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Challenges facing European refining today

Due to excess global capacity, shifting fuel demand patterns, high costs and a regulatory burden comprising numerous laws at a local, national, and EU level, the European refining industry today is not globally competitive.

EU regulatory impact for operating cost

These challenges include:

Excess global capacity: Globally, the refining industry has experienced a number of region-specific trends. The U.S., previously an importer of excess European gasoline, is moving toward a more balanced situation. There is also increasing export capacity in the Middle East, Russia and Asia.

Shifting demand patterns: Favorable excise taxation has encouraged consumers and businesses to consume increasing levels of diesel rather than gasoline. This imbalance is a challenge for European refineries, as they must significantly invest to adjust production capacity, driving up CO2 emissions and costs.

High costs: In the U.S., the shale gas revolution has led to low feedstock costs for U.S. refiners as well as low energy costs, which are about half of those of EU refiners. Energy costs make up around 55 per cent of European refineries’ total operating costs.

Regulatory burden: ExxonMobil is committed to the highest standards of environmentally responsible and safe operation. However, the cost of complying with overly burdensome EU and national policies forces refineries to divert capital from research and development and the investment necessary to adapt to demand profiles. EU legislation added an additional USD $0.50 to the cost of every barrel produced in the past. Regulatory cost will have an even greater impact in the future: between 2010 and 2020 it will add an additional USD $2.50 to $4.00 per barrel to operating cost.

These challenging circumstances have led to increasing rationalization pressure: 15 refineries shut down between 2008 and 2013 in the EU, and in 2014 EU refineries saw record-low utilization.