WORKING DOCUMENT OF THE COMMISSION on Report on the Situation of Oil Supply, Refining and Markets in the European Community
Date: 1996-04-03
Institutions: European Commission
Subjects: EU market, oil industry, oil refining, petroleum, security of supply

COMMISSION  OF THE  EUROPEAN  COMMUNITIES 

Brussels,  03.04.1996 
COM(96)  143  final 

WORKING  DOCUMENT OF THE  COMMISSION 

on 

Report on the Situation  of Oil Supply, Refining  and Markets in the European 
Community 

-  1 

Report on the Situation of OU Supply. Refining  and Markets in the European 
Community 

(Working Document  of the Commission) 

CONTENTS 

REPORT 

ANNEXES: 

B 
B.l 
B.2 
B.3 

C 
C.l 
C.2 
C.3 

D 
D.l 
D.2 
D.3 
D.4 

E 
E.l 
E.2 
E.3 

F 
F.l 
F.2 
F.3 
F.4 

General Economic  Context 

Crude Oil Supply 
Global Energy Reserves 
Global Oil Supply 
European Union Crude Oil Supply 

Oil Product Demand and Supply 
Global Context 
European Union Oil Product Demand 
European Union Oil Product Supply 

Environment 
Political and Economic Context 
Current and Proposed Measures 
Implications for Downstream Economics and Decision-Making 
Environmental Outlook 

Oil  Refining 
Refinery Numbers, Capacity and Utilisation 
Refining Margins and Profitability 
Refining Outlook 

Oil Product  Marketing 
Marketing Sub-Sector Definition 
Retail Statistics 
Retail Market Shares and Profitability 
Harmonisation Questions 

Glossary of Terms 
Charts and Tables 

-  2 

Report on the Situation  of Oil Supply, Refining  and Markets in the European 
Community 

(Working Document of the Commission) 

CONTENTS 

REPORT 

Background  to the Report 

The Oil  Industry 

Refining  Profitability 

Marketing 

Environmental  Issues 

Security of Supply 

Internal  Market 

Conclusions 

REPORT 

Background to the Report 
The  European  Commission  has  been  preparing  regularly  Reports  for  the  Council  on  the 
situation  of oil supply, refining  and markets in the European  Union  since the late  1970's as a 
result  of  the  oil  price  shocks.  These  have  covered  such  developments  as  the  problems  of 
overcapacity,  changes in  demand  structure  and  stricter  environmental  requirements.  The last 
such Report was prepared in  1992 following the Gulf Crisis, in the form  of a Communication 
to the Council [COM (92) 152]. 

The Council adopted a number of conclusions in response to the paper on 30 November  1992 
which have influenced the work of the Commission. The strategic importance of a competitive 
refining  industry to  the  stability  of the product  markets  and  Community  supply  security was 
acknowledged.  The importance  of the  environment  was  stressed  and  close  consultation  with 
industry was recommended on possible environmental measures and the costs to producers and 
consumers  thereof  Since then the Auto  Oil Programme,  which  represents  a new form  of in 
depth cooperation between the Commission  and industry has been  started.  The first proposals 
concerning both fuel  specifications  (gasoline and diesel) and motor vehicle emission  standards 
resulting from this initiative are now being discussed. 

The  review  of the  current  restrictions  on the  use  of fuel  oil in power  generation  (Directive 
75/405/CE), which has resulted in the proposal in the White Paper - An Energy Policy for the 
European  Union  [COM  (95)  682]  to  withdraw  the  Directive,  was  another  of  the  Council 
recommendations.  Support  for  the  Producer  Consumer  Dialogue  was  stressed,  and  the 
Commission  has  remained  active  in this,  and  indeed  co  sponsored  the  International  Energy 
Conference  in  Puerto  La  Cruz,  Venezuela  in  September  1995  which  brought  together 
Ministers from producer and consumer countries to discuss energy issues in which they share a 
common  interest.  The  Council  reaffirmed  the  need  for  the  Commission  to  continue  to 
undertake these  regular  reviews  and noted  the  importance  of them to  the  Community  when 
discussing energy policy. 

The  present  Report  is  based  on  the  mandate  in  the  Council  Conclusions  10369/92  of  30 
November  1992 in which the Commission, 'is encouraged to  regularly analyse the  situation in 
the  oil markets  and in the refining  sector in the  Community  and in which the  Commission is 
asked  to,  'carry  out  in  depth  consultations  with  the  oil industry  prior  to  the  introduction  of 
environmental protection  measures, particularly with  a view to the  influence  of these  on the 
cost for producers and consumers of such measures'. The Report has been prepared taking into 
account  developments which have taken place in the sector  since  1992, and the recent White 
Paper  on  Energy  Policy  which  develops  an  approach  based  on  three  main  pillars  of  energy 
policy  for  the  Community,  namely  competitiveness,  the  environment  and  security  of  supply, 
which are all relevant for this sector. 

5 

6 

7 

8 

9 

The objective  of the Report, is therefore to identify  and explore the key issues concerning the 
sector  (oil  supply,  refining,  and  marketing)  notably  refining  industry  performance,  the 
environment,  security  of supply and the Internal Market  and where  appropriate  comment  on 
the implications for the Community. 

The  Report  is  the  product  of  extensive  analysis  of  the  sector  which  has  been  undertaken 
following  lengthy  consultations with individual oil companies, industry  associations and input 
from  national  administrations.  The  principal  points  and  conclusions  to  emerge  from  that 
analysis are presented here covering the major issues and conclusions and in a series of annexes 
which deal with the issues in more depth within the overall general economic context. 

The Oil Industry 
Oil  is  by  fer  the  largest  component  of  gross  energy  consumption  in  the  Community. 
Consumption  in  quantitative  terms is  expected  to  increase  over  the next  25  years  despite  a 
marginal decline in its percentage share from 42% to between 36% and 38%. These figures are 
taken from the 2020 Study prepared as part of the White Paper on Energy Policy; discussions 
on how these can be reconciled with the Community's international obligations with regard to 
greenhouse  gas  emissions  will take  place  in  more  specific  fora  dedicated  to  this  issue.  The 
Community is the largest world net importer of crude oil  Its total product imports and exports 
are approximately equal and it is characterised by its open trade policy. 

The  Oil  sector  represents  a  major  partner  in  the  Community  economy.  Accordingly,  the 
successful performance of its different  segments (notably Refining and Marketing) has been and 
will continue to be of strategic importance for the Community in the field of energy, and both 
economically  and  socially.  The  sector is currently going through  a period  of change with the 
possibility  of  new  alliances  and  joint  ventures  as  enterprises  adapt  to  changing  trading 
conditions in the Community and new market opportunities, particularly in Asia. 

The Report  concentrates  mainly on  downstream Refining  and Marketing  in the  Community. 
These  two  activities  have  been  considered  as  broadly  separate  although  the  proximity  of 
individual refineries to particular markets, which reflects the importance of distribution costs, is 
also a factor.  Oil companies  are often  vertically integrated, from Exploration  and  Production 
(Upstream) to Refining and Marketing (Downstream), and in some cases have large Chemicals 
activities as well  ITie financial performance of the integrated whole is often  considered to be a 
measurement  of the health  or profitability  of the industry and some recent  consolidated  profit 
announcements have been good.  However, it is important to consider  each activity  separately 
as there are opportunities to participate in only one part  of the chain, for  instance  exploration 
companies,  refining  companies  and  marketing  companies.  These  compete  within  particular 
sectors hence each individual activity has to be considered on a stand alone basis. 

10  The  refining  sector  has  consistently  provided  the  Community  with  secure  supplies  of  oil 
products,  such  as transport  and  heating  fuels,  at  competitive  prices  whilst  at  the  same time 
improving its environmental performance.  However, the Report reveals some trends in refining 
profitability  which  might  impact negatively  on industry's capacity to  continue this role which 
requires  ongoing  investment,  given  that  increasingly  there  are  opportunities  outside  the 

Community  which  may  prove  to  be  more  attractive  as  investments  than  those  within  the 
Community. 

Refining  Profitability 

11  The refining  sector  has  suffered  from  poor profitability  for  some time.  Margins  on the  most 
basic of the  refining  processes, the initial processing  by distillation,  are  currently virtually nil 
whilst the margins achieved on upgrading processes  which improve the intermediate products, 
such as catalytic reforming  and cracking, remain too low. Individual refineries may be able to 
cover operating  costs, but to  sustain industrial development in the sector it is not  sufficient  to 
merely cover cash costs. 

12  The three principal elements of the problem are outlined below.  On the refining  and  demand 
side there are two factors, that of excess refining capacity and that of the product mix, notably 
the relative demand for gasoline and diesel  On the supply side there has been a change in the 
crude supply structure to Community refineries towards lighter crudes. These create their own 
particular problems, and when combined have also affected price differentials between products 
as explained below. The regulatory framework within which the industry operates has also had 
a crucial effect  (environmental legislation, fiscal regimes on oil products). 

13  Excess  refining  capacity  takes  two  forms, firstly there  is  an  excess  of  crude  oil  distillation 
capacity  relative  to  the  amount  of  crude  oil  processed.  Secondly,  there  is  an  excess  of 
conversion capacity which converts the low-value fuel oil produced in the crude oil distillation 
process to lighter higher-value products such as gasoline. 

14 

In this respect it is worth mentioning that the apparent contradiction of high reported utilisation 
rates and excess capacity can be explained by poor quality utilisation data. Percentage rates for 
utilisation  are computed  based  on the initial nominal quoted  capacity  of  a refinery,  and  over 
time  the  operator  is  often  able  to  improve  on  this  by  making  technical  improvements  to 
processing  equipment  as technology  advances.  However,  these  'capacity  creep' increases  are 
not  necessarily  publicly  available  for  competitive  reasons  and  there  is  actually  more  surplus 
capacity than as demonstrated by the data. 

15  The  excess  of  crude  oil distillation  capacity  as already  stated  is long-standing,  and while the 
industry has made  strenuous  efforts  over the last fifteen years to  reduce  it,  an  excess,  albeit 
diminishing^ persists. The situation is not helped by the above 'capacity creep' increases which 
are also achieved in conversion plant. 

16  The excess of conversion  capacity has arisen because of over-investment  in recent years. This 
has  happened  mainly  for  two  reasons.  First  of  all  the  change  in  product  mix  demand.  A 
different  fuel  mix between  diesel and gasoline from that  which was actually experienced  was 
forecast  - underestimating  the growth  in demand for  diesel and  overestimating  the growth in 
demand for gasoline (demand for the latter actually fell). 

17 

Secondly, on the supply side it was forecast that the crude oils available over the period would 
on average become heavier whereas they in fact became lighter. This in turn was the result of a 

lightening in the 'basket' of crude oils placed for sale by Saudi Arabia in order to maximise their 
oil  revenues,  and  far  better  than  expected  production  levels  of  North  Sea  crude  which  is 
generally light.  This was made possible by cost reductions  and technological  advances in the 
upstream  sector.  Overall less rather  than  more  conversion  processing  capacity has  therefore 
been required as refining lighter crudes produces more lighter products. 

18  Finally, there has also been the major impact which regulatory factors have had. There has been 
an  increase  in  the  cost  of  environmental  protective  measures,  which  is  not  immediately 
recoverable  in product  prices in the present  market  conditions.  High  clean up  costs  and the 
unpredictability  of  rates  of  fiscal  duties  have  also  had  an  impact  on  refining  investment 
decisions. 

