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Vol.1977/0029

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(77)71final.
Brussels.17March1977
r-^7.§*•ct-jv>A®itS£Élf5?15
COMMUNICATION FROMTHECOMISSION TOTHECOUNCIL
COMMUNITY APPROACH TOTHEREPINING PROBLEMS OPTHE
COMMUNITY ■
COM(77)71final

EXPLANATORY MEMORANDUM
1.Duringitsmeetingof21stDecember1976,theCouncilgaveits
agreementtotheCommunityWorkingProgrammefor1977inthefield
ofenergypolicyandinvitedtheCommissiontosubmitassoonas
possibletherelevantproposalsandcommunications .
2.ThisWorkingProgrammeincludes,underpoint6.,"OilRefining
Policy",thefollowingproblems:
-problemsofexcessrefiningcapacityandoftheadaptation
ofcapacitiestodemandstructure,andthe
-problemofrefineries'protectioninfaceofproductimports
fromthirdcountries.
3.Intheattachedcommunication theCommission examinesthese
problemsaridsubmitstotheCouncilproposalsfortheir
solution.

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ii.oéfifrUi uop3p!ér' ;-
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COMMUN !Q&TI ON
BYTHE COMMISSION TOTHE COUNCIL J
COMMUNITY APPROACH TO "THE REPINING PROBLEMS OPTHE COMMUNITY
t:i;-■:■■■■■■■ •.■■■ ■i i

•-U■">.Or
SUMMARY
1.TherefiningindustryoftheCommunitypresentlyfaces,orwillface;
inthenearfuture,problemsaffectingitsprofitability insucha
waythatinitiativesatCommunitylevelarenecessary. i
! :
Thiscommunication suggeststhegenerallinesalongwhichsolutions i
maybefound.IftheCouncilacceptsthisgeneralframeworkthe j
Commissionwilltakethenecessaryinitiativesforitsimplementation *
2.Theproblemsoftherefiningindustryarepartlyofaninternal
.nature(surplusofdistillationcapacity,adaptationofrefining
structuretomarketrequirements )andpartlyofanexternalnature
(importsofproductsfromthirdcountries).Theseproblemsare
closelyinterrelated .
3.InordertosolvetheproblemoftheCommunity'sdistillation
capacitysurplus,some140M.t/yofdistillationplant(i.e.about
16.5%oftotalexistingcapacity)needstobewithdrawnfromservice.'
Thisobjectiveshouldbeattainedbyastandstill onnewconstruction
andexceptionsBhouldonlybemadeafterconsultation atCommunity
level.Furthermoremarginalarid/orlessefficientplantsshouldbe:
temporarily andinsomecasesfinally,takenoutofservice.
Solvingthisproblemisprimarilyataskfortheindustry.
Appropriate measuresbynationalGovernments shouldaimatcreating
thebestpossiblesocial,fiscalandadministrative environmentfor
theindustry'sactions.OnthebasisofRegulationIO56/72the
Commissioncanmonitordevelopments inthissectorandcheckwhether ,
theindustry'scorrectiveactionsaremeetingtheCommunity's
objective.EachyeartheCommissionwillinformtheEnergyCommittee
inordertodiscussthesituationandtodecideonwhatattitudethe
Communityshouldadopt.Ifnecessary,theCommissionwillpresenta
reporttotheCouncil.
4*Inordertosolvethesecondproblemi.e.theimbalancebetweenthe
refiningstructureandthedemandstructure,theconstruction of
additionalconversioncapacity,rangingbetween8and12M.t/yof
gasolineoutput,willbenecessary,atanestimatedinvestmentcost
ofabout2to3billionUSdollars(1976).Thismattershould
beasubjectforconsultation andcooperation withproducercountries.
Thisproblemisalsointhe"firstplaceataskfortheindustry.
Thesolutionoftheproblemrequiresprimarilyabetterprofitability
ofrefiningoperations.
ThroughRegulationIG56/72theCommissioncanmonitortheevolution
inthisfieldandonthatbasisconsulttheEnergyCommittee,onthe
attitudetheCommunityshouldadopt.Ifnecessary,theCommission
willpresentacommunication totheCouncil.
5.Thethirdproblem,thegrowing -competitionfromthemanyexportrefineriesplannedinthii-dcountries,particularly thoseofthe
MiddleEastandMediterranean ,willputnewstrainsontheprofit­
abilityoftheCommunity'srefineries.

Inordertomaintainabalance "betweentheneedforaprofitable J
Communityrefiningindustry,ontheonehand,andtheneedforanjoutward-looking policyontheother,theCommunityshoulddevelopa
,policywiththeemphasisoninformation andco-operation betweenall
partiesconcerned,alongthefollowinglinest j
(a)establishingindicativemedium-termforecastsofimports,
.. I
(b)settingupasystemforinformationandconsultation withinthe
.Community, i
ι
(o)organisingconsultations withthenon-membercountriesconcerned
ontheproblemsrelatingto!thetradeinrefinedproducts.In
thecaseofnon-membercountriescoveredbyCommunityagreements
theseconsultations shouldtakeplacewithintheframeworkof
theinstitutional apparatuslaiddown,intheseagreements ;.
(d)ifnecessary,byapplyingcommercial "policymeasures.
Whentheabovemeasuresareimplemented ,theactivitiesoftheoil
companiesmustnotcontravenethirulesofcompetitioncontainedinthel
Treatyand,inparticular,Articles85and86thereof. !

INTRODUCTION . ' i
i
This document focuses onsolutions tothethree following problems which i
must befaced "bytherefineries oftheCommunity : j
-reduction ofdistillation clpacity surplus , j
-adaptation ofrefining structure tomarket requirements , j
-rising imports ofpetroleum ;products from non-Community countries .!
»
These problems areclosely inter-conijiected . j
A.Reduction ofdistillation capacity surplus j
! • !
1.Oneofthemain problems for'theCommunity *srefining industry isat
marked surplus ofdistillation capacity which seems likely to i
persist into the1980*8 .Th6surplus places aheavy burden onthe J
profitability oftherefineries intheCommunity ,ardcould lead td
•thewithdrawal ofcertain refiners from Community r.rkets .In j
1order torebtify this situation with theleast dela.;.,,thesubstantial
reduction ofexisting over-capacity isamatter ofurgency .
Proposed actions ;
Areasonable objective would^e sotoreduce capacity thata j
utilisation ratio ofdOfo-isachieved attheearliest date instead i
ofthe60-70$ ratio tobeexpected over theperiod 1976-80 ifno !
corrective action istaken ,jThiswould entail thewithdrawal from !
service of140m.t/yofdistillation plant (seeAnnex I).Such aj
reduction inrefining capacity would still leave amargin of j
•flexibility sufficient toenfeure theprotection ofconsumers s
against therisk ofunjustified price increases (until 1973 "the
rate ofutilisation ofrefineries wasoftheorder of85$). I
Toachieve this objective ,thefollowing action would berequired a
J
(a).toensure that nonewprojects arestarted , ;
(b)temporarily ,orinsome !cases ,finally ,totake outofservicq
marginal and/orless efficient plants . \W f «• - J
s !
1 1
Inorder tomake sure that nonewprojects arestarted ,theCouncil
should agree onastand-still foratransition period lasting in j
thefirst phase until 1980 .!Only inexceptional cases would con- j
struction ofnewplants be^envisaged .Member States will inform i
theCommission about eachheWplant planned .TheCommission will jarrange ,assoon aspossible ,consultation within theframework of !
theEnergy Committee and ,ifjnecessary ,make known itsopinion . j

-5r
4»In -theview oftheCommission ,thedistillation capacity .surplus is-
primarily anindustry problem whicla should besolved bythecompanies
themselves within their ownresponsibility .However ,theMember States
should ensure that this process of [rationalisation cantake place inthe
best conditions and ,tothis end ,should trytocreate asocial ,fiscal
andadministrative environment favourable toitsexecution .They must
also ensure that there arenoserious repercussions upon employment ,(l)
1
TheCommission will see toitthat theimplementation oftheprocess
aimed atdoes not lead toillegal concerted practices between oil
companies nor toabuses ofadominant position tothe detriment of
smaller andnon-integrated refining ordistribution companies .
5.TheCommission hasavailable Regulation IO56/72asaninstrument for
monitoring developments intherefining sector and forchecking whether
corrective action taken bj'the industry meets the objectives for the
Community ,i.e. toreduce capacity by140M.t/y.Inorder tocomplete
theinformation given bytheannual returns required byRegulation
IO56/72,governments should askcompanies toprovide additionally 1from
■1977 onwards ,details oftheir plans forthetemporary closure ofplant .
Onthebasis ofthis information ,theCommission will consult theEnergy
Committee each year about developments intherefining sector and the
attitude which theCommunity should adopt .Ifnecessary ,theCommission
will present acommunication totheCouncil ,possibly including
proposals .
B.Adaptation ofrefining structure tomarket requirements
6.Over theperiod 1975-35 ?theCommunity will also face theproblem ofa
growing imbalance between theproduct structure ofrefinery production
and ofmarket demand ,asaresult ofashift inthedemand structure
towards light products ,which could amount to24M.t/yofgasoline and
naphtha (petrochemical feedstock )by198p «
7.Proposed actions
These problems canbesolved inthefollowing ways :
(a)anincrease intheproportion oflight crude oils processed
(b)additional imports ofgasoline and/orexports offuel oil ,
(c)afurther expansion ofconversion capacity beyond that already
planned .
(l)Which atthemoment would appear unlikely inview ofthestructure
oftherefining industry ,ofthevery limited number ofpersonnel
inrelation tocapital invested ,and ofthefact that since 1974 1
theindustry hashad toadapt itself toareduced level ofactivity .

8.-Since thecontribution to ;be-expected -fsiom-4ke 14ghtening-ef the !
crude oilstream ,and .from additional importB ofgasoline and I
exports offuel oilmaynot besufficient ,additional conversion I
plants will beneeded inorder !tocorrect theforecast deficit of j
light products .Total additional conversion capacity probably i
required by1935 will range between 8and12M.t/yofgasoline out- :
put ,which corresponds toanestimated investment ofabout 2to3
million USDollars (l976).This matter should also beasubject for
consultation with third countries within the context ofdiscussions
oncooperation *
9.Thenecessary level ofinvestment bytheindustry intheCommunity
will only beachieved provided ,theunderlying profitability ofmain
products tracing issatisfactory .Most companies seem tohave no j
fundamental difficulties with regard tofinancing new investments in :
conversion capacity because project economics arefavourable .There­
fore ,onemayexpect that theindustry will make thenecessary investr -
ments inorder toreach abetter balance between production anddemand
structure . !
10.TheCommission hasthenecessary instrument (Regulation IO56/72)to j
monitor developments inthis sector .Inliaison with theMember
States ,andinconsultation with theindustry ,theCommission will
ensure the coordination ofall the action taken inthis field .On ;
thebasis oftheinformation thus collected ,theCommission will ,
each year ,consult theEnergy Committee ontheevolution inthis
sector andtheattitude the Coijimunity should adopt .Ifnecessary , :
the Commission will pi'esent acommunication tothe Council .
Imports ofpetroleum products from r.cr.–Community countries
Intheyears tocome ,theCommunity market will also beaffected by
themany export refineries planned inthird ,and inparticular the
producing countries ,especially those intheMiddle East and the
Mediterranean .Present capacity in.these tworegions isabout ,
160M.t/y.Asforthefuture ,jestimates from 260to373M.t/y
have been putforward bytheproducing states ;current estimates ,
although more moderate ,are still considerable .Uptonow ,imports
ofoilproducts bytheCommunity have notexceeded 30M.t/y,or
about 6%ofcrude oilimports ,ofwhich some 5M.t/ywere imported
from the tworegions mentioned ■above .These imports didnot cause
serious problems toCommunity refineries .Although thedomestic
requirements oftheproducer countries aregrowing and imports by
theUSA ,Japan and other regions mayrise ,there canbelittle doubt
that increasing quantities ofproduct exports will bedirected
towards theCommunity market .

•J
| ■-fyl L■■!....-■.■mii■■■i– ^ ...JT"
|12«In,-th« .medium term the .Community 's,oil,industry will .thus ,hava .tcL.cope ..!
with intense competition from producer countries *TheCommunity has '
traditionally "been anetexporter ofpetroleum products .This situation
|started toturn in1976 when theCommunity first became anetimporter i
! "bysome sixmillion tonnes ,oraround 1%ofitsinternal requirements . ;
Itappears reasonable toexpect this trend tocontinue infuture .But
lwhen making their decisions oninvestment ,theproducer countries must
:takeaccount ofthereal possibilities offered tothembytheCommunity
market .TheCommunity foritspart must beaware ofthefact that it
i depends onimports ofcrude oilfrom these countries .
I
\
13.Thepresent system forimporting petroleum products into theCommunity
canbesummarised asfollows : (
a)Tariff situation '
following theGATT negotiations ,thenormal common customs tariff
(CCT)rates nowvary from zero percent forfeedstocks to3.5$ for
heavy oils and6%forlight oils .These rates protect around 5Vf°
oftheadded value .This rule currently applies tosome 75~80f0
ofproducts imported into theCommunity .
Theremaining 20-25$ ofimports aresubject totariff concessions
under thecooperation agreements ,free trade agreements and
preferential agreements signed bytheCommunity andaspart of
the .generalised preferences scheme .Depending ontheparticular
arrangements ,petroleum products canbeimported duty-free orat
reduced rates within thelimit oftheindividual quotas orglobal
ceilings established .Theceilings laid down insome ofthese
arrangements must beabolished by1January 1980 .
(b)Quantitative restrictions 1.
Intheabsence ofaCouncil Decision ,oilhasnotyetbeen sub­
mitted toacommon import regime (l).Thesituation differs among
theMember States .Only oneMember State maintains quantitative
restrictions for imports from GATT countries and countries accorded
like treatment ,while several .Member States still retain quotas for
imports from Eastern countries .There arenormally noquantitative
restrictions inrespect ofnon-member countries with which the
Community hasconcluded free trade ,preferential orassociation
agreements .
(l)TheCouncil hasnotyettaken adecision ontheproposal ofthe
Commission toinclude petroleum products inRegulation (EEC)
No.1439/74,oftheCouncil of4June 1974 oncommon rules for
imports (OJHoL159of"15.6.1974 )andinRegulation (EEC)
No109/70establishing common rules forimports from state trading
countries (OJNoL19of21.1.1970 )»noron "thedefinition ofthe
concept oforigin (Proposal' foraRegulation (EEC)oftheCouncilmfi $iY .isiriofpetroleua

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Ol:e,.irdu.L-»p
•"14•P6inf"13sEows"1foat~"the lT6mm0Hit;y*s~exterBa,l "freedomofactionin*i
jcommercialpolicyislimited "byinternational commitmentsoncustoms i
jduties,andontheliftingofquantitativerestriction,whichitj
]cannotgotackuponexceptthroughtheapplicationofsafeguardclauses,
japrocesswhichissubjecttostrictinternationalrules.Furthermore/
iaccountmustbetakenofexistingorfutureCommunityagreementswithj
inon-membercountrieswhichprovidefor-orcouldprovidefor- ■
Jco–operationinenergymatters,possiblyinvolvingcommitmentstoimport
icertainrefinedproductsfromthesecountries.
jProposedactions ] . '<
!15•ItistheCommunity*sresponsibility toattainasatisfactorybalance
Ibetweenitsimportsofcrudeoil'andrefinedproducts.Thisbalance <
musttakeaccountfirstlyofthe(Community'swishtopursueanoutward
;lookingpolicyandsecondly,oftheneedtoprovidesufficientworkfor,
theCommunity'srefiningindustryafteritsadaptation(seepointsA;
iandB)inlinewithmarkettrendq. j
TheCommunitypolicyconcerningthesupplyofpetroleumproductsshouldtrytoattainthisobjectiveby:
»
'a)settingmedium-termindicatorsforimports;
I *
b.)establishingasystemofinformationandconsultationwithinthej
!Community; I
( !
ic)organisingconsultations withthenon-membercountriesconcerned j
ontheproblemsrelatedtothetradeinrefinedproducts.Inthe!
.caseofnon-membercountriesicoveredbyCommunityagreementsthese j
consultations shouldtakeplacewithintheframeworkofthe
institutional apparatuslaiddownintheseagreements :
i
d)ifnecessary,byapplyingcommercialpolicymeasures ,
16.Themedium-termindicatorsshould:
I .·- )
1 ί
1-permitthoseinvolvedineconomicactivitiesinandoutsidethe t
Communitytoactwithbetterknowledgeoftheprobablefuture j
situation i
'-provideabasisfortheconsultations withnon-membercountries;(
–provideabsisforassessingfutureimportpossibilities underthef
generalpreferences scheme.orunderfutureCommunityagreementswith
outsidecountries; ! !
1
–indicatethecriticalpointsatwhichCommunityintervention might
becomenecessary.
;17.Aspartoftheinformation andconsultation machinerywithinthe j
Community,themedium-termindicatorsshouldbecomparedwithcompanies*;
annualestimatesofproductimports;,theCommissionhasthisinformation
atitsdisposalunderRegulation(EEC)No3254/74*Ifnecessary,
J

individual '~compahie s"~coul'd'te~conBuli ;edregardTrijg ma3or"d'ifferenees ;
between Community andcompany forecasts .Companies should also notify j
major changes intheir forecasts during theyear . i
This comparison would enable theCommission ,after consultation with the
Energy Committee ,topass oninformation and .obtain ,opinions onthe j
probable trend ofimports anddemand forproducts . i
! '
Suitable methods ofconsultation with non-member countries should be ,
developed inorder toidentify common interests andtofind solutions j
acceptable toboth sides .Inseeking these solutions ,theCommunity ,
should take account ofspecial situations inregard t■>security of '
supply (joint ventures ,lon^-term 'contracts ).Inct.^s where the j
Community islinked byagreements with theproducer countries solutions 1
mustbesought jointly bythetwoparties , 1
> * »
i - ; «
Forprotecting itsoilindustry against serious disturbance asa^result
ofexcessive imports ofrefined products from third countries ,the
Community disposes ,incase ofneed ,ofthefollowing instruments j
(seedetails inAnnex II): ! j
/X ... , . ' , !
(a)Anti-dumping measures '
EECRegulation 459/68of5April 1968 enables theCommunity to ;
apply anti-dumping taxes toimported oilproducts ,ifthese ;
products cause considerable damage totheCommunity oilindustry
because they aresold atdumping prices . '
(b)Safeguard "measures ' '
Ifimports were made inquantities soincreased ,.andonsuch
conditions asseriously toaffect ,orthreaten toaffect ,the
refining industry ,theCommunity could take safeguard measures , i
such asquantitative restrictions oradditional import duties , '
subject totheinternational obligations oftheCommunity . '
' » >
Asregards third countries with which agreements have been con­
cluded ,thesafeguard clauses' included therein could beapplied ,
taking account ofallaspects oftheCommunity ^co-operation with '
these countries . s '
For thethird countries measures canbetaken onthebasis of
Article 113oftheTreaty byaCouncil decision onaproposal from
the Commission . ■
Recourse totemporary measures ofthis type would obviously bean
extreme step which should betaken only after exhausting allthe j
possibilities forasolution under theconsultation andcooperation :
procedures referred toinpoint 15(c).

AMEXI
»
ExistingandforecastrefiningcapacitysurplusintheEECassuming
nointervention
iOntheeveoftheoilcrisisofOctober1973>therewasavailableinthe
■Communitynominalrefiningcapacityof770M.t/yfpermittingasustained
jinputofsome655M.t/yatautilisationratioof85$(the1963-73average
Thiscomparedwith610M.tofcrudeoilrunin1973»leavingamarginof
sparecapacityofabout45M.t/y.Atthattime,theindustry,expecting
consumptiontocontinuetogrowatmorethan5$Perannum,wascommittedto
;theconstructionof80M.t/yofadditionalplant(10$)mostlytoenter
!serviceovertheperiod.1974-5•l*1"theeventcrudeoilthroughputfell
between1973and1975110M.t/y(15$)andsparecapacityrosetoover
i200M.t/ybymid1975..
Overtheperiod1973-85estimatesoftotaldemandforfinishedproducts
(includingnetexports)comparewithcapacityasfollows:
InlandConsumption
■Bunkers
Exports
Imports
Betexports*
Refineryown-use/lossmi ■
5161
38M.t/y
1974
53
3047
35.480
321975
442
31
33
39Estimate
1280
516
37
Crudeoilrequirement
Nominalcapacity(midyear)
Utilisation ratioofnominal
capacity
Sparecapacityatmax, ■(utilisation 85$(average 45i135221160
j 63/73)
*Becauseoflargemarginofuncertainty ,itisimpossibletoproduce
:reasonableforecastsforexportsandimportsoffinishedproductsfor
1980andtheassumptionhasbeenmadethattheywillbeinbalance.

