ARCHIVESHISTORIQUES
DELACOMMISSION
COLLECTION RELIEEDES
DOCUMENTS "COM"
COM(78)697
Vol.1978/0263

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COMMISSION OFTHEEUROPEAN COMMUNITIES
COM(78)697final
%.^77v!.\
t"t"j
ç;i-c
vrBrussels,7December1978
DEVELOPMENTS INTHEREFINING SECTOROPTHECOMMUNITY
OILINDUSTRY
(Communication fromtheCommissiontotheCouncil)
C(21(78)697final.

COMMUNICATION FROMTOECOMMISSION TOTHECOUNCIL
DEVELOPMENTS INTHEREFINING SECTOROFTHECOMMUNITY OILINDUSTRY
1.Introduction
AsinthepasttheCommissionhashadaseriesofmeetingswithindividual
companiesduringwhichtheyprovideddetailsoftheircurrentpolicies,
1978performance and1979forecasts.Althoughinformation wasnotprovided
"byallcompanies,theinformation ,onanoverallCommunitybasis,covers
nearly88%ofprobablecruderuns.
ThepossibleeffectsofthesituationinIranwerenotassessableatthe
timeofthesediscussions andthefollowingcommentaryisbasedonthe
assumptionthatoveralldisruptionofsupplywillbeminimal.Present
uncertaintyhas,however,ledtomarkedpriceincreasesintheRotterdam
spotmarket.Thisandtheevidentincentivetostock-buildinanticipation
ofaJanuary1stOPECpriceincreaseandperhapsasahedgeagainstthe
fluctuatingdollarcouldeasilyleadtoaconsiderable increaseinthe
fourthquarterrefinerythroughput.
2.IndustrvObjectivesfor1978
Earlyintheyearitappeared,fromthesumofthemanydifferentcompany
plans,thatfortheCommunityasawhole,refineryrimswouldbelessthan
0.5$higherthanactualperformancein1977.Duringtheearlymonths
manycompaniesmadefartherreductionstotheirobjectivesandbyMay/June
itappearedthat1978throughputwouldbebelow1977levels.
Industrydidexpectagrowthindemand,butonlyasmalloneoflessthan
2abovethe527milliontonconsumptionlevelof1977,andplannedto
meetrequirements notcoveredbyrefineryrunsbypurchasesonthespot
marketandthereductionofstocksfromtheabnormallyhighlevelthatthey
hadreachedbytheendof1977•
3-"(vtual197°nerformance
Latestestimatesshowthatinmanycases,runswereincreasedoverthe
originallyplannedlevels.FortheCommunityasawhole,1978throughput
/•

2.
isnowexpected to "be1%above 1977 levels when 531million ions were
1processed .vyThis increases therate ofutilisation ofcapacity inservice
toalevel approaching 70fo(this represents 64%useofthe844million tons
of1978 installed capacity ).This Community average figure does not
adequately illustrate that insome Mem"ber States ,notably Italy ,there is
aconcentration ofsurplus capacity andutilisation ismuch lower than
Community average .
This increase ofutilisation rate hasproved possible without thegeneration
ofsurpluses damaging totheindustry andtoalarge degree yields have
"been "balanced "bypurchases and stock reductions .
Overall ,thefigures suggest anunexpected increase indemand near theend
oftheyear .While industry arenotyetable tofully analyse theunderlying
market developments itappears most likely that theincrease indemand ,
mostly formiddle distillates ,isnotdirectly related toincreased
consumption "butthat ,atconsumer level ,feelings ofinsecurity about future
price andtax levels have motivated considerable consumer stock building .
Overall ,there hasbeen amuch better balance between supply anddemand
than in1977 .
A.Industrv Ob.îectives for 1979
Although asalways there isconsiderable variation between individual company
plans ,theoverall Community position shows anincrease inrefinery runs
ofabout 3.75% .Itshould benoted that this exceeds thegenerally forecast
demand growth ofabout 2^-2^-/^.Thus itisclear that thereasonable balance
between supply anddemand that wasmaintained in1978 could ,in1979 ,"be
threatened byareturn toover-production interms ofrefinery output .
This situation results from increased throughput plans onthepart ofsome ,
butbynomeans allcompanies .Several companies forecast lower levels for
1979 .Initially ,increases maybeheld back byphysical lack ofincremental
crude supply but ,over theyear ,companies nowplanning toincrease runs
maybedissuaded bytherisk that surpluses will undermine market prices .
This delicate situation needs tobekept under review .
5.Innorts
There isnodiscernible trend "towards anincrease inimports which fluctuate
onanormal commercial be,sis .In1978 some 5million tons ofnetimports
contributed toCommunity supply whereas in1979 imports andexports are
expected tocancel out .
(1)Reference 22nd May1978 Communication from theCommission services
"TheBalance andStructure ofRefining within theCommunity " /