19  The combination of these three elements has several consequences. In the short term there has 
been  a  'mismatch' between  refining  capacity  and  product  demand  which  has  led  to  reduced 
differentials  between  light  and  heavy  products  which  have  led  in  turn  to  poor  returns  on 
investment.  Refiners  are reluctant  to  close refineries  given the high  clean-up  and  social costs. 
Instead,  they  are tempted  to  adopt  a "wait and  see' approach  as long  as  operations  are  cash 
positive or to try to sell refineries, even at very low prices, rather than close them. 

20  The tendency for producer involvement downstream, which is welcomed as a demonstration of 
commitment  to  the  Community market  provides  a pool  of potential purchasers who  may be 
governed  by  different  strategic principles,  and willing to  enter  the  sector,  particularity  when 
refineries are available on attractive terms. There are likely to be further  closures but even when 
refineries  are  closed  there  is  no  guarantee  that  margins  will  improve  as  the  capacity  may 
effectively be replaced by imports. 

Marketing 

21  The situation of the marketing sector varies across the Community but overall is in substantially 
better condition than is refining.  Structural differences  of historic origin play a major role as do 
the different  levels of upstream and downstream integration of the participants in the respective 
market  areas. There is a general trend  across the Community for  the number  of retail sites to 
decrease with a corresponding increase in average volumes sold per site. However the pace of 
this restructuring across individual Member States differs depending on a number of factors. 

22  The  advance  of  the  hypermarkets  at  the  expense  of  traditional  operators  in  a  number  of 
Member  States has also been  significant.  For the moment, this appears to be to the advantage 
of the consumer in terms of the significantly lower prices that are on offer  but it is causing the 
traditional  operators  and  notably  the  refiners  to  suffer  a  material  drop  in  profits  in  those 
markets  most  effected.  This in turn  damages the  ability  of the  operators  to  maintain  capital 
expenditure  on  improving  retail  outlets  in  those  markets  and  may  lead  to  more  retail  site 
closures.  Secondly,  some  operators  are  swapping  retail  outlets  in  order  to  reinforce  their 
presence in particular  areas. This often  leads to a reduction in unit  costs which may be shared 
with consumers provided there remains sufficient  competition.  These developments  affect  the 
overall structure  of the market and accordingly the role of the traditional operator is changing. 

Given  the  scale  of  change  and  the  importance  of 
monitoring. 

the  sector  these  trends  both  require 

Environmental Issues 

23  There is a great deal of concern across the Community about the environment and in particular 
air  quality.  Citizens  are  demanding  improvements  and  indeed  specific  committments  in  this 
respect  were  made  in  the  Framework  Convention  on  Climate  Change.  Environmental 
legislation,  particularity  with  regard  to  the  downstream  sector,  is  complex.  Environmental 
measures cover the operating arrangements in the refining process itself^ product  specifications 
and emission limiting equipment in the distribution chain. However improving for instance fuel 
specifications  is not  an isolated  activity  and  requires  close  cooperation  with  other  industrial 
sectors.  This  has  been  the  case  with  the  Auto-Oil  Programme  and  its  search  for  the right 
balance between the most cost effective measures. 

24  The Auto-Oil  Programme  is  a tripartite  initiative  on  air  quality,  emissions,  fuels  and  engine 
technologies  by the  Commission, the  Refining  industry  (EUROPIA)  and  the  Motor  industry 
(ACEA).  The  objective  was  defined  as  being  to  provide  policy-makers  with  an  objective 
assessment  of the  most  cost-effective  package  of measures including vehicle technology,  fuel 
quality, as well as local measures, necessary to reduce emissions from the road transport  sector 
to  a level consistent with the attainment  of the new  air quality  standards being  developed  for 
adoption across the Community. 

25 

Specific measures are often introduced on a step by step basis and at any given time industry is 
commissioning  new  equipment  in  response  to  earlier  legislation,  planning  how  to  meet  the 
future  targets  specified  in  existing  legislation  and  involved  in  discussions  on  how  further 
improvements  may be  made.  These  measures  demand  heavy  expenditure  by the  industry in 
refineries  and  in  storage  and  distribution  plant,  and  each new protective  measure,  such  as a 
further  lowering  of emission levels is generally proportionally more expensive than the last as 
the  technical  challenges  of  even  greater  improvements  increase  correspondingly.  Some 
estimates of the potential costs are included in Table D5 in the Annex. 

26  The whole Community benefits from improved air quality and in view of the magnitude of the 
investments required and the long term nature of the refining industry there is an obvious need 
for  consistent  and predictable  regulatory measures based  on a cost  effectiveness  approach  to 
ensure that these benefits can be realised. 

27 

Security of Supply 
Security  of  Supply  remains  a major  issue,  as outlined  in the White  Paper  on  Energy  Policy, 
although the  risk  of any serious threat  to the  Community's security  of oil supply in the  short 
term is considered  to be low.  Conditions have  changed  substantially from the  crisis/sub-crisis 
situations which  existed  some twenty years ago when  crude  and product  supply  sources and 
markets were much less diversified, transparent and efficient than they are today. 

28  Nevertheless  because  the  Community  will continue to  depend heavily  on  imported  crude  oil 
there is an ongoing need for vigilance in both the short and long term  More than three quarters 

-  8  -

of proven world  oil reserves  are located  in potentially unstable  areas  from  a political  and/or 
economic point  of view  and this highlights the  continuing requirement  for  measures,  adapted 
where necessary to  changing  market  circumstances, to  meet the possibility  of  sudden  supply 
disruptions  which  would  be  highly  damaging  for  the  world  and  Communiiy  economies. 
Considering the fact that secure refined oil product  supplies represent  an indispensable element 
of the socio-economic  wellbeing of our population the  existence  of a  strong  and  competitive 
refining sector in the Community is of strategic importance. 

29  Good producer-consumer  relations need to  continue to be  developed  in  order to  protect  the 
current  stability,  and  the  dialogue  and  alignment  of  interests  via  mutual  investment  and 
operational  arrangements  should  continue.  Improvements  in  technology  which  make 
exploitation  of  new  provinces  possible  will  contribute  to  this  and  further  improve  the 
diversification  of  supply.  Upstream  investment  possibilities  in  both  OPEC  and  non  OPEC 
producer  countries  are now  beginning  to  open  up  for  Community  companies  and  producer 
investment  in the  Community  downstream  sector  is  continuing.  Such  moves  consolidate  the 
mutual interest that both parties have in the successful performance  of the oil sector as a whole 
and are to be welcomed as long as they are based on market principles. 

Internal Market 

30  The Internai Market in the Oil Sector is relatively well developed and transparent  compared to 
other energy sectors. Many of the developments in the refining  sector  stem from the feet that 
the Internal European Market is part  of the wider world market with global competition.  It is 
clear that very little rate approximation between Member States has taken place since 1 January 
1993.  As  outlined  in  the  White  Paper  on  Energy  Policy  this  is  an  area  where  progress  is 
difficult,  given the wide range  of interests  and views but  efforts  continue in  order to  remove 
distortions. 

31 

Similarly in the field of product technical normalisation there still remain across the Community 
many instances  of differing  norms in essentially similar products which may not  allow the  full 
benefits of the Internal Market to be realised. 

Conclusions 

32  A healthy oil sector underpins  social and economic progress in the  Community, provides the 
necessary  security  of  supply  at  competitive  prices  and  can  support  improvements  in 
environmental protection.  The security of oil supplies at reasonable prices to the Community is 
largely dependent on the smooth functioning  and stability of the international oil market. Hence 
there is the need to  continue to foster  and develop  a policy of dialogue  and  cooperation with 
the Community's main oil suppliers and competitors on the international market  and to  enforce 
and promote the Energy Charter Treaty. 

33 

It is of prime importance that  a good climate for investment be developed. While the industry 
as  a whole  shows  today  a  generally  good  financial  performance  mainly  due  to  its vertical 
integration  and  diversification  of activities the fact  is that  the  Community  refining  sector  has 
over the last few years experienced  a period of very poor refining profitability,  the reasons for 
which result from market circumstances as well as from regulatory factors. 

34  This  situation  is  likely  to  lead  in  the  short  term  to  a  restructuring  process  resulting  in  the 
closure or sale of refining  capacity which to a certain extent has already started. However, it is 
not  possible to  predict  exactly where  or when,  or  even how much  capacity  will be involved 
because  of  the  wide  range  of  factors  involved  across  the  Community.  To  the  extent  that 
rationalisation  will  occur  in  the  sector  the  Commission  emphasises  that,  as  in  the  1980's, 
individual refiners must remain responsible for taking decisions about capacity closures. These 
decisions should take place in the most cost effective  way and satisfy the competition rules of 
the  Treaty.  The  Commission will continue to  monitor the  situation  and  discuss with  industry 
and Member States. 

35 

It is in the Community's long term interest to have a strong technologically  advanced  refining 
industry. It contributes to  security of supply, competitiveness in general, and that  of the sector 
itself and the petro-chemical sector phis the associated service and equipment  supply industries 
in particular,  and of course to  employment in the Community. It must  also be recognised that 
there is growing  competition for  investment from regions outside the Community where new 
markets are growing and strengthening. 

36  Environmental  policy  and  the  necessary  legislation  required  to  bring  about  the  desired 
improvements in air quality_will continue to impact  on the  sector, particularly because  of the 
magnitude of the investments required. Its importance will continue to influence  activities both 
in  the  refining  and  marketing  areas.  Measures  should  be  coherent  within  a  consistent  and 
predictable framework based on a rigorous cost-effectiveness  approach. 

37  The Commission recognises that, although Member  States have generally increased their rates 
of  excise  duty,  very  little  rate  approximation  has  occured.  The  Commission  has  launched  a 
wide ranging consultation process, before  considering what, if any, proposals are necessary in 
order  to  improve  the  functioning  of  the  Internal  Market.  In  addition  the  Commission 
recommends  further  study  of  possible  improvements  in  the  field  of  product  technical 
normalisation. 

38  The Commission will undertake regular analyses of the oil and refining  and marketing industry 
in  the  Community  including  an  improvement  of  the  accuracy  of  our  understanding  of  the 
refining  capacity  situation  and  utilisation  rates,  recognising  the  importance  of  these  for  the 
formulation  of energy policy and the succesful  implementation  of the White Paper  on Energy 
Policy. 

10 

ANNEXA 

General Economie Context 

The  strong recovery  in the  Community  economy in  1994 gave way to  a marked  slowing  of the 
rate of expansion during  1995. Output growth which had reached 4% during parts of  1994 is for 
1995  as a whole likely to be  of the  order  of 2.5%.  The outlook for  1996 is now  less  favourable 
than previously anticipated  and it now  seems likely that growth will be below 2%. However,  the 
main  forces  determining  the  growth  outlook  for  the  European  economy  are  favourable  to  a 
renewed pick-up  in the  rate  of expansion  in economic  activity  during the year  and  although  the 
average for  the year  is likely to  be below that  of  1995, the underlying trend  would,  in  contrast, 
be positive. 

The main positive growth forces include: 

- the world economy outside the Community is set to  expand at a healthy pace; 

-  the  fundamentals  of  the  Community  economy  in  terms  of  low  inflation,  moderate  wage 
pressures and sound investment profitability  are favourable; and 

- monetary policies have eased. 

Outside  the  Community  economic  activity  has  been  expanding  at  a  strong  pace  since  1992. 
There has been a renewed  dynamism of world trade as the emerging markets in Asia  and  Central 
and  Eastern  Europe  rapidly  integrate  into  the  world  economy  and  the  benefits  of  the  trade 
liberalising  measures  agreed  in  the  GATT  Uruguay  round  begin  to  be  felt.  The  rapid  pace  of 
export  market  growth  appears  to  have  slowed  down  but  the  outlook  for  the  external 
environment remains relatively  favourable. 

-  11 

ANNEXE 

Crude Oil Supply 

B. 1  Global Energy Reserves 

Following the oil shocks of  1973 and  1980, long run adjustments have now been made and 
energy supply and demand have achieved a new balance. As a result, global energy reserves 
are considered adequate and are unlikely to pose a physical constraint in the medium term. 

Proven  oil  reserves  are  some  43  years  (Chart  B.l).  This  is  certainly  the  lowest 
resources/production ratio (proven reserves to  current rate of production) among the fossil 
fuels,  although these oil reserves are equivalent in energy terms to the gas reserves (ca. 135 
billion  tonnes  oil equivalent  (btoe)).  However,  new  discoveries  and higher  recovery  rates 
from  existing fields -have  matched  or  exceeded  consumption  for  many  years  -  proven 
reserves  have  trebled  since  the  mid-1960s.  In  geopolitical  terms,  it  is  of  the  utmost 
importance to note that 65 % of the reserves are held in the Middle East,  a further  11% in 
Venezuela and Mexico and 6 % in the CIS (Chart B.2). 

World proven  reserves  of  solid  fuels  (at  present  rates  of production)  extend  to  over  200 
years. Proven gas reserves extend to  some 65 years. These have been  growing  recently in 
parallel with the big increase in demand for this fuel.  70 % of world gas reserves winch are 
located  in  the  CIS  or  the  Middle  East,  much  of which  are within  range  to  economically 
supply western or central Europe. 

There  is uncertainty  about  the  impact  of the  changing  shift  in world  demand  for  oil.  Oil 
demand will grow  strongly, particularly in China, India  and other fast-developing  Far East 
countries.  So  although there is unlikely to  be  a shortage  of oil in the  medium term,  there 
could  be  growing  competition from the  emerging  economies, particularly  as both  the  US 
and Europe face increasing dependency on imported energy. 

B.2 

Global OU Supply 

From  the  mid-1980s,  OPEC  had  regained  some  of  the  share  lost  to  new  non-OPEC 
production  following  the  oil  price  shocks  of  the  1970s.  However,  in  recent  years, 
technology  and  cost  reduction  advances  in  oil  exploration  and production,  notably  in the 
North Sea region, have resulted in OPEC taking a lower than expected share of the growing 
demand for oil (Charts B.3 and B.4). 

Demand  for  oil  is  forecast  to  continue  to  rise,  very  gradually  tightening  the  global 
supply/demand  balance.  As  well  as  increasing  the  requirement  for  non-OPEC  crudes, 

12 

supplies  from  OPEC  countries  are bound  to  increase,  particularly  from  the  high-reserve 
countries of the Middle East and from Venezuela. There is already available some 2-3 mb/d 
of spare production capacity, mainly in the Gulfj without taking into account potential Iraqi 
production of ca.2 mb/d. 

Between  1985  and  1994,  world  crude  prices  (as  represented  by  Brent  crude  in  current 
money terms) averaged about $20/bbl compared to nearer $40/bbl between  1975 and 1985. 
Over the past  three years, the  average has been nearer  $ 17/bbl (Chart  B.5).  Conventional 
wisdom  has  it  that  oil prices  can be  expected  to  increase  in  real terms,  albeit  only  very 
moderately,  over the next ten to fifteen years. Even against this background  of a tightening 
supply/demand balance, crude oil prices are expected to rise only moderately for  a number 
of reasons: 

(i)  Technology-Driven Reduction in Exploration and Production Costs 

Many  of  the  larger  non-OPEC  producing  regions  are  mature  developments,  with 
reserves  well  on their  way to  depletion.  Oil in the  lower  48  states  of the  USA (Le. 
excluding  Alaska)  has  been  exploited  more  thoroughly  and  for  longer  than  almost 
anywhere  else  in  the  world.  Even  Alaskan  oil,  although  discovered  more  recently, 
feces  a  future  of  declining  production.  The  fall  in  oil  prices  in  the  mid-1980s  had 
contributed  to  this  trend  by  making  some  of  this  non-OPEC  oil  production 
uneconomic. However, many mature non-OPEC areas have been undergoing a revival, 
or at least have not declined by as much as expected.  The technical response of the oil 
industry to the challenge of extracting oil economically at lower oil prices has exceeded 
expectations. 

There has been  a significant  reduction in cost  of finding and  extracting  oiL Although 
there have been man-power reductions to improve productivity, technology has played 
the  greater  part.  Exploration  techniques  have  become  more  efficient  and  drilling 
technology  improvements  have  considerably  enhanced  the productive  capacity  of  oil 
fields. Small,  formerly  uneconomic,  oil fields in the North  Sea  can now be  exploited 
using  specialist  production  vessels;  horizontal  drilling  has  become  a  widespread 
technique  in  only  a  few  short  years  as  a  method  of  significantly  enhancing  oil  field 
production  capability. At the same time, many governments have improved their  fiscal 
regimes in order to  encourage  oil exploration  and production.  Estimates for  the  cost-
reductions vary,  but  it  is possible that finding costs  could  have  halved  over  the  past 
decade.  Once  developed,  technology  developments  cannot  be  undone.  Nor  will 
technology  stand  still: even if future  progress does not  match that  of the recent  past, 
further  developments will serve to dampen future oil price rises. 

(ii)  Increasing Global Reserves 

Reserve additions have been replacing oil at least as fast  as it is being used.  Yet large 
areas of the world have still to be exploited  or even remain unexplored.  Potential new 
oil provinces  include  the  west  of the  Shetland  Islands, the  Barents  Sea,  the  Alaskan 

13 

National  Wildlife  Reserve,  the  South  Atlantic  and  South-East  Asia.  Although 
obviously not  an inexhaustible resource, the reserve base of oil does not  seem to be a 
problem for  some considerable time to  come.  However, it should again be noted that 
the traditional OPEC oil producers are expected to remain the predominant  owners of 
global reserves. 

(iii)  The Changing Influence of OPEC 

OPEC  recognises that  not  only  should prices preferably  be moderate, but  that  stable 
prices  would  be  in  their  long-term  interest.  As  history  has  demonstrated,  oil  price 
shocks only choke  off demand. Based  on this experience,  OPEC  is in future  likely to 
adopt  a more market-orientated  approach to pricing and supply, allowing prices to be 
driven by supply/demand factors. 

(iv)  Re-integration of the World Oil Industry 

The growing participation  of producer  countries in EC downstream activities has over 
the last few years been followed by the opening-up by most  of these countries of their 
upstream sector to  consuming  countries'  companies.  This process  of re-integration is 
likely to  continue  and  expand worldwide  and will assist  the  stabilisation  of world  oil 
markets. 

(v)  Increased Sophistication of Oil Markets 

Oil  markets  have  become  increasingly  sophisticated  in  their  operations.  They  have 
become  much  more transparent  thanks to  the  information  technology  revolution  and 
the underlying trends driving markets are now far better understood.  That is not to say 
that  there  will not  be  volatility  -  after  all, volatility  is the  basis upon  which  markets 
make  their  money.  But  the  prospect  of  sustained  oil  price  crises,  induced  by  non-
transparency of the driving forces, have become less. 

(vi)  Government Action to Facilitate Emergency Supply 

Effective  measures now  exist  at global level, notably the  IEA,  and  at  regional levels, 
such  as  the  EU,  to  face  potential  supply  disruptions.  The  Gulf  War  was  a  good 
reminder to the world that these measures exist and can work. At both the IEA and EC 
levels,  efforts  are  being  made  to  keep  these  measures  in  line  with  changing  market 
circumstances. 

(vi)  Alternatives to Oil 

It is worth  considering the alternatives to  oiL hi twenty years, oil has been  effectively 
ousted  from  much  of  the  steam  generation  sector  (in  particular  for  electricity 
production) in the developed world, first by coal, then by nuclear. Now it is the turn of 
natural gas. Over the next ten to fifteen years Europe's demand for gas could increase 

14 

by 40 %, with half of the increase being for the power generation  sector. Although oil 
will retain its near monopoly of the transport  sector, it will have to fight for a dwindling 
share  of  static  markets  -  not  an  environment  for  price  increases.  In  the  long  term 
renewable  sources  of  energy  such  as  solar,  wind,  biomass,  biofuel  and  geothermal 
which produce little or no pollution will constitute the main sustainable energy source 
and the  Commission,  as mentioned  in the  White  Paper  on  Energy  Policy,  will  come 
forward with a strategy for further  development in the form of a Communication. 

B.3 

European Union Crude Oil Supply 

B.3.1  Reserves 

Europe has significant  coal resources although these will be decreasingly exploited.  Oil and 
gas  reserves,  although  modest  by  world  standards,  are  expected  to  remain  a  significant 
indigenous energy resource. 

Total Western European proven oil reserves are less than half of the gas reserves (2.2 billion 
tonnes (bt) versus 4.9 btoe of gas). Most of those reserves are under the North  Sea. EC oil 
reserves are 0.9 bt with almost all of the rest of European reserves being held by Norway. 
The European reserves to production (R/P) ratio is just 8 years, although reserves are being 
replaced almost as fast as they are being used so, taking probable reserves into account, the 
actual life will be considerably longer. 

B.3.2 

Production 

Energy production  in the EC  can be expected to peak  around  2000  after  which  all of the 
primary  fuels,  except  renewable  energies,  are  forecast  to  decline  modestly.  By  2005, EC 
energy production is unlikely to have fallen below that of 1992. 

EC North  Sea oil production  peaked in the mid-1980s and fell back  quite rapidly over the 
following  few  years.  However,  production  has  actually  been  increasing  since  1991  as 
technological  advances  in  exploration  and  production  as  well  as  more  favourable  tax 
regimes  have  allowed  new  smaller  fields  to  be  brought  on-stream  economically  while 
enhancing recovery from existing fields. As a result, decline is not  expected to  set in again 
until the late-1990s. 

B.3.3 

Import Dependency 

Europe  has  been  deficit  in  energy  for  many  years,  in  spite  of  a  long  established  and 
substantial domestic coal industry, and, in more recent years, the development  of major  oil 
and  gas reserves  in  North-West  Europe  and  a  major  nuclear  power  industry.  Rising  EC 

15  -

energy  demand  and  declining  domestic  primary  energy  production  will  result  in  an 
increasing reliance on imports from third countries, notably the Middle East and the CIS. 

The dependency of the EC on imported energy (Le. energy imports as a percentage of gross 
inland energy consumption) currently stands at around 48 %. Although  only slightly higher 
by 2000, dependency could reach 55 % by 2005, accelerating  thereafter. 

The main  change  in  import  dependency  is in  coal  -  as  domestic  production  declines,  EC 
imports have risen from 29  % of consumption in  1990 to  around  44 % at present  and are 
expected to be 50 % by 2005. 

Gas dependency is around  40  % and the  strong  demand  growth  forecast  for  the next  ten 
years increases that figure to over 55 % by the middle of the next decade. 

The dependency of the EC on imported oil is already high (Chart B.6). Imports  accounted 
for  nearly  80  %  of consumption  in  1990,  although  the  recent  strong  performance  of EC 
North Sea production has actually reduced the figure slightly. Including Norway, this  figure 
drops  to  60  %.  With  the  projected  long-term  downturn  in  EC  crude  oil  production 
expected to have only just started by 2005, and the expected continued modest growth in oil 
product  demand  in prospect,  EC import  dependency may be  expected  to  rise to  83  % by 
around 2005. 

