PARIS, Mar. 14 -- The European Union should provide its refining companies with "a globally competitive level playing field" to help them face the "important" challenges of the next years and make the needed investments, said Panos E. Cavoulacos, president of the 17-member refining trade group Europia. He spoke at the ninth annual meeting of the European Fuels Conference held in Paris Mar. 11-12 and organized by the World Refining Association and The Energy Exchange Ltd.
Of special concern for Europia are the EU's environmental and energy policies which are not being matched by any other region in the world. They are increasing constraints and uncertainties and are creating "unequal cost burdens for our industry," insisted Cavoulacos.
Stable policies needed
"We need a stable and predictable policy framework that does not expose the European refining industry to unfair competition and supports long-term investments," he said, adding that EU policies "impact heavily on our industry and profitability."
These policies include cutting greenhouse gas emissions (GHG) by 20% of 1990 levels by 2020, possibly by 30% as urged by the current Slovenian EU presidency in a recent draft statement. The policies also require that 20% renewables be used for power production and 10% biofuels be incorporated in transport fuels by 2020.
Central to the EU's climate change efforts is an emissions-trading scheme under which auctioning of CO2 emissions permits will become compulsory by 2013. Full auctioning, points out Europia, at €30/tonne of CO2 will substantially narrow refining margins and may cause imports to increase if CO2 costs exceed freight costs to the EU.
Europia also warned that, while cleaner fuels help engine technologies improve air quality, their production emits more CO2 so that market demand and cleaner fuels imply that European refineries will emit morenot lessCO2.
Europia further warns that the Integrated Pollution Prevention Control will render industrial operations more costly "with negligible additional human health benefits.
The fuel quality directive, which aims to regulate GHG emissions from liquid road fuels and proposes a target of 1%/year reduction during 2010-20, will impose new constraints on products, fears Cavoulacos, who believes that in the 2020 time frame, the only way to lower GHG emissions is by increasing biofuels content.
An additional concern is the global marine fuel specifications proposals, which he says are not sufficiently well-targeted to achieve public health benefits at a reasonable cost.
These unequal cost burdens create hurdles for vital investments that the EU refining industry must make to remain globally competitive, Cavoulacos added. Refining investments are escalating worldwide, and strong diesel demand and the decline of gasoline in Europe are increasing trade flows of diesel into Europe and gasoline to the US.
Major refining investment is taking place in the Middle East, India, and China, where capacity could exceed demand in 2012. This will lead to competing gasoline exports to the US and jet fuel and diesel into Europe. At the same time there is an emphasis on distillation capacity investments and upgrading worldwide, the former to reach nearly 240 million tonnes/year over 2007-12 and the latter to exceed 75 million tonnes/year within the same period.
There also are diesel and kerosine hydrotreating capacity investments during 2007-12 which will reach 120 million tonnes/year. All of which means that "conversion capacity investment will be significantly higher outside Europe," cautioned Cavoulacos.
Europia also is concerned about the evolving refining landscape in Europe as independents, Russian majors, and petrochemical players arrive on the scene.
To meet these challenges, Europia is asking the EU to follow "predictable policies that do not introduce unequal cost burdens" that would prevent investment decisions in European refining.
Europia is willing, but must also be able, to continue supporting economic growth and energy security in Europe in an environmentally responsible way and to remain a partner in addressing the sustainability challenge, concluded Cavoulacos.
Europia represents the majority of downstream companies in Europe that cover 80% of the EU refining capacity: BP PLC, Cepsa, Chevron Corp., ConocoPhillips, Eni SPA, ExxonMobil Corp., Hellenic Petroleum, MOL Rt., OMV AG, Galp Energia, PKN Orien, Repsol YPF SA, Saras, Royal Dutch Shell PLC, StatoilHydro, and Total SA.