Europe’s #Green Energy Mix Competitiveness in the Refining Sector

The UN Climate Change Conference (COP-23) opened in Bonn on November 6. The event’s agenda is focused on the EU climate program implementation performance assessment and the issues of the energy transit long-term finance. The Paris Agreement was adopted two years ago at the COP-21 meeting providing for the gradual reduction of C02 emissions. More than 170 countries, including all the EU members, signed the Agreement and accepted the obligations related to the green energy mix transition.

Some improvements have been made since then. In 2016 EU CO2 emissions fell at 2, 55% (0,47% in 2015). European power sector emissions decreased at 4%. Despite the positive results achieved, it’s too early to talk about the adoption of the optimal energy policy that would cater to the needs of all the stakeholders and the EU population.

Greenhouse gas emissions limitation momentum gathering along with the MEPs carbon trading scheme limitation, providing for 2,2% annual emission cap cutting, may in a short term negatively influence EU energy security and decrease competitiveness of the EU refineries.

Today, the EU has 85 operational refineries in 22 Member States, offering 100 000 working places. Union’s refinery industry owns a 15% global share, being the world's second largest producer of petroleum products after the United States. Nevertheless, around 90% of the crude oil for the EU energy mix is being imported.

European refinery sector faces strong challenges nowadays, including the need to ensure the EU refineries competitiveness considering the construction of new refining capacities in non-OPEC countries; adherence to the ECs renewable energy directive with regard to the bio-fuels sustainability criteria, and meeting the new carbon trading scheme requirements.

According to the Fuels Europe Director General, “the key concept about ETS is that it is a cost imposed on European refiners, but it is not imposed on refiners outside of Europe who supply their product to Europe. What we say to the regulator is: please don’t make us uncompetitive, by putting high costs on us, because we cannot pass those costs to the customer.

Another point that we make is that the European refineries have some of the lowest emissions in CO2, because they already invested a lot in efficiency. If Europe imports its products from refineries outside, the total CO2 emissions is higher, but those emissions are outside European regulation. What we say is: it makes sense for Europe to keep its products made in Europe, made under European regulation, that’s good for European business, and it’s good for the environment, because it has the lowest emissions.”

Taking into the account the goals set by the European Energy Security Strategy – increase of energy production in the EU and diversifying supplier countries and routes – European refining sector is given with limited adaptation prospects. Therefore large European refinery market players increased their investments in renewables. For example, LUKOIL operates such facilities in Bulgaria and Romania.

Another option here is the decarbonization and the development of cogeneration projects. Europe’s largest Rotterdam port that allocates 5 refineries within its industrial cluster and supplies a number of European refineries with petrochemicals: LUKOIL capacities in Vlissingen, Total refinery in Antwerpen (Netherlands), Shell plant in Gondorf and BP/Rosneft objects in Gelsenkirchen sets up an example.

Its refinery cluster decarbonization plans were introduced lately, including the residual heat usage for 16 000 households heating; CCS; Power-to-hydrogen and other related projects.

Port’s decarbonization investment roadmap in scheduled until 2050 and directly connected with further promotion of internal competition within the refinery sector in the EU and transparent ETS policies.

Considering the fact that decarbonization projects of the refining sector are highly time-dependent, way more efficient path to sustain sectoral efficiency along with the European economic and energy security would be the continued diversifying of supplies and related infrastructure.

The EU imports most of its crude oil from Russia, Norway and Nigeria. Thus, the diversification of Europe’s energy suppliers, including the oil vendors both from OPEC and non-OPEC countries may secure refining sector’s employment rate and competitiveness in short- and mid-term periods due to the, at least, logistic infrastructure. Such an approach significantly contributes the achievement of European Energy Security Strategy and also is fully in line with the Paris climate agreement regulations.

It would also allow for a sustainable energy transition in Europe and exclude the need for the EU refining capacities modernization accelerated investment raising.

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