B.3.4  Crude Quality 

Until relatively recently,  circa  1993, the  quality of the  crude  oil barrel (that  is, the  overall 
mixture  of  crude  oils)  processed  in  European  refineries  had  been  getting  progressively 
heavier.  Production  of  domestically  produced  crudes,  which  tend  to  be  relatively  high 
quality,  had  fallen  while  imports  of  heavier  crudes  had  increased.  This  exacerbated  the 
impact on refining  of the rising demand for high quality products for transport  and resulted 
in significant refinery investment in new plant to convert heavy oil fractions into lighter ones. 
However,  from  1993  onwards  the  average  gravity  of  the  EC  crude  slate  has  changed 
significantly  due  to  the  factors  mentioned  below.  (Chart  B.7  illustrates  the  trends  in  the 
average gravity of crude oil supply pre- and post-late  1993.) 

Over the past two years, North  Sea oil production has enjoyed  a revival. Consequently, the 
total level of oil imports into Europe has fallen slightly. Net crude oil imports into the EC-12 
in 1994 were 27 mt, or 6V2 %, lower than in 1992. 

The quality of imported  crudes has changed too. OPEC crudes tend to be heavier, but not 
only has their  share of global oil supply fallen  somewhat  over the past  couple of years, but 
the overall quality has improved too. This is the result of a specific  strategy by Saudi Arabia 
to maximise exports of higher value light grades in place of medium and heavy grades as far 
as possible in order to  compensate for the substantial fall in oil revenues experienced  since 

16  -

the  1986  price  fàlL  This  has  included  the  development  by  Saudi  Arabia  of  recently 
discovered oilfields containing very light crudes. 

Finally, global supplies of condensates and natural gas liquids (NGLs) have been rising for 
some years. Blended with crude oil or directly imported as refinery feedstock, they have had 
the effect  of Hghtening the global supply barrel. 

The unexpected  hghtening  of the  EC  crude  supply barrel mentioned  above  is  one  of the 
main causes of the present poor profitability of EC refineries. 

The future  direction  of the  quality  of crude  oils processed  by EC  refineries  is  difficult  to 
forecast.  In the very long-term, the vast reserves of medium and high gravity crudes held by 
the  countries  of  the  Middle  East  will  eventually  supply  an  increasing  share  of  EC 
requirements as domestic reserves are depleted.  In the near term, the supply barrel may well 
remain of a higher quality than had previously been expected. 

B.3.5 

Supply Security 

For the moment, there is generally little cause for concern as to both the current  and future 
outlook for security of oil supply. Conditions have changed substantially from the crisis/sub-
crisis situations which existed  some twenty years ago when both  crude and product  supply 
were much less diversified than they are today (Tables B. 1/2/3/4/5/6). 

Moreover, there is the potential for  an excess of oil supply over demand for  some years to 
come.  Nevertheless,  the  underlying  assumptions  as  to  the  stability  of  crude  oil  supply 
sources should be subject to  continual review. Indeed, as has already been indicated, more 
than  three-quarters  of world  oil reserves  are  located  in  potentially  unstable  areas from a 
political  and/or  economic  point  of view.  These  will  remain  the  dominant  source  of  EC 
supply in the future. 

There is therefore  an  ongoing need for  the EC  to  see to  it that  good  producer-consumer 
relations are fostered by a process of dialogue and alignment of interests via investment and 
operational arrangements. Upstream investment possibilities for EC companies in producer 
countries are now opening up, and the developments that producer country companies have 
been  pursuing  in the  EC  downstream  sector  in  recent  years  are  continuing.  Such  moves 
consolidate the mutual interest that both parties have in the successful performance  of the oil 
sector as a whole. Instances of this process are: 

•  The  development  of  co-operation  in the  energy field between  the  Gulf  Co-operation 
Council (GCC) countries and the EU, as found  in the progressive vertical integration of 
respective GCC and EC industries where EC downstream investment  is undertaken by 
GCC  companies  while  upstream  investment  is  undertaken  in  GCC  countries  by  EC 
companies 

-  17 

•  The Commission's co-sponsorship  of the Fourth International Conference  on Energy in 

Puerto la Cruz, Venezuela on 25/27th September 1995 

•  The  Commission's  participation  in  the  Barcelona  Conference  of  27/28th  November 

1995 on Euro-Mediterranean  Co-operation 

•  The establishment of the European Energy Charter which will provide a context within 
which investment by EC companies in the exploitation of the hydrocarbon resources of 
the CIS and CEEC may be undertaken with confidence 

Further  attention  needs to  be  given  as to  how best  to  facilitate  this process  of  dialogue, 
hence the need  for  the EC  as the world's largest  oil importer to  support  and promote the 
political  dialogue between producers  and  consumers  following  the new  impetus  given by 
France and Venezuela at the Paris conference in July 1991. 

Having  sought  to  promote  supply  security  via  appropriate  political  arrangements  as 
described above, there remains an ongoing need to  ensure that there are in place  adequate 
arrangements  for  the  management  of  crisis  situations  via  the  maintenance  of  stock 
obligations and other co-ordinating activity. In this connection, there is broad satisfaction  as 
to  the  complementarity  of  IEA  and  EC  systems  and  the  continuing  efforts  of  both 
institutions to keep the necessary arrangements in line with the changed  situtation of the oil 
markets and, particularly as far as the EC is concerned, to adapt the existing crisis legislation 
to the functioning  of the internal market. 

A further  issue to  emerge in the context of supply security is the general question of crude 
oil supply logistics.  The EC must have regard  to  the  continuity  of its long-term  crude  oil 
supply  and  be  vigilant  as  to  new  opportunities  to  ensure  its  access  to  the  supply 
arrangements that are evolving as a result of new crude oil production sources and changing 
political  circumstances.  Examples  in  this  connection  would  include  the  new  pipeline 
networks that  are being  developed  or mooted  in respect  of new  CIS production,  notably 
from the Caspian  Sea, and the re-opening of the ADRIA pipeline in Croatia, as well as the 
possibilities  that  are being  considered  in  respect  of  Russian  oil  exports  in  the  context  of 
Trans-European Network support, as provided for in the Treaty. 

18  -

ANNEXC 

Oil Product Demand  and Supply 

C.l 

Global Context 

World  energy  consumption  more  than  doubled  over  the  last  three  decades,  reaching  8.4 
btoe in  1990.  Between  1974, the year following the first major  oil price  shock, and  1992, 
the annual rate of growth was almost 2 %.  Growth has recently ceased because of declining 
consumption  in  the  former  communist  countries,  but,  as  these  economies  recover,  the 
underlying trend will be restored  and  demand for  energy  can be  expected  to  grow again. 
The IEA estimate that energy could grow at 2 % or more each year over the next  10 to  15 
years. 

As regards the  split  by type  of  EC-15  1995  gross  primary  energy  consumption  of  1369 
mtoe, oil predominates with 574 mta, representing a share of 43 %, with gas coming some 
way behind in second place with 277 mtoe (20  %). While by 2005 oil consumption rises to 
606 mta, its share drops to  39 %, principally in favour  of gas and renewables. (Charts C.l 
and C.2 respectively show the position for each year.) 

Overall OECD  oil growth  is forecast  at  around  1 % pa.  between  1992  and  2010 by the 
BEA Outside the OECD, while energy growth in the countries of the CIS and Central and 
Eastern Europe takes some years to recover (but is still forecast to increase at an average of 
0.6 % p.a. between  1992 and 2010), the developing world will achieve growth rates of as 
high as ca. 4 % p.a.,  hi quantitative terms the forecast  OECD growth of 1% is considerably 
larger than that of the developing world's 4%. In particular, the developing countries of the 
Pacific  Rim,  led  by  China  and  the  "tiger"  economies  of  South  Korea,  Taiwan,  and  the 
ASEAN countries, as well as Latin America, will be foremost in this growth. 

In the  OECD,  oil will  continue  to  be  increasingly  concentrated  in the  growing  transport 
sector,  offsetting  declining  demand  in other  sectors.  In the  developing  world  demand will 
grow  in  all  sectors because  of the burgeoning  need  for  energy in general  and the  lack  of 
suitable alternatives to  oil in many parts of the world.  Transport  sector growth will be the 
strongest. Although world oil demand will continue to increase, it will be outstripped by the 
other main primary energy sources, particularly gas. While losing  share, oil will remain the 
most important source of world energy. 

C.2 

EC Oil Product Demand 

C.2.1  EC Oil Product Demand Statistics 

19 

There has been  a flattening-off  in  overall demand  in recent  years, while relatively modest 
growth (ca.  0.5  % p.a.) is expected  over the next ten.  (Chart  C.3)  illustrates the  expected 
evolution  of EC-15  oil demand, including the barrel  split, over the period  1990-2005, the 
projections from 1995 on being based on the Commission's latest base case.) 

The  Western  European  demand  barrel  has  become  steadily  lighter  over  the  last  twenty 
years, with  the  most  pronounced  growth  being  observed  in middle  distillates,  followed  in 
turn by gasolines and other products. (Chart  C.4 demonstrates this evolution in percentage 
terms.  Chart  C.5  provides  a further  demonstration  of how  the barrel  hghtening  has been 
predominantly in the direction  of middle distillates  since  1990 and  also  shows how this is 
expected to continue for a further ten years, albeit at a decreasing rate after 2000.) 

EC-12 oil demand was 494 mt in  1994, excluding some 35 mt of fuels for marine bunkers. 
At these levels oil accounts for  some 43 % of total EC energy consumption.  Gasoline (Le. 
aviation and motor gasolines phis light chemicals feedstock) accounted for 27 % of total EC 
oil demand,  middle  distillate  (jet  and heating  kerosines,  and  gas  and  diesel  oils,  including 
marine bunker fuel) for 44 %, fuel oil (industrial and power station fuel plus marine bunker 
fuel)  for  18  %,  and  other  products  (refinery  gas,  liquefied  petroleum  gas,  solvents, 
petroleum coke, lubricants, bitumen and  waxes) for  11  %. 

It is to  be noted that the  share  of light products has been  increasing  steadily  since the  oil 
price  shocks  of  the  1970s  caused  demand  for  heavy  fuel  oil  to  decline  in  the  face  of 
competition from other energy sources while the demand for  gasoline, kerosene  and diesel 
for  transport  has  risen.  More  recently,  and  unexpectedly,  the  demand  for  diesel  has 
continued to grow steadily at the expense of gasoline. 

C.2.2 

EC Demand Outlook 

Commission forecasts predict that the  overall level of demand  for  energy in the  European 
Union  will increase  slowly but  steadily  over the next  ten years, rising at  around  1 % per 
annum 

As  a  result  of the  "dash  for  gas",  mainly  in  the  power  generation  sector,  natural  gas  is 
expected to be the fastest  growing fuel - demand  could rise at over  3 % p.a.. Nuclear and 
renewables will grow too while coal declines. Oil is forecast  to rise only modestly - around 
0.5% p.a.. 

While there  is a possibility that  the Directive  75/405/EEC  banning the use  of oil in power 
generation  will be  repealed,  it  is expected  that  oil  demand  for  this use  will fall.  There is, 
however,  some growth expected in the sectors of final demand - mostly transport fuels.  Oil 
will retain  the  greatest  share  of total  EC  primary  energy.  By  2005  it  is  still  expected  to 
account for around 40 % of total energy consumed. 

