vehicle efficiency policies $80 $20 * Economy-wide carbon price Efficiency Fuel switching in power Renewables in power Reforestation* CCS* 1 st Gen Advanced Biofuels Transport Electrification * Carbon sequestration will increase the available carbon budget Page 6

16 GLOBAL AND EU ENERGY CHALLENGES & TRANSPORT ISSUES Conclusions European refineries compete in a highly competitive global market for refined petroleum products High costs for energy & regulatory compliance create a significant cost disadvantage versus export-oriented refineries outside of EU Energy costs are expected to continue to be the biggest element of international competitive disadvantage ETS costs will rise as a result of Phase IV adding to the competitive disadvantage, and necessitating full carbon leakage protection Ambitious regulatory targets for EU refiners create the need for effective carbon leakage measures to prevent an increase in global emissions and the relocation of EU industry and jobs We should keep Europe s fuels and other strategic oil products refined in the EU Transport decarbonisation strategies should take consideration of cost of carbon abatement and offer flexibility to avoid highest cost approaches Page 16

17 THANK YOU FOR YOUR ATTENTION This document was presented by John Cooper Contact: FuelsEurope 165, Boulevard du Souverain 1160 Brussels - Belgium T: