Stringent European Union environmental regulations continue to pose a challenge to refineries in the region, according to delegates at an EU refining forum in Brussels.
The forum, which started in 2012 and is chaired by the EU, aims to examine excessive legislation and its impact on the refining industry.
While the EU recognizes the importance of the refining sector, its drive to lowering carbon emissions remains fully in force.
"The European Union will stick to its commitment to a low carbon economy," was the message by European Commissioner for climate action and energy Miguel Arias Canete, who added that "clean energy transition is here to stay," and that the refinery sector "must adapt to decarbonization."
IMPACT ON REFINERIES
But refiners appealed to EU policy makers to implement a "broader and more rational approach" and to "have regulation aligned with the rest of the world," as Cepsa CEO Pedro Miro Roig said.
The very strict environmental regulations in Spain have resulted in the idling of Cepsa's Tenerife refinery three years ago, and the plant is unlikely to restart, Miro Roig said. The EU regulations are also posing "a heavy burden" for Cepsa's two operating refineries in Spain, adding $2/barrel to the cost "to comply with the regulations."
"We can't focus on short-term policies and strategies," Miro Roig said.
The EU legislation has reduced competitiveness of the refining sector by 25%, according to the "fitness check" published by the European Commission, reminded Jaime Martin Juez, Repsol's director of technology and sustainability. He also noted that products with carbon cost embedded in them are imported in Europe without any checks.
The so-called fitness check looked at the impact of EU legislation on costs and productivity in the refining sector over the period 2000-12 and was finally published by the European Commission after much delay in 2015.
Delegates at the current forum asked for the fitness check to be updated with the impact of the post-2012 legislation.
Delegates also suggested that the next meetings of the forum should address the challenges posed by the new IMO sulfur cap to be enforced in 2020.
The global implementation of the sulfur cap on marine fuels "is a major concern," said John Cooper, director general of FuelsEurope, adding that the level of compliance globally will be critical.
Meanwhile, increasing the competitiveness of European refineries "is critical for our future," said Repsol's Martin Juez.
Declining demand for products "will involve further refinery closures," Cepsa's CEO warned.
After closing five refineries, Italy still has an excess of production capacity and faces problems of competition, said an Italian delegate.
In order to adapt to changes of demand, European refineries will require "significant investments" but investors need to "have confidence in the future of the industry," Cepsa's CEO said.
While ExxonMobil is committed to its investments in upgrades at its Rotterdam and Antwerp refineries, it said it needs "support to provide solutions to the challenges we face." "We need transparent, predictable EU energy policy -- market-based," said ExxonMobil's Janet June Matsushita.
Meanwhile, any risks to the European refineries could have repercussions to the closely linked petrochemical sector.
More than 55% of the feedstock of the petchems industry comes from refineries, so "any risk to our refineries means risk to survival to our petchems industry," Miro Roig said.
Among other challenges to European refiners is the expected rising share of alternative and renewables fuels, such as electrical cars, natural gas, LPG and biofuels. The EU has an ambition to "become world number one in renewables," said Commissioner Canete.
Yet delegates noted some constraints and weaknesses.
While electrical cars are becoming more popular, storing electricity remains a challenge even though technology is "advancing rapidly," Laszlo Varro, chief economist of the International Energy Agency, said. He also noted that the integration of electricity cars into the electricity network needs "to be managed carefully," and that based on current policy assumptions they are unlikely to have a significant impact on the oil industry in the next 15 years.Meanwhile FuelsEurope's Cooper pointed to the fact that electrical vehicles also have CO2 emissions embedded in their manufacturing and that regulations should "consider the carbon life cycle throughout the vehicle manufacturing, energy production and recycling."
"There is no such thing as zero emission vehicle," said Cooper.
FuelsEurope expects that smaller passenger cars in Europe will be shifting to gasoline rather than diesel, while the IEA expects that overall passenger cars will be consuming less oil at the expense of electrical cars and biofuels.
OIL PRODUCT DEMAND TO REMAIN DOMINANT
On a more positive note for many delegates, data presented at the forum suggests that demand for oil products will remain predominant in the EU and by 2030 will still represent 86-87% of European transport sector needs, down from 94% today. Oil also represents around 34% of the inland energy consumption in Europe, according to EU data.
Hence maintaining a "solid refining sector in Europe" is crucial, and "we can't see all this industry relocated," said Dominique Ristori, director general for Energy at the commission.
As a way of improving conditions, the EU is looking at reducing the differences in the costs of energy -- gas, electricity -- between refineries within the EU. "Some refineries pay four-five times more [than others]," said Canete, adding "We should be able to reduce these differences."
But energy costs can reach up to 60% of the operational costs for European refiners, said Canete, adding that they face higher energy costs compared to their competitors.
And while refinery closures have slowed down since the 2011-14 peak, competitive pressures "remain high," Canete said.http://www.platts.com/latest-news/oil/brussels/feature-strict-eu-regulations-remain-burden-for-26656482