20 

Oil demand growth will be concentrated  in the non-substitutable transport  and non-energy 
uses. Regionally, most of the growth is in Southern Europe, where there is more scope for 
increases in oil use as a result of stronger economic growth. Competition with gas will be an 
important  factor,  particularly where  Heavy  Fuel  Oil (HFO)  is being  displaced  for  power 
generation  (notably  Italy)  and  where  gas  is  being  introduced  as  a  new  fuel  (Greece, 
Portugal, Spain and parts of Scandinavia). 

Overall,  the  demand  barrel  is  expected  to  continue  to  lighten.  In  common  with  the 
worldwide  trend,  although  not  as strong  as the trend  in the  developing  world,  growth  is 
expected in the middle of the barreL  The products involved  are kerosene for  aviation uses 
and particularly diesel for transport, more than offsetting  continuing decline in space heating 
uses of these fuels. 

Gasoline  demand may grow  slightly, mainly in  Southern Europe, but the continuing trend 
towards diesel-fuelled  passenger  cars is expected to limit growth, unless there are taxation 
changes to  equalise  excise taxes on the two  fuels  on an energy basis. This would  still not 
reverse  the  trend  completely  though  as  there  are  still  operating  efficiency  advantages  in 
using  dieseL  Current  concerns  about  particulate  emissions  by  diesel  vehicles  should  be 
technically resolvable. 

The residual end of the barrel is expected to decline since fuel oil faces both  environmental 
regulation and competition from natural gas. Nonetheless, a not insignificant  proportion  of 
residuals are used for purposes where  substitution  is not  straightforward,  HFO for  marine 
bunkers, bitumen, lubricants and petroleum coke. These uses account  for  around  40  % of 
residuals in Europe are likely to grow in line with the economy. 

EC Oil Product  Supply 

The  1994 mass balance of EC-12 oil product  supply was as follows:  total EC-12 product 
demand of 494 mt and non-EC-12 exports (including bunkers) of 110 mt were met by 517 
mt  of net  refinery  production,  non-EC-12 imports  of 76 mt  and  EC-12  stocks  and  other 
changes of 11 mt. 

The ELPs own refining industry provides the overwhelmingly greater proportion (86 %) of 
overall product  supply.  While  overall net  imports  of  oil products  are  approximately  zero 
(Chart C.6), this is made up of significant net exports of gasoline (15 mta), which have been 
increasing strongly over recent years, balanced mainly by net imports of fuel oil and naphtha 
(Charts  C.7/8/9).  Sources  of  product  imports  are  widely  diversified  (Table  B.2). 

21 

ANNEXD 

Environment 

D. 1 

Political and Economic Context 

Protection  of  the  environment  is  an  EC  objective  of  major  political  and  economic 
significance.  In  Chapter  XVI  of the  EC  Treaty  is  set  out  the  policy  on  the  environment 
which the Commission has to promote. 

There is a great deal of concern across the Community about the environment and in 
particular air quality. Citizens are demanding improvements and indeed specific 
committments in this respect were made in the Framework Convention on Climate Change. 

The whole  Community  in general will benefit  from  improved  air  quality.  For  the  energy 
sector  in  particular,  environmental  measures  will  have  far-reaching  effects,  and  is  to  be 
regarded  as one of the key issues for  the  oil industry, having impacts  on both the  refining 
and the marketing sectors. 

D.2 

Current and Proposed Measures 

The impacts of both current and proposed measures relate to operating arrangements in the 
refining  process  itself^  to  new  tighter  product  specifications,  and  to  emissions-limiting 
equipment in the distribution system. 

The current EC  directives in regard to pollutants in various oil products have given rise to 
tighter  specifications  in  respect  of  sulphur,  benzene  and  lead  levels  as  set  out  in  Tables 
(D. 1/2/3). 

In addition, there now exists a directive adopted by the Council in  1994 on the  control of 
volatile  organic  compound  (VOC)  emissions  resulting  from  the  storage  of petrol  and  its 
distribution from terminals to  service stations (the so-called 'Stage T Directive - 94/63/EC). 
This  Directive  is  a  first  step  in  the  implementation  of  a  strategy  to  achieve  an  overall 
reduction  in VOC  emissions throughout  the EC.  It  applies to  the  operations, installations, 
vehicles  and  vessels  involved  in  the  storage,  loading  and  transport  of  petrol  from  one 
terminal to another or from a terminal to a service station. 

The Auto Oil Programme and possible future measures arising are outlined in section D.4.2. 
below. 

22 

D.3 

Implications for Downstream Economics and Decision-Making 

Current  measures  and  proposals  are  already  involving  the  industry  in  heavy  expenditure 
which  they  are  concerned  will  not  be  recovered  in  oil  product  prices.  The  implied 
investment, including expenditure incurred to date, for the downstream oil sector in respect 
of  existing  and  potential  EC  environmental  measures  is  substantial  Table  D.5  quotes 
estimates  made  by  the  industry  and  other  sources  as to  the  ranges  of  expenditure  to  be 
expected. 

The amount  of middle distillate desulphurisation capacity already installed  as a result  of the 
measures  is  considerable,  namely  155  mta  of  capacity  by  1994  (Table  D.6  gives  the 
breakdown by country) compared with total middle distillate demand of 225 mt. 

A  further  potential  economic  implication  is that  the  obligatory  clean-up  costs  which  are 
imposed on refiners who close plant are impacting on refinery  closure decisions in that they 
raise  substantially  the  cost  of  so  doing.  In  accordance  with  the  'polluter  pays'  principle, 
operators who shut down refineries,  depots, retail sites or other installations are required to 
clean up the  site to  specified  acceptable  standards. The costs to be incurred  are potentially 
substantial - for  a medium-sized refinery these  could typically lie in the range ECU  60m -
ECU 80m, and for a retail site be in the order of ECU 200,000. 

D.4 

Environmental Outlook 

D.4.1 

Possible Future Measures 

It is clearly a complex matter to  assess all of the technical and non technical environmental 
options that are available in respect of measures that could be applied in the refining  sector, 
having regard to their economic aspects in terms of cost  effectiveness  and implications for 
competiveness, as well as geographical considerations. 

There has, however, evolved over the last few years a new approach to the formulation  and 
selection  of  oil  sector-related  environmental  measures.  These  are now  aimed  at  achieving 
the new  air  quality targets  for  1999/2005  in regard  to  emissions  of pollutants Nox,  S02, 
CO,  particulate  matter,  lead,  ozone,  benzene,hydrocarbons,  cadmium,  arsenic,  nickel  and 
mercury. 

With regard to  a second round  of reductions in permitted VOC emissions, the Commission 
services are reflecting  on the most cost-effective  ways and means to achieve these, either via 
technical  adaptations  at  service  stations  (the  so-called  Stage  II  measures  which  some 
Member  States have already decided upon) or via the installation of large carbon canister in 
cars. 

23 

D.4.2 

The European Auto Oil Programme 

Further  environmental  measures  are  in  prospect.  A  major  initiative  on  the  part  of  the 
Commission in conjunction with the EC oil (EUROPIA) and motor manufacturing  (ACEA) 
industries  was  launched  in  July  1993  with  the  objective  of  improving  air  quality.  This 
initiative forms part of the Commission's new strategy in regard to vehicle emissions which 
is  based  on  a  multifaceted,  coherent  approach  to  pollution-reduction  measures  to  be 
implemented by the year  2000.  The initiative is called the European Auto  Oil Programme 
(EAOP), and the strategy is fully in line with the Commission's Fifth  Environmental Action 
Programme, which places particular emphasis on cost-effectiveness  analyses. 

The intent  of the  EAOP  is to  identify  which new  measures  may be  required  to  meet  air 
quality targets the development of which are based on a rational approach via the reduction 
of emissions  in the  most  cost-effective  way.  These measures identified  by the EAOP will 
form the basis for the next step in the new European legislation on both emissions and fuel 
qualities. 

The  European  auto  oil  programme  has  also  identified  improved  inspection/maintenance 
schemes  and  a number  of non-technical measures (eg road pricing, restriction  of traffic  in 
certain areas and  scrappage  schemes) as important  elements of national policies to  comply 
with future  air quality objectives. However, the nature of most non-technical measures does 
not lend itself to regulation on an EU but rather on a national/local level. 

To date, four parts of the EAOP have been finished, namely: 

(i) 

the European Programme on Emissions, Fuel and Engine Technologies (EPEFE), 

(ii)  the Air Quality Study of conditions in seven European cities, 

(iii)  the monitoring of the quality of fuel available on the market, and 

(iv)  the  cost-benefit  analysis of the technical and non-technical measures proposed  for  the 

achievement of the required air quality standards. 

The  main  aim  of  the  EPEFE  research  test  programme  was  to  establish  the  relationship 
between  engine technology, fiiel quality and emissions. The results of the programme have 
seived  in  assessing  the  emission  reductions which  can be  achieved  through  changes  in th 
equality of fuel. 

This excellent example of co-operative effort  on the part of the Commission and the oil and 
motor  manufacturing  industries is expected  to  lead  shortly to  the  establishment  of  sets of 
specifications  to  come into force in 2000 in respect  of the properties  of motor fuels which 
will bring about  significant  reductions in the emission levels of pollutants produced in their 
use  and  manufacture.  As  well  as  meeting  environmental  requirements,  the  new  sets  of 

24 

specifications  will be  consistent  with the need to  retrict  the  cost  of resulting  measures  to 
manageable levels, and with other social and economic needs of EC countries. 

D.4.3 

Industry Proposals on a Cost-Benefit Approach to Commission Measures 

The oil industry are proposing that the cost-benefit  approach adopted in the EAOP be used 
as the basis for a much more thorough and comprehensivety global approach (called Energy 
Impact Assessment - EnergXA) in respect of Commission proposals which potentially will 
have direct  or indirect  repercussions on the  energy  sector.  The approach proposed  would 
take into account all impacts on energy and related activities in the cost-benefit  assessments 
of proposed  EC  measures,  amongst  which  they  make  mention  of  those  relating  to  the 
environment.  The  assessments  should  involve  a  comprehensive  and  objective  cost-benefit 
analysis, quantitative  and  qualitative, in relation to  the impacts that  proposed  Commission 
measures  would  have  on  the  realisation  of  EC  energy  policy  objectives.  This  approach 
merits further  examination by the Commission services. 

25 

ANNEXE 

Oil  Refining 

E. 1 

Refinery Numbers, Capacity and Utilisation 

E.l.l  Definitions of Capacity Types 

Two of the principal elements of the refining process need to be defined in order to be able 
to discuss and understand adequately the economics of the refining  sub-sector. 

The  first  is  the  crude  oil  distillation process,  which  is  that  part  of  the  refining  process 
relating to the initial processing of the crude oil, that is the primary distillation process, with 
the plant itself known  as the crude distillation unit (CDU). Generally, when people refer to 
'refining  capacity1,  'CDU  capacity1,  or  'straight-run'  capacity,  it  is  this  capacity  that  they 
mean. 

The  second  covers  upgrading  processes,  which  improve  the  quality  and  value  of 
intermediate products of the refining process.  Such processes include those which improve 
distillates  (like  catalytic  reforming),  and  conversion processes  (like  catalytic  cracking). 
Conversion  processes  convert  fuel  oil  manufactured  in  the  initial  cmde  oil  distillation 
process, or other intermediate products of the refining process which have a fuel  oil value, 
to  middle  and  light  distillate products,  thereby  enabling  refiners  to  match  product  output 
more closely with demand.  Conversion is often  quoted in terms of the equivalent  catalytic 
cracking (CCU) capacity needed to produce the same amount of distillate, catalytic cracking 
being one of the commonest  examples of conversion plant.  Others include hydrocracking, 
residue cracking, combination cracking, visbreaking, coking and alkylation. 

