Struggling EU refiners are already worried that moves to make them pay for carbon emission credits from Jan. 1, 2013 will put them at an operational cost disadvantage to refineries outside the EU. Refiners say the proposals will lead to “carbon leakage” as customers switch to imports of gasoline, diesel and jet from refineries in regions with no carbon emissions restraints, driving EU refiners out of business. But there are also concerns that foreign-owned refineries in the EU will be able to cut their carbon costs by importing semi-finished products from their refineries overseas that they can then finish off locally.
Europe’s refiners have been struggling with poor margins, shrinking demand and increasing competition for years, so few were surprised when the threat of rising carbon costs triggered an attempt by Italy to limit cheap imports of refined products such as gasoline and diesel from refiners outside the EU.
According to a draft decree, government authorisation will be required for any imports of finished petrol products from outside the EU from Jan. 1, 2013. Authorisation for foreign operators will depend on whether their plants meet EU environmental, health and worker safety standards. But analysts are sceptical that the measure will succeed, seeing the possibility of a challenge via the World Trade Organization.
Italy is particularly vulnerable because of its large number of coastal refineries, which make it easier for imported refined products to compete for business. Smaller, less complex refineries in the UK, Spain and France are also seen as vulnerable, with Ripert citing France’s high wage costs and fairly elderly fleet.
New refining capacity coming onstream in Asia and the Middle East over the next two years will increase the import pressure on European refiners, and reduce the markets for their own products. JBC Energy's statistics show some 1,697,000 barrels per day (bpd) of new capacity coming onstream in 2013, of which some 1,160,000 bpd is in Asia. In 2014, the global new capacity figure leaps to 2,389,000 bpd, with 1,077,000 bpd in Asia and 817,000 bpd in the Middle East.
One sliver of hope for European refiners is that the cost of carbon may not be as onerous as originally anticipated. Price has fallen to about 6-8 euros per tonne of CO2 equivalent, down from about 29 euros per tonne in mid-2008.
Source: EMP Weekly Market Review