't 'ANNEXII'··.»· ■>Ι.'-· ■■"ιι■■
PossibleCommunityactiononthebasisofexternaltraderegulations
A.Anti-dumping regulation
EECRegulation459/68of5April1968(O.J.L93of17.4.68)contains
thebasisprinciplesregardinganti-dumping measures.•
Itstipulatesthatbeforesuchmeasurescanbetaken,
a)dumpingshouldbeproved
b)thisdumpingshouldcauseconsiderable damagetoaproductionofthe
Community .-
Dumpingexists,iftheexportpriceofacertainproductis:
-lowerthanthesellingpriceofthesameproductinthe.countryoforigin,
-orlowerthan,eitheritsexportpricetootherthirdcountries,or
thanitstaxpaidcostinthecountryoforigin.
Appliedtooilproducts,thismeansthatdumpingforexamplefoccursifit
isprovedthataproducingcountrysellsitsproducttodifferentimporting
countriesatdifferentpricesaccordingtotheparticularconditionsof
theseimportingcountries,orthattheproductissoldatapricelevellower
thanthecostpriceofcrudeoilplusanormalmarginfortransformation ,
i.e.atapricelowerthantheproductioncost(1).•-
Theassessmentofacertaindamagepresupposes aninvestigation ofall
factorsinfluencingthesituationoftheindustryinquestioni.e.the
evolutionoftheproducingoftheimportingcountry,theevolutionofthe
marketshareoftheimports,theevolutionofprices,benefitsandlosses
ofthecompaniesestablished intheimport-ingcountry.
Itshouldbestressedthatquantitiesimportedatdumpingpricescould
complicatethealreadyprecarioussituationoftheCommunity'soilrefining
industry.
1 . 'N»■
B.Safeguardmeasures
Adistinction shouldbemadebetweenthegeneralsafeguardclausesof
Article113andthespecificsafeguard ,clausescontainedinthepreferential
orassociation agreements.
(1)Todemonstratetheexistenceofdumpingpracticesontheinternational
oilmarketisundoubtedlydifficultandtheapplication ofprotection
measuresinthisrespectcouldnotbecontemplated exceptinextreme
cases.

.tV<ïv-•
:"Ή' "■·.
■'ίίίΛ'■■'X".
a)Article113oftheEECTreatymakesitpossiblefortheCommunityto
takesafeguardmeasuresagainstallthirdcountries,includingstate
tradingcountries,intheframeworkofthecommontradepolicy.Onthe
basisofArticle113acommonimportregimehasbeenestablished
forproductsimportedfromthirdcountries.Butcrudeoilandoilpro­
ductshavenotbeenincludedinthiscommonregimeuntilnow.
However,thisfactdoesnotreducethepossibilityfor.actionona
Communitylevel,giventhegeneralapplicability ofArticle113/and
theCommissionintends,ifneeded,tosubmittotheCouncilthe
necessaryproposalsfortakingsafeguardmeasuresinaccordancewith
thesituationofthemarketforpetroleumproductsandtheinternational
obligations oftheCommunity.
IX f
b)ApartfromthegeneralsafeguardclausesbasedonArticle113,
mentionshouldbemadeofthespecificclausescontainedinthe
preferential orassociation agreementswhichtheCommunityhas
signedwiththirdcountries.Thesesafeguardclausesareintended
todeal"witfvseriousdisturbance toasectoroftheeconomic
activityorwithdifficulties whichmayresultinthedeterioration
ofa,regionaleconomicsituation.-
Astothenatureofthesemeasures,theycanbequantitative restrictions
aswellasadditionalimportduties.
»