The terminology presented in these definitions is used throughout this document. 

E.1.2  Refinery Numbers 

There were 93 refineries in the EC-12 at end-1994 following a long period of closures since 
1980 when there were  141. The total numbers of refineries plus primary distillation capacity 
and  details  on  refinery  complexity  at  the beginning  and  end  of the  period  plus  1988  are 
given in Table E. 1. 

While the overall number of refineries has declined over the period, it may be seen that the 
number of complex refineries has actually increased (from 55 to 66), with decreases in semi-

26 

complex  refineries  (from  24  to  13)  and  in  simple  refineries  (from  62  to  14),  thus 
representing a significant increase in the complexity of total EC refining capacity. 

Following the  closures,  only three refineries  with  a capacity of less than  1 mta  remain.  In 
addition,  some refineries  are poorly located  and, together with the low-capacity  refineries, 
are in the current margins climate consequently suffering from particularly poor profitability. 

E.1.3 

Trends 

Total EC-15 crude oil distillation capacity as reported by Member States for  1994 was 637 
million  tonnes  per  annum  (mta),  of  which  560  mta  was  utilised.  This  represented  a 
utilisation rate of 87 % and followed the more or less steady rise in utlisation observed since 
1985  when  utilisation  was  only  63  %.  This  increase  reflects  the  programme  of  crude 
distillation  capacity  reductions  undertaken  by  many  refiners  over  the  period,  in  part 
accounted  for  by the  closures of complete refineries  mentioned  earlier.  Table E.2  sets out 
the  situation  at  1.1.1995  for  each  Member  State  in  respect  of  capacities  of  both crude 
distillation  and  conversion  plant,  while  crude  distillation  capacities,  throughputs  and 
utilisation are plotted on Chart E. 1 for the period 1985-95. 

The crude oil distillation capacity figures, on which the utilisation rates are calculated, do 
not however include an adequate allowance for both the so-called 'capacity creep' which has 
been taking place  over recent  years and which  describes  small but  ongoing  expansions  of 
existing nominal nameplate capacity as reported, and capacity which has been taken out  of 
service but is available at relatively short notice. Hence the utilisation rates are over-stated, 
falling even further  short of total utilisation than the figures indicate. 

Conversion plant  capacity for the EC-15 area amounted to  199 mta (in terms of catalytic 
cracking  equivalent)  in  1995, up  50 mta  or  35  % compared  with  1985  (Table  E.3/Chart 
E.2). This figure represents 31 % of total CDU capacity. This strong growth in conversion 
capacity reflects the industry's expectations at the time as to future  gasoline demand growth 
and  an increasingly heavy  crude  supply slate. These  expectations were vindicated  up  until 
the early nineties when gasoline growth flattened  off  and the  crude  slate  started to  lighten 
(see Charts B.7, C.3 , C.4 and C.5, presented in earlier Annexes). The general consensus in 
industry  is  that  the  conversion  capacity  in  place  was  nevertheless  utilised  as  although 
margins were low they were still sufficient  to cover cash variable costs. 

E.2 

Refining  Margins and  Profitability 

E.2.1  Margins Definitions 

27 

Refinery  profit  margins  are  defined  as 'gross  margins'  for  the purposes  of this  document. 
That is, they are the difference between the proceeds derived from oil product  sales and the 
cost of crude oil feedstock,  divided by the amount of crude oil processed. 

E.2.2  Observed Margins 

Chart  E.3  sets  out  refining  profit  margins expressed  in US  dollars per  barrel  of crude  oil 
processed which have been earned over the period  1988-94 in North-West Europe (NWE) 
and  in  the  Mediterranean  (Med).  For  NWE,  they  are  plotted  for  both 'Straight-Run 
Refiners1 (that  is,  the  'straight-run margin', defined  broadly  as  that  earned  by  refiners 
running only ciude distillation phis catalytic reforming  plant) and for  'Upgrading Refiners' 
(that  is  the  'upgrading margin'  defined  as  that  earned  by  those  refiners  running  crude 
distillation  phis  catalytic  cracking,  gas-oil  desulphurisation  and  catalytic  reforming  plant). 
For the Med, they are plotted for 'Upgrading Refiners' only. 

As an initial observation, it may be seen that while there has recently been  little  difference 
between  typical upgrading  margins in NWE  and the Med,  over  the  period  1992-94  Med 
margins  were  higher  by  up  to  circa  $0.6/bbL  Secondly,  it  may  also  be  seen  that  both 
straight-run  and  upgrading  margins  have  fallen  since  peaking  in  1991,  reaching  levels  of 
circa $0/bbl and $1.8/bbl in 1995. 

It is estimated that upgrading margins would have to reach  significantly  higher levels on a 
sustained  basis before  refiners  would  earn  adequate  returns  on the  upgrading  investments 
they have made in recent years. Chart E.3  demonstrates that upgrading margins have only 
once - in  early  1991 during the  Gulf crisis - reached  such  levels,  and then  only for  a  few 
months. 

E.2.3 

Explanation of Trends 

The refining  sub-sector of the EC downstream oil industry has been  experiencing for  some 
time what must now be regarded  as chronically weak margins. At the  same time, there has 
developed  a surplus of motor gasoline manufacturing  capacity and a tightness in diesel fuel 
supply. 

This situation has come about as a result of: 

(i) 

the evolution of the economic recession as reflected  in a flattening  off in overall EC oil 
product demand, in particular in gasoline, 

(ii)  an  ongoing  EC  excess crude  oil distillation  capacity to  refine  crude  oil relative  to  oil 

product demand. 

(iii)  an  unforeseen  increase  in  the  availability  of light  crude  oils from the  North  Sea  and 
Saudi  Arabia  which  has  made  it  possible  to  manufacture  additional  light  product 

28  -

without  having  to  utilise  all  of  the  available  refinery  conversion  plant  (originally 
installed by the industry in the expectation  of a growth in heavier crude supply which 
would have given rise to  a light product  deficit) (Chart E.4  demonstrates the effect  of 
this development on both crude and product price differentials), 

(iv)  the  switch in road transport fuel demand from motor gasoline to  diesel, driven in part 
by fiscal disparities in many Member  States between  diesel  and  gasoline which have 
boosted diesel demand at the expense of gasoline, and 

(v)  an  increasing  number  of  environmental  constraints,  in  particular  the  introduction  of 
unleaded  gasoline,  necessitating  investment  in  additional  refinery  plant  to  improve 
quality, which has given rise to a non-intended addition to light product  rnanufacturing 
capacity. 

Despite  the  large  reductions  in  crude  distillation  capacity which  were  facilitated  over  the 
eighties, the  over-capacity  situation remains and seems unlikely to  disappear for  some time 
without  further  plant  closures.  The  further  reduction  of  both  crude  distillation  and 
conversion  capacity  appears therefore  to  offer  one  contribution  to  the  resolution  of this 
problem 

Some refiners  have responded by closing further  crude  oil distillation  capacity  or in some 
cases by selling out  complete refineries to purchasers whose economics are dictated by the 
strategic objective  of entering new markets. Overall, however, there have been  insufficient 
reductions in crude oil distillation to tighten oil product  supply and thus boost  straight-run 
margins to acceptable levels. 

In addition, no  conversion  capacity has been  closed,  and  consequently  there has not  been 
the  tightening  in  the  availability  of  light  distillates  that  would  be  necessary  to  boost 
upgrading margins. 

There has been only one outright refinery closure recently, (capacity approximately 5m toe) 
largely because refiners have been reluctant to take  such  strategically  significant  decisions, 
given their one-way character and the heavy environmental and social charges that would be 
incurred. 

The necessary reductions in crude distillation capacity have not yet happened because of the 
uncertainty  as  to  if/when  demand  will pick  up  again,  the  ongoing  trend  to  reduce  costs 
which has allowed refiners to remain cash-positive, and the reluctance of individual refiners 
to face the  strategic and operational implications as well as the substantial costs of refinery 
closures. 

As a result of the situation in both crude distillation and conversion, refiners, most of whom 
have at least a partial conversion capability, are trapped between having cash margins which, 
although  low,  are  positive  on  the  one  hand  but  which  do  not  offer  adequate  returns  on 
conversion plant investment on the other. 

-  29  -

Given all the above actors, the industry is faced with an unusual degree of uncertainty as to 
the prospects  for  the  sector  and  is therefore  adopting  a  "wait-and-see"  position  vis-à-vis 
decisions  on  capacity.  Table  E5  gives  details  of net  expansion  and  reduction  in  capacity 
which, at the beginning of  1995, had already been advised. Table E6 gives details of OPEC 
foreign refining capacity at the end of 1995. 

E.2.4 

Effects on Refining Profitability of International Trade 

The overall oil product trade balance of the EC has improved considerably over the last few 
years  (Charts  C.6/7/8/9, presented  in  earlier  Annexes).  Some  concern  remains,  however, 
that  any reductions that  are achieved in EC refining  capacity could be off-set  by increased 
imports, thus preventing any improvement in margins. 

It  should  be  noted  in this  connection  that  the  Generalised  System  of  Preferences  (GSP) 
provisions which have in recent times favoured oil product imports from some countries are 
shortly to become more severe, in line with the original intention of the GSP system which 
was to favour investment in the Less Developed Countries (LDCs). 

Imports could become an important factor with either the rising oil product  self-sufficiency 
of  Far  Eastern  countries  which  may  have  the  effect  of  deflecting  exports  from  Middle 
Eastern refineries to the EU, or with increasing oil product exports from the CIS. In regard 
to the latter, the likely evolution of the downstream interactions between the EC on the one 
hand and the CIS and CEEC on the other continues to be unclear, given the uncertain pace 
and direction of developments there. In the short to medium term, there is a consensus that 
changes  are  unlikely  to  have  any  ongoing  major  impact  on  downstream  oil  supply 
economics. In the longer term, it is felt likely that the CIS and CEEC will invest in refinery 
plant  so  as  to  match  their  product  output  more  closely  with  domestic  demand,  thereby 
allowing  their  crude  oil production  to  be  exported  as  crude rather  than  product,  a  more 
profitable  option  than  their  current  practice  of  exporting  product  surpluses  on  to 
international markets. 

In the USA, the moves to introduce Reformulated  Gasoline in an attempt to reduce noxious 
emissions have had implications for EC refiners in that some have had at least temporarily as 
a result of supply logistical changes enforced  on US importers to reduce  exports of motor 
•gasoline  to  the  USA.  Some  countries  and  companies  argue  that  the  new  regulations, 
introduced  in  1995, have favoured  US refiners.  The situation is, however,  evolving  and it 
remains to be seen whether the effects  on EC refining profitability will prove to be material 
in the longer run. 

E.3 

Refining  Outlook 

30 

There is a consensus that  the  outlook  for  the  sector is characterised  by  an unusually high 
degree  of  uncertainty,  the  consequence  of  which  is  to  hobble  the  commitment  of  the 
industry to the  sector  as a whole. This is being manifested  in a "wait-and-see' approach  on 
the part of most industry players in regard to strategic decisions. 

More specifically,  it is widely accepted by operators that there is a need for further  refinery 
closures before margins can be expected to be restored to  acceptable levels in the  short to 
medium term, although it remains a possibility that the capacity surplus currently observed is 
merely temporary in character. 

It is also accepted, however, that further  closures may prove difficult  to  achieve. This is so 
because of the heavy costs of closure. 

