European Energy Union Impact on the Refining & Petrochemical Business John Cooper, Director General Budapest, 13th October 2015
FuelsEurope represents 42 Member Companies 100% of EU Refining Page 2
AGENDA Imports, shutdowns and investments EU Refineries: competitive analysis Energy Union Conclusions Page 3
John Cooper, IMPORTANCE FuelsEurope AND CHALLENGES CEE & Turkey Refining OF OIL and REFINING Petrochemicals IN EUROPE 2015 Refinery shut downs in EU and import trend Gasoil/diesel import to EU 28 - [th tons/y] 15 European Refineries closed in 2008-2014 50,000 40,000 30,000 20,000 10,000 0 2008 2009 2010 2011 2012 2013 TOT import of which Russia USA India Middle East Source: IEA Jamnagar refinery, India Expansion - for Export - underway from 1.3 Mbpd to 1.8 Mbpd (=13% of EU refining capacity) Page 4
Investment cost in bln $ Capacity additions (mb/d) Investments in global refining industry: jobs and growth are going elsewhere John Cooper, FuelsEurope CEE & Turkey Refining and Petrochemicals 2015 60 50 2.3 55 2.1 50 Investment Distillation capacity additions 2.5 2 40 30 1.3 35 1.1 40 1.5 20 10 0.6 21 0.4 12 0.3 18 0.2 12 1 0.5 0 Middle East China Other Asia Latin America Africa US & Canada Russia & Caspian Europe 0 Source: OPEC, World Oil Outlook 2014 Page 5
EU refineries at competitive disadvantage vs non-eu export oriented refineries Generic EU refinery, 200 kbd Generic Middle-East refinery, 250 kbd $ / bbl of crude 1.74$ / bbl EU-only Regulatory 7.2 $ / bbl IED 1.45 ETS**0.27 REACH 0.02 4.5 Energy NOTE: *Product freight to EU - $ / bbl of product delivered to the EU **ETS estimated av. impact on EU refineries in phase IV - Assumed identical crude cost 1.1 Maintenance & Other 1.6 Labour Crude cost COMPETITIVE DISADVANTAGE 4.4 $ / bbl 0.7 0.5 Energy Maintenance 1.6 & Other Labour Crude cost 2.0 Product freight to EU* 2.8 $ / bbl Source: Solomon Associates, Concawe Page 6
EU refineries at competitive disadvantage vs non-eu export oriented refineries Unit: $/bbl 16 PRODUCTION COSTS Crude oil Labour Maintenance & other Energy Regulation 14 12 IED ETS REACH 1.74 10 8 6 4 2 0 2.0 Product freight to Europe 0.7 0.5 1.6 1.74* * 1.5 1.7 2.1 *3.76 $/bbl Difference WTI - Brent Middle East US Russia EU 2.1 0.8 0.9 4.5 1.1 1.6 Refinery assumptions: - EU generic refinery 200 kbd; - Middle East/Russia/US generic 250 kbd *Crude assumptions: - ME, EU, Russia identical crude cost; - US - same crude cost less WTI-Brent difference (average 2004-2014) ** Estimate of US compliance costs Source: Solomon Associates, Concawe, EIA Page 7
Expected evolution of ETS cost for EU refineries from phase II to phase IV Source: Concawe & WoodMackenzie (1) Source: Concawe, based on Linear Reduction Factor 1.74% per year & impact of CSCF, assuming total EU refining trouhgput 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) Page 8
Thousands Tonnes of CO2 John Cooper, FuelsEurope CEE & Turkey Refining and Petrochemicals 2015 Market share of fuels and impact on global GHG emissions 100% INCREASING RELIANCE ON IMPORTED FUELS TO SATISFY EU DEMAND... Domestic 13% Imported 19% 80% 87% Share of fuels produced under EU ETS 81% 200 180 160 140 120 100 80 60% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 RESULTS IN INCREASING GLOBAL GHG EMISSIONS 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 22% 20% 18% 16% 14% 12% 10% CO2 emissions from production in EU refineries % of CO2 emissions from Imports CO2 emissions from imports (production outside the EU) Source: Eurostat & Concawe Page 9
Energy Union an incomplete package? The Energy Union Communication: Highlights the importance of open and free energy markets, but Misses an essential focus on how this will deliver competitive energy thus fostering growth with the ultimate objective of reversing the decline in industrial value creation in Europe; Lacks recognition of the continued need and role of petroleum products in the EU economy; Dismisses petroleum products and refining as involving old technologies implying the use of low skilled labour, while the reality is exactly the opposite; Does not provide any information on the transition steps towards low carbon economy. A balanced and economically realistic pathway needs to be developed, which would provide a clear and consistent steps to bridge the gap between the vision laid out and the current reality of energy use
EU Refining Competitiveness and Impact of Regulation - 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 The increasing product import flow to the EU effectively means that refinery GHG emissions are being exported outside of ETS carbon leakage Moreover, the non-eu refineries exporting to EU are likely to have relatively higher GHG emissions, causing a net increase in global emissions Current regulatory proposals for ETS Phase IV and Industrial Emissions will further increase the cost burden on EU refiners 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 Page 11
This document was presented by FuelsEurope Contact: John.Cooper@fuelseurope.eu FuelsEurope 165, Boulevard du Souverain 1160 Brussels - Belgium T: +32 2 566 91 00 www.fuelseurope.eu