What is the impact of changing patterns in energy markets on EU competitiveness? A refining industry perspective Energy transition: A multifaceted Challenge for Europe 1 st Symposium, Brussels, 30 April 2014 Baudouin Kelecom, ExxonMobil
Europe Energy Demand and Supply By Sector Quadrillion BTUs By Fuel Quadrillion BTUs Res/Comm Industrial Other Renewables Biomass Nuclear Coal Electricity Generation Gas Transportation Oil ExxonMobil 2014 Outlook for Energy 1
Europe Energy-Related CO 2 Emissions By Sector Quadrillion BTUs By Fuel Billion Tonnes Res/Comm Industrial Coal Electricity Generation Gas Transportation Liquids ExxonMobil 2014 Outlook for Energy 2
Refining Converts Oil Into Many Products Refining: Link between crude oil production and products demand LPG / Propane Chemicals feed Gasoline Refinery Aviation fuels Crude Oil Input Gasoline Diesel Fuel oil Source: U.S. Department of Labor ExxonMobil 2014 Outlook for Energy Diesel Refinery Lubes/Other Wax/Asphalt
Refining Converts Oil Into Many Products Refining: Link between crude oil production and products demand LPG / Propane Chemicals feed Gasoline Aviation fuels Crude Oil Input Gasoline Diesel Fuel oil Source: U.S. Department of Labor ExxonMobil 2014 Outlook for Energy Diesel Refinery Lubes/Other Wax/Asphalt
US industry has a competitive advantage $/MBtu 10 Purchased Natural Gas Prices EU US 5 $11 $9 $9 70% 60% 50% 40% 0 2008 2012 average prices from Nymex, ICE $3 Energy cost as % of total cash cost EU 30% 20% US 3) IEA s 2013 Medium-Term Oil Market Report 5 10% 0% 2000 2002 2004 2006 2008 2010 2012 Source: Concawe study based on Solomon Associates data for industry averages Western Europe, United States
Changing supply patterns for EU Refining MBD 2 Europe Net Exports / (Imports) 2012 Dieselization of demand 1 0 Growing regional supply / demand imbalance MBD (1) Gasoline Diesel Europe Capacity and Utilization New-build export capacities in Middle East / Far East 17 90% 16 Utilization 85% Excess global refining capacity 15 14 Capacity 2013 80% 75% Leading to record low utilization of European refineries 13 '85 '90 '95 '00 '05 '10 70% Source: PIRA 6
Cumulative impact of EU regulations crude recovery crude transportation crude refining to products product storage & transportation retail site Refinery Margin $/bbl World Wide Crude Prices $/bbl EU and country regulations: e.g.: EU Emission Trading System (ETS) Fuel Quality Directive Art 7A (FQD) Industrial Emissions Directive(IED) Sulphur in marine fuels Directive and more World Wide Fuels Prices $/bbl 7
Mitigation Options and Costs ($/Ton) vs. Existing Light Duty Vehicles 1 st Gen Ethanol PHVs Fuel Cells vs. New Coal Start-Stop Hybrids Existing Gas Full Hybrids Gas CNG Wind 2 nd Gen Ethanol Nuclear Gas + CCS Coal + CCS Solar Thermal Solar PV Conv. Engine Improvements U.S. Cost of CO2 Avoidance Source: JEC (2007), CARB (March 2009), EIA AEO; wind analysis based on IHS-CERA 8
Regulatory Policies Drive High-Cost Mitigation ($/Ton) vs. Existing Light Duty Vehicles vs. New Coal Low Carbon Fuel Standard, renewables, infrastructure mandates CNG 1 st Gen Ethanol PHVs Fuel Cells Full Hybrids 2 nd Gen Ethanol Solar PV Start-Stop Hybrids Existing Gas Gas Wind Nuclear Gas + CCS Coal + CCS Solar Thermal Conv. Engine Improvements Renewable Portfolio Standard U.S. Cost of CO2 Avoidance Source: JEC (2007), CARB (March 2009), EIA AEO; wind analysis based on IHS-CERA 9
Policymakers can help sustain EU competitiveness Encourage market conditions that provide European industry with access to energy and feedstock at a competitive cost. Access can be made possible through LNG exports from the US and indigenous gas exploration in the EU. Energy policies should be transparent, predictable and based on cost/benefit analysis allow market prices and open competition to determine the solutions and investments necessary to achieve societal goals at lowest cost. promote consistent energy taxation proportional to energy content. EU should guarantee a level-playing field amongst cost effective technologies. EU should encourage the setting of a common, predictable carbon price across the economy. 10
Summary Oil will remain essential for European economies for the foreseeable future. The refining industry is an essential and integrated part of many other European industries. EU prices are twice as high for electricity and three times higher for Gas compared to the US. Europe s regulatory environment is having a cumulative impact on industry competitiveness. EU policy makers can help sustain European competitiveness through transparent, predictable and market based policies. 11