A  further  factor  thought  to  be  inhibiting  refinery  closure  decisions  is the  question  of the 
clean-up  costs that  would  generally be incurred,  as referred  to  earlier.  Rather  than  close 
refineries  which  are unprofitable,  it  is believed  that  owners  are  instead  being  tempted  to 
maintain  them  on  a  'tick-over'  basis,  minimising  investment  while  manufacturing  such 
quantities  and  qualities  of product  as will leave them  cash-positive.  This  course  of action 
merely  contributes  to  the  general  over-supply  situation.  In  these  circumstances,  as  an 
alternative to  bearing  the  costs  of  closure,  some  refiners  may well,  for  strategic  or  other 
reasons,  be  tempted  to  sell  to  purchasers  whose  strategic  intentions  and/or  economic 
circumstances make such deals attractive to them  Moreover, the new owners would have a 
low level of invested capital to remunerate and thus be in a position to operate profitably at 
margins  which  only  covered  operating  costs,  thereby  directly  weakening  further  refining 
margins throughout the sector as a whole. 

Accordingly,  refiners  are  keeping  their  investments  -  other  than  obligatory  care-and-
rnaintenance  or  that  required  for  statutory  reasons  -  on  hold,  given  the  absence  of  any 
prospect of improvement in the near or even the medium term  With obligatory investment, 
refiners are fearful that they will not earn adequate returns, all of which is producing a "wait-
and-see' mood in the industry. 

Against this background, there is also the competition that  other parts of the world present 
in  regard  to  attracting  industry  investment.  Better  returns  may  be  available  elsewhere. 
International oil companies may concentrate their  scarce capital resources in non-EC  areas 
whose refining industries may well become more competitive and efficient  than the EUs, as 
they argue, with corresponding consequences for the EC economy as a whole. 

31  -

ANNEX F 

Oil Product Marketing 

F. 1 

Marketing Sub-Sector Definition 

The marketing sub-sector comprises the transportation from the refineries by ship, road, rail 
or pipeline to  customers. Delivery to  customers is sometimes direct, but more usually it is 
undertaken via intermediate storage depots used as a base for more local distribution. In the 
case  of motor  gasoline  and  diesel fuel,  most  customers  obtain  their  product  supplies via 
retail  networks  of  service  (that  is, filling) stations,  which  in  many  cases  are  owned  or 
franchised  by the companies which own the refineries.  Competitive pressures are such that 
operators seek to offer  a higher quality of service vis-à-vis their competitors. 

F.2 

Retail Statistics 

Since  1985 the number  of service  stations throughout the EC has been  steadily declining. 
Total station numbers in the EC-15 now  stand at  122,900, being  a 23 % reduction  on the 
158,700 in operation in 1985. (Table F. 1  gives details of the evolution of site numbers over 
the period  in  each Member  State, while Chart F. 1 plots the  evolution  across the EC  as a 
whole.) 

These reductions in site numbers have happened  as operators have  sought to increase  fuel 
volumes  sold  per  station  and  thus  reduce  unit  costs.  (Chart  F.2  plots  the  evolution  of 
volumes sold per  site for the EC-12.)  A factor  in the evolution  of the retail sector has in 
recent  years  been  the  rapid  expansion  in  some  countries  of  sales  through  hypermarkets, 
which have largely been at the expense of those of the traditional oil companies. 

F.3 

Retail Market Shares and Profitability 

There  has  been  a  marked  trend  in  retail  market  shares  over  the  last  ten  years,  with  the 
traditional integrated oil majors and independents alike losing ground to the hypermarkets as 
well as to  the  so-called national  oil companies and  operators  owned  by producer  country 
interests. 

The hypermarkets have been seen to make most progress in France and the UK which they 
are  continuing  to  achieve  via  a  policy  of  severe  price  competition.  In  this  way  the 
competitive structure of the motor fuels market is undergoing significant change. 

32 

As a response  to  this development,  there has in recent  times been  an increasing  trend  to 
market  rationalisation  by integrated  companies in motor  fuel  sales, where via  a policy  of 
selective swaps and disposals of retail filling stations, companies have focused their sales in 
particular  geographical  areas.  While  marketing  is  generally  in  better  shape  than  refining, 
there is no  doubt that in some areas the serious inroads hypermarkets  are making into the 
business  activity previously  regarded  as the province  of the  traditional  oil  companies  are 
affecting the economics of the marketing sub-sector. 

F.4 

Harmonisation  Questions 

Fiscal  disparities  within  many  Member  States  between  diesel  and  gasoline  duties  have 
boosted diesel demand at the expense of gasoline, and have thus exacerbated the mis-match 
between EC refinery output and demand (Table E.4). 

Moreover, fiscal disparities between Member  States in respect  of the  same products have 
not  permitted  the  abolition  of  tax frontiers, are  producing  cost,  market  and  competitive 
distortions, and have given rise to problems of fraud. Given that it has been requested by the 
representatives of both industry and national administrations in discussions on fiscal issues in 
Lisbon on  13th/15th November  1995, the harmonisation  of fiscal duties is now  established 
as a necessary  element  in  meeting  the  objectives  of the  Treaty  in  respect  of the  internal 
market. 

On product  standards,  there  is  currently  across  the  EC  as  a whole  a proliferation  of  oil 
product  specifications in respect  of automotive fuels  arising from the  often  relatively slight 
differences to be found in different  Member States in the specifications for essentially similar 
products.  Some  operators  argue  that  standardisation  of  such  product  specifications 
throughout the EC would allow considerable simplification  of their logistical arrangements, 
thus facilitating  cost reductions which could at least in part be passed  on to  consumers. On 
the  other hand,  others view  such variations  in  specifications  as providing  the  context  for 
normal competition on quality. 

33 

ANNEX G 

Glossary Of Terms 

The following  definitions  of terms used may be helpful,  particularly for  those who  do not 
have  specialist  knowledge  of  the  oil  industry.  It  is  presented  alphabetically  for  ease  of 
reference. 

'ACEA': Association des Constructeurs Européens d'Automobiles. 

'ASEAN1: Association of South-East Asian Nations 

'BAT:  Best Available Technology. 

W:  Barrel, being a measure of volume used in the oil industry.  1 cubic metre  equals 6.29 
barrels. A metric tonne of crude oil contains about 7.33 barrels. 

•bn': Billion. 

Irt': Billion metric tonnes. 

'btoe': Billion metric tonnes of oil equivalent. 

'Capacity creep': An industry term used to describe the slow but  steady expansion in actual 
capacity compared with the nominal capacity of plant that normally comes about as a result 
of ongoing improvements made by operators to plant, for example by way of the removal of 
bottlenecks in the flow of process liquids, etc. 

'CEEC:  The  Central  and Eastern  European  Countries - that  is the  former  Soviet  satellite 
countries of Central and Eastern Europe, plus the Baltic states. 

'CIS': The Commonwealth of Independent  States - that is the countries of the former  Soviet 
Union. 

'Conversion  capacity/plant'  is  a  sub-category  of  upgrading  capacity/plant  (see  below). 
Conversion plant  converts fuel  oil, or other  intermediate products  of the refining  process 
which have a fuel oil value, to middle and light distillate products, thereby enabling refiners 
to match product output more closely with demand. 

'Crude  oil':  Mineral  oil as found  in its naturally-occurring  state underground  or under the 
sea-bed. 

34 

'Crude oil quality1: Crude oils have a number of different  qualities of significance for refiners, 
among the more important  and best known being sulphur content  and gravity.  In layman's 
terms, the  gravity  describes the  Ughtness/heaviness of the  crude, the fighter the  crude the 
greater the proportion of fighter, and therefore generally more valuable, products which may 
be  distilled  from  it  without  recourse  to  expensive  conversion  processes  (see  'Conversion 
capacity/plant' above). Accordingly, fighter crudes tend to command higher prices. Another 
point to note is that fighter crudes tend to, but do not always, have a lower sulphur content 
and therefore  do not  require to  the  same extent  desulphurisation treatment  which  adds to 
refining  costs,  a  point  of  increasing  significance  given  tightening  sulphur  specifications. 
Where this is the case the market value of the crude is increased further. 

'Downstream oil sector1: The downstream sector of the oil industry comprises: 

(i) 

the transportation  and  storage  arrangements involved  in the  supply  of crude  oils and 
partially refined  oils to refineries, 

(ii)  the refining process itseh; and 

(iii)  the  transportation,  storage,  distribution  and  sales  arrangements  involved  in  moving 

finished  oil products from refineries to customers. 

The activities involved in (i) are often referred to simply as 'supply1, those in (ii) as 'refining', 
and those in (iii) as 'marketing'. We have adopted this simplified terminology throughout the 
Report except where otherwise indicated. 

The 'supply1 activities undertaken  in (i) include the movement  of crude oils via  ship and/or 
pipeline and/or storage tankage to refineries. 

'Refining'  activities listed in (ii) include the refining  of both  crude  and partially refined  oils 
(taken  from  one  refinery  to  another  for  further  processing)  in  a  complex  sequence  of 
chemical  processes  and  blending  operations.  These  ultimately  produce  a  wide  range  of 
finished  oil products  for  use  by  customers in  a variety  of applications,  such  as in fuel  for 
transport  or  heating,  feedstock  for  the  chemicals  industry,  road-making  materials, 
lubrication  and others. 

'Marketing' activities described in (iii) involve the transportation from the refineries by ship, 
road,  rail  or  pipeline  to  customers.  Delivery  to  customers  is  sometimes  direct,  but  more 
usually  it  is  undertaken  via  intermediate  storage  depots  used  as  a  base  for  more  local 
distribution.  In  the  case  of  motor  gasoline  and  diesel  fuel,  most  customers  obtain  their 
product  supplies via retail networks of service (that is, filling) stations, which in many cases 
are owned or franchised by the companies which own the refineries. 

'EC:  European  Community,  taken  throughout  this  Report  to  include  all fifteen Member 
States unless indicated to the contrary. 

35 

'ECU:  European Currency Unit. 

'EUROPIA': European Petroleum Industry Association. 

'Fuel  oil':  The  heavier  products  which  are  manufactured  from  crude  oil  in  the  initial 
distillation process. These are used in the production of heavy finished products for burning 
in power stations, ships' boilers, etc. 

'FSU: Former Soviet Union. 

'GSF: Generalised System of Preferences 

'HFO': Heavy fuel oiL 

'kPa':  Thousands of Pascals. 

'LDCs': Less Developed Countries 

'Light distillate': The fighter products which are manufactured from crude  oil in the initial 
distillation  process.  These  are  used  in  the  production  of  light finished products  such  as 
motor gasoline, feedstock for the chemicals industry, etc. 

'Med': Mediterranean. 

'Middle distillate': The products of medium weight which are manufactured from crude oil in 
the initial distillation process. These are used in the production  of finished products such as 
automotive gas oil (that is, diesel fuel) and heating gas oil (that is, domestic heating fuel). 

'mt': Million metric tonnes. 

'mta':  Million metric tonnes per annum. 

'm3': Cubic metre. 

'NGLs': Natural gas liquids. 

'NWE': North-West Europe. 

'p.a.': Per annum. 

'ppm1: Parts per million. 

'Refining':  The  chemical  and  physical  processes  involved  in  separating  the  hydrocarbon 
compounds  found  in  crude  oil together  with  the  conversion  of  some  of them  into  other 

36 

hydrocarbon  compounds  so  that  they  may  be  blended  together  into  a  range  of  usable 
finished  products. 

'Residue':  Fuel  oil  and  other  heavy  intermediate  products  manufactured  in  the  initial 
distillation phase of the refining process. 

