Bloomberg News

Refinery Fitness Check Should Cover Pending Laws, U.K. Tells EU

June 25, 2013

The U.K. called on the European Union to assess the impact of pending laws on the region’s struggling oil refineries before setting new rules such as fuel-quality standards.

The European Commission said in April it plans to complete a “fitness check” for the region’s 500 billion-euro ($654 billion) refining industry in September 2014, assessing existing EU policies and laws including taxation and carbon emissions that affect competitiveness versus companies operating in other regions. U.K. Minister of State for Energy Michael Fallon said that may be too little, too late, risking further refinery closures.

“Decisions will be taken on implementing legislation before the fitness checks are completed,” Fallon said in a letter dated June 24. “There is a risk that additional burden will be added to the sector without understanding the cumulative impact.”

Seven oil refineries operate in the U.K., down from nine in 2008. More plants could be forced to close as refiners will need to spend an additional 11.4 billion British pounds ($17.6 billion) in capital and operating costs by 2030 to comply with U.K., EU and global regulations, IHS Inc (IHS:US).-owned energy consultant Purvin & Gertz said in a May report, sponsored by the U.K. Petroleum Industry Association, an industry group.

The fitness check should take into account “the cumulative impact of both existing and forthcoming EU legislation,” Fallon said in the letter addressed to commission Vice President Antonio Tajani. Before finalizing new regulations such as the Fuel Quality Directive Article 7A, the commission should use the fitness check “to help inform decision making by Member States,” he said.

European Challenges

The EU refining industry generated a turnover of 497 billion euros in 2010, the commission said in its “draft mandate for consultation,” citing Eurostat data.

U.K. and other European refineries face “increased international competition from the Middle East and Asia and, increasingly, the growth of the U.S. shale oil and gas sectors,” while the plants geared toward producing gasoline are out of balance with the region’s demand for diesel, according to Fallon.

New closures in Europe, where 15 plants have already been shut since 2008, would probably make the continent more dependent on overseas supplies, according to the International Energy Agency.

“Once the second-largest regional refining center in the world, Europe will relinquish its place to China,” the Paris-based energy adviser said in May in its medium-term oil market report.

Of the approximate 100 refinery facilities in Europe, 10 will shut permanently by 2020 from France to Italy to the Czech Republic, a Bloomberg survey of six European refinery executives showed in April. That survey includes some non-EU states and excludes Russia.

To contact the reporter on this story: Konstantin Rozhnov in London at krozhnov@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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