Despite the current boom in refining margins in Europe, further closures remain on the cards once the price of crude oil rises and more capacity comes onstream elsewhere, delegates said at an EU refining forum in Brussels.
The EU refining industry will also continue to face the challenges of the transition to low carbon economy and higher regulation and costs than elsewhere in the world.
Since 2008, 2 million b/d of refining capacity has been closed in Europe, but "that will likely continue," EU commissioner Arias Canete told the sixth meeting of the forum Tuesday.
The forum, which started in 2012 and is chaired by the EU, aims to examine excessive legislation and its impact on the refining industry.
The EU will aim to streamline its policy framework which was "too complex" in the past, Canete said, but added that the drive toward a low- carbon economy would continue and funding would be increased for low carbon innovations.
But countering the drive toward lower-carbon transportation, European Parliament member Elisabetta Gardini said that if refineries in Europe were closed, production, and hence emissions, would rise elsewhere where environmental regulations were less stringent. "It's the EU with the most rigorous rules," she said.
Increased switching to biofuels and alternative energy products will continue to undermine the economics of EU refiners.
"We will have less consumption of our products in the future, that means less refining capacity," said Cepsa CEO Pedro Miro Roig, who appealed to the commission to come up with a plan for rationalizing the sector.
MORE EXPANSION
While last year was exceptional in terms of margins, participants pointed to challenges which lie ahead.
"Last year was unconventional for European refiners," when they increased runs for the first time in 10 years, oil market analyst from the International Energy Agency Kristine Petrossyan said.
But the recent crude price drop was driven by supply, unlike the 2008-09 demand-driven decline of crude oil, Petrossyan said, adding that if supply started to fall that will reverse the price drops.
Last year refining capacity growth was matched by demand growth, but in the next five years IEA expects 8 million b/d of new global capacity.
Europe, which remains short diesel, is surrounded by diesel exporters and some of the new Middle East refineries haven't reached their capacity yet. "Their impact can be felt even more," Petrossyan said.
Russia's switching to 10 ppm last year "has been the largest blow to European diesel cracks," she added.
Meanwhile, European refiners have reached "the technical ceiling" of their middle distillates yield, she added. Any further capacity increase would only add more gasoline, a third of which needs to be exported at the moment.
While gasoline cracks outperformed diesel last year, "we see growing length of gasoline in the Atlantic Basin in the next five years," Petrossyan said.
ROLE IN SUPPLY, TAXATION
Any further capacity expansion elsewhere would only result in more pressure on the EU refining sector which is already facing higher costs than its competitors.
"It is unlikely to see cost parity with our competitors for a very long time," Fuels Europe Director General John Cooper said.
EU refineries were facing higher costs than Russia, the Middle East and US, while bringing products from the Middle East was a fraction of the energy costs in Europe, he said.
With the prospect of more imports, participants said they were concerned about security of supply. Closing more refineries than the 15 that were shuttered since 2008 "will increase the dependence" on imports from Russia and the Middle East and result in "less resilience and less security of supply," Gardini warned.
She also quoted the fitness check published by the European commission that the EU refining sector provides 0.9% of GDP. Around 270 million cars, 34 million trucks and 36,000 airplanes rely on oil products that are produced and stored in Europe, Gardini said.
At the current oil prices "refined products provide more value for money for the European taxpayer," said BP's group vice-president for Europe, Peter Mather, who added that if there were a move away from oil products "many member states would struggle to balance their budget without the revenue from motor fuel taxation."
The forum is expected to meet again in the autumn and look at further way to improve the competitiveness of European refineries.