3.
For thelonger term analysis oftheimport situation theCommission has
setupandhadtwomeetings ofaworking party ofexperts from Member States .
Areport will "bemade totheEnergy Committee .
6.Distillation Capacitv
Based oninformation obtained from thecompanies there have been noproposals
further growth inthesector appears unlikely atpresent .Pinal confirmation
oftheinvestment position will beprovided byinformation made available under
Regulation IO56 atthebeginning of1979 andasubsequent report will bemade on
this subject .
7.Crackin£ Capacity
Since January 1977 "theconversion capacity installed inCommunity refineries has
been increased bynearly 14million tons/year .Thelargest part ofthis (8.2m.t/y)
isintheform of"visbreaking "units which lighten fuel oiland increase theyield
ofmiddle distillates .Many ofthese newvisbreakers areconverted crude
distillation units andthus inaddition toincreasing conversion capacity their
change offunction provides amuch needed reduction ofdistillation capacity .
Currently constructed andplanned conversion capacity appears adequate tomeet
future needs andthere would appear tobenojustification forCommunity action in
this sector .
8.Plant Closure
Despite some minor closures notforeseen inMay ,surplus distillation capacity
within theCommunity remains aserious problem .Although ,onpresent estimates ,
itappears that there isstill aneed toclose 70million tons ofdistillation
capacity ,this figure must beviewed with some reserve especially since amajor
part ofreductions made sofarhave been achieved only bythetemporary withdrawal
ofunits from service .These units still exist and could bebrought back into
operation .Apart from this qualification ofthereductions sofarmade ,itmust
also berecognised that theindustry hasprobably reached the limit ofreductions
that canbemade bytheclosure ofindividual distillation units within refineries
that continue tooperate .Thefurther reductions that arestill necessary will
■^Community approach totherefining problems oftheCommunity "(C0M(7 6)71final )fornewprojects andthesituation remains aspresented inMarchnopropc
1977^' .Thus

inevitablyinvolvetheclosureofwholerefineries.Ashas"beenalltoo
painfullydemonstrated ,inthefewcaseswherethishasalreadyhappened,
refineryclosureleadstosocialandemploymentproblems.Inviewofthe
inevitability offurtherclosures,theCommissionhas,forsometimenow,
consideredthataidatCommunitylevelisnecessarytohelpinthesolution
oftheseproblems.
9.Résumé
-In1978refinerythroughputroseaboveestimatesbutwillfinallyshow
littlemorethan1%growthover1977.
-Becauseofthislimitedgrowthandprudentproductpurchasesbymost
companies,awellbalancedsupply/demandsituationhasbeenmaintainedin
1978.
–1979refineryprogrammesare,inaggregate,onthehighsidecomparedto
anticipated demand.Carefulmanagementisgoingtobenecessarytomaintain
aproperbalanceandavoidtheweakeningofmarketpricesthatcan
becreatedbysurpluses.
–Importsarestableexceptfornormalcommercialfluctuations ,,
–Therearenonewplanstoincrea.sedistillation capacity.
–Crackingcapacityintheyearsaheadappearslikelytobeadequate.
–Distillation plantclosureisstillnecessaryand,sinceinfuturethis
islikelytobeachievedonlythroughwholerefineryclosure,problems
mustbeanticipated .
10.Conclusion
Sincethelastcommunication therehasbeenareasonable improvement inthe
refiningsector.Thishasbeendueinparttopermanentandtemporaryplant
closureandalsotoanincreasedawarenessonthepartofindustryleading
tonotableself-restraint inthedisposalofsurplusproductintothe
spotmarket.
Itmusthoweverberecognisedthatthebasesfortheseimprovements are
notsufficiently firmt■>allowcomplacency.Plansfor1979alreadysuggest
thatbalancemaybedestroyed.Consequently theCommissionproposesto
continuetoobtaininf-.'^.tion fromtherefiningsectorandkeepdevelopments
underreviewandwillre^jrttotheCouncilwhennecessary ,,

5
Onlyfurtherpermanentclosureswillprovidebetterstabilityand
assistanceshould "begiventotheovercomingoftheproblemsassociatedwith
refineryclosures.Ifrefineryclosurehasparticularly gravestructural
consequencesinsomeregionsorzonesoftheCommunity,actionsmust"be
foreseentoprovidealternative jobopportunities forworkersmade
redundant.
Inthiscontext,attentionhas"beendrawnonearlieroccasions^tothe
possibility,ifneedbe,ofprovidingCommunityfinanceby,forexample,
grantsundertheRegionalDevelopment Fund.
Alternatively ,itshouldberecalledthataidmightbeenvisagedinthe
contextofgeneralindustrialrestructuring ,forwhichaproposalhas
(2)alreadybeensubmittedtotheCouncil*andwhichshouldbeemployedin
therefiningsector.ForthispurposetheCommissionhasalreadyproposed
that10millionu.a.shouldbemadeavailable(forthisaP.M.entryhas
beenmadeinthe1979budget)andintendstoproposesuchsubsequent
fundsasmayprovenecessaryonayearlybasis.
(1)(DocumentCOM(78)71finaldated22February1978)
(2)(DocumentCOM(78)532finaldated26October1978)