EU Science Hub

Publication of sectoral fitness check for the petroleum refining sector

Jan 18 2016

An evaluation carried out by the European Commission of the impact of ten pieces of the most relevant EU legislation on petroleum refining shows that the legislation has delivered its objectives at the sectoral level and that the costs can be considered proportionate relative to the benefits achieved, although at an estimated total cost to the sector equivalent to 47 eurocents per barrel of processed input during the study period.

For the purpose of comparison, this total additional cost corresponds to 25% of the total net loss of competitiveness of the sector in terms of the relative decline in the observed net margin in the period 2002-2012, according to the European Commission “fitness check” on the sector. It is part of a larger Regulatory Fitness and Performance programme (REFIT) aimed at evaluating whether current legislative measures are fit for purpose. The findings are based on a report by the Joint Research Centre, the European Commission's in-house science service, evaluating the impact on the petroleum refining sector of ten pieces of the most relevant EU legislation drawn from the policy fields of environment, climate action, taxation and energy.

The identified cost impact of regulation on refineries primarily implies the diversion of some revenues towards regulatory compliance investments and operating costs rather than towards other investments and operational adjustments to improve competitiveness. The more efficient refineries have been able to absorb these costs and remain profitable, but this has not been the case for some of the others.

According to the analyses in the report, a number of other factors also had an influence on the economic performance of the EU refining sector, some of which are plant specific, while others are external. In absolute terms, EU energy costs per barrel processed have increased almost fourfold over 2000-2012, while they have doubled on average in competitor regions. The observed relative loss of EU refineries' competitiveness is mostly attributed to the relative increase in energy prices and the corresponding increase in refineries' operating costs.

Compared to the net margins observed in the main competitor regions, which on average increased over 2000 to 2012, the average EU margin remained stable, hence exhibiting a relative decline of USD 2.1 per barrel in this period. This trend is taken as an indication of a relative loss of competitiveness as it puts pressure on the investment possibilities of the European refining sector.