'R/P: Reserves to production (ratio - used in regard to oil and gas reserves). 

'Straight-Run Products' are those manufactured in the primary distillation process. 

'TPA': Third Part Access. 

"tpa1: Tonnes per annum. 

'Upgrading  capacity/plant'  is a term used to  describe processes which improve the  quality 
and value of intermediate products of the refining process. 

'VOC:  Volatile organic compound. 

37 

Index to Tables and Charts 

Tables  B. 1 Evolution of Crude Oil Trade 

B.2 Evolution of Product Trade 
B.3 Evolution of Gasoline Trade 
B.4 Evolution of Naptha Trade 
B.5 Evolution of Gas/Diesel Oil Trade 
B.6 Evolution of Residual Fuel Oil Trade 

Charts  B. 1 World Proven Oil Reserves 

B.2 Distibution of World Reserves 
B.3 World Oil Supply 
B.4 OPEC Share of World Production 
B.5 Crude Oil Prices 
B.6 Oil Import Dependency 
B.7 Average API Values 
C. 1  Gross Energy Consumption EU 15 1995 
C.2 Gross Energy Consumption EU15 2005 
C.3 Oil Product Demand EU15 
C.4 Oil Demand Barrel Shape 
C.5 Incremental Oil Product Demand EU 15 
C.6 Total Product Trade EU12 
C.7 Gasoline Net Exports EU 12 
C.8 Gas Oil Net Exports EU12 
C.9 Fuel Oil Net Exports EU12 

Tables  D. 1 Maximum Sulphur Contents - Gas Oil 
D.2 Maximum Lead Contents - Petrol 
D.3 Maximum Lead Contents - Unleaded Petrol 
D.4 Not used 
D.5 Environmental Investment Costs 
D.6 Desulphurisation Capacity 
E. 1 Refinery structure Evolution 
E.2 Refining Capacity EU 15 
E.3 Conversion Capacity EU 15 
E.4 Taxes and Duties EU 15 
E.5 Further net expansion or net reduction in capacity EU 15 
E.6 OPEC Foreign Refining 

Charts  E. 1 Distillation Capacity Utilisation EU 15 

E.2 Refining Upgrading Capacity EU 15 
E.3 Refining Margins 
E.4 Brent/Dubai & Leaded Gasoline/Fuel Oil Price  Differentials 

Table  F.l Number of Petrol Retail Outlets EU 15 
Charts  F. 1 Marketing of Oil Products EU15 

F.2 Average throughput per Service Station EU 12 

EU  -  12  -  Evolution  of  crude  oil  *  trade  1985  -  1990  -  1994 

1 9 8 5 ** 

Mta 

1990 

Mta 

1994 

Mta 

TOTAL  IMPORTS 

377.0 

467.5 

502.0 

312.6 

100.0 

428.4 

100.0 

455.2 

100 

EXTRA  -  EU  imports 
(1  +2  +  3  +  4) 

1.  OECD  countries 
of  which  : 
.  Norway 

OPEC  countries 
of  which  : 
Algeria 
Iran 
Iraq 
Kuwait 
Libya 
Nigeria 
Saudi  Arabia 
Venezuela 

Ex  -  USSR 

4. 

Other  countries 
of  which  : 
•  Egypt 
.  Mexico 

25.4 

23.2 

206.0 

18.3 
25.6 
•  24.8 
9.9 
37.7 
38.8 
28.4 
10.3 

27.5 

53.7 

11.7 
18.3 

46.6 

43.8 

253.5 

19.0 
54.0 
21.3 
10.9 
51.1 
26.1 
51.9 
8.0 

61.2 

67.1 

11.1 
17.0 

66 

6 
8 
8 
3 
12 
12 
9 
3 

17 

4 
6 

TOTAL  EXPORTS 

87.4 

67.8 

18 

18 

56 

4 
10 

3 
11 
7 
18 
2 

15 

11 

2 
2 

11 

10 

59 

4 
13 
5 
3 
12 
6 
12 
2 

14 

16 

3 
4 

82.5 

80.1 

253.9 

18.2 
45.8 

13.6 
49.6 
32.5 
82.8 
7.5 

66.7 

52.1 

8.2 
10.2 

96.1 

NET  IMPORTS/(EXPORTS) 

289.6 

399.7 

405.9 

*  Refinery  Feedstocks  and  NGL  included. 

**  For  1985,  EU  -  12  does  not  include  ex-GDR. 

Sources  :  IEA  Statistics  and  Eurostat 

TABLE  B.l 

•7 

E U - 1 2 -'  Evolution  of  all  petroleum  products  trade  1 9 85  -  1 9 90  -  1 9 94 

TOTAL  IMPORTS 

EXTRA  - EU imports 
(1  +2  +  3  +  4  +  5 + 6) 

1. 

OECD  countries 
of  which  : 
Norway 
Sweden 

.  United  States 

OPEC  countries 
of  which  : 
Algeria 
Kuwait 
Libya 
Saudi  Arabia 
Venezuela 

Ex  - USSR 

Romania 

5. 

6. 

Other  Eastern  Europe 
countries 

Other  countries 
of  which  : 
•  Egypt 

1985 * 

Mta 

1990 

Mta 

1994 

Mta 

166.4 

91.7 

179.5 

165.4 

100 

89.2 

100 

76.0 

100 

17.3 

19 

24.6 

27 

20.4 

27 

2.7 
4.5 
6.9 

3 
5 
8 

6.3 
5.5 
8.1 

7 
6 
9 

6.6 
5.4 
6.5 

28.6 

31 

28.4 

32 

22.2 

8.6 
6.7 
2.7 
3.0 
4.5 

9 
7 
3 
3 
5 

7.7 
5.3 
5.2 
6.6 
2.6 

) 

9 
6 
6 
7 
3 

8.4 
0.7 
4.0 
4.4 
3.2 

22.5 

25 

17.8 

20, 

10.4 

4.0 

6.0 

4 

7 

2.4 

5.2 

13.3 

14 

10.8 

0.5 

1 

0.5 

3 

6 

12 

1 

9 
7 
9 

29 

11 
1 
5 
6 
4 

14 

1 

2 

27 

3 

TOTAL EXPORTS 
of which : 

,  United  States 

123.4 

9.8 

157.5 

12.6 

NET  IMPORTS/(EXPORTS) 

43.0 

22.0 

(0.2) 

For  1985,  EU -  12 does  not  include  ex-GDR. 

S oi  i r c pc  •  I PA  Ç t o t i c t i rc 

i nH  F i i r o < ; t at 

TART.R  R? 

Z 

0.9 

1.2 

20.9 

2.1 

165.6 

12.1 

EU -  1?  -  Evolution  of  total  gasoline  trade  1985  -  1990  -  1994 

1985 * 

Mta 

1990 

Mta 

1994 

Mta 

TOTAL  IMPORTS 

17.2 

28.4 

22.5> 

EXTRA  -  EU imports 
(1  +2  +  3  +  4  +  5  + 6) 

1. 

OECD  countries 
of  which  : 

Norway 
.  Sweden 
.  United  States 

OPEC  countries 
of  which  : 
Algeria 
Kuwait 
Libya 
Saudi  Arabia 
Venezuela 

Ex  -  USSR 

Romania 

5. 

6. 

Other  Eastern  Europe 
countries 

Other  countries 
of  which  : 
•  Egypt 

4.4 

100 

7.9 

100 

5.1 

100 

1.5 

0.1 
0.5 
0.1 

0.4 

0.1 

0.1 
0.2 
0.0 

34 

2 
11 
2 

9 

2 

2 
5 
0 

1.0 

23 

0.7 

16 

2.7 

1.2 
0.5 
0.4 

1.7 

0.6 
0.2 
0.2 
0.6 
0.0 

0.8 

0.4 

0.5 

34 

15 
6 
5 

22 

8 
3 
3 
8 
0 

2.3| 

0.9! 
0.9| 
0.0' 

0.3! 

O.2! 

0.01 
0.1 

10 

0.1 

0.0' 

5 

6 

45 

18 
18 
0 

6 

4 

0 
2 

2 

0 

0.8 

18 

1.8 

23 

2.4 

O.Oi 

47 

0 

TOTAL EXPORTS 
of which : 

.  United  States 

23.9 

5.9 

NET  IMPORTS/(EXPORTS) 

(6.7) 

35.3 

5.1 

(6.9) 

37.5i 
1 
1 
6.81 

(15.0) 

For  1985,  EU -  1 2  does  not  include  ex-GDR. 

Sources  :  IEA  Statistics  and  Eurostat 

TABLE  B.3 

3 

FM -  12  -  Evolution  of  naphtha  trade  1985  -  1990  -  1994 

TOTAL  IMPORTS 

EXTRA  -  EU  imports 
(1  +2  +  3  +  4  +  5  + 6) 

1. 

OECD  countries 
of  which  : 

Norway 
Sweden 

.  United  States 

OPEC  countries 
of  which  : 
Algeria 
Kuwait 
Libya 
Saudi  Arabia 
Venezuela 

3. 

Ex  -  USSR 

4. 

5. 

6. 

Romania 

Other  Eastern  Europe 
countries 

Other  countries 
of  which  : 
•  Egypt 

1985 

Mta 

21.9 

1990 

Mta 

1994 

Mta 

24.3 

22.8" 

16.5 

100 

16.5 

100 

13.9| 

100 

2.7 

0.5 
0.2 
0.2 

6.5 

2.9 
1.4 
1.1 
0.5 
0.0 

4.8 

0.8 

1.7 

0.3 

16 

3 
1 
1 

40 

18 
8 
7 
3 
0 

29 

10 

2 

3.1 

0.5 
0.2 
0.6 

7.2 

2.2 
2.1 
1.3 
1.3 
0.2 

2.9 

0.3 

0.0 

3.0 

0.3 

14.7 

0.7 

19 

3 
1 
4 

43 

13 
13 
8 
8 
1 

18 

2 

0 

18 

2 

1.6] 

12 

3 
2 
1 

54 

29 
4 
7 
13 
0 

2 

0 

0 

32 

6 

0.4! 
0.3! 
0.1 

7.5! 

4.1 
0.5; 
1.0] 
1.8Î 

0.0| 

0.3! 

O.O; 

O.o! 

4.5J 

O.9! 

13.4-1 

0.51 

TOTAL  EXPORTS 
of  which  : 

.  United  States 

12.0 

1.0 

NET IMPORTS/(EXPORTS) 

9.9 

9.6 

9.4i 

*  For  1985.  EU  -  12  does  not  include  ex-GDR. 

Sources  :  IEA  Statistics  and  Eurostat 

TABLE  B.4  4 

F il  -  12  -  Evolution  of  q a s / d i e s el  oil  t r a de  1 9 85  -  1 9 90  -  1 9 94 

1985 

Mta 

59.4 

1990 

Mta 

1994 

Mta 

55.6 

47.7 

34.1 

100 

30.7 

100 

20.2 

100 

TOTAL  IMPORTS 

EXTRA  -  EU  imports 
(1  +2  +  3  +  4  +  5 + 6) 

1. 

OECD  countries 
of  which  : 
Norway 
.  Sweden 
.  United  States 

OPEC  countries 
of  which  : 
Algeria 
Kuwait 
Libya 
Saudi  Arabia 
Venezuela 

5.1 

1.3 
2.1 
0.9 

9.6 

3.4 
2.8 
0.7 
0.6 
1.2 

15 

4 
6 
3 

28 

10 
8 
2 
2 
4 

33 

3. 

Ex  -  USSR 

11.3 

4. 

Romania 

Other  Eastern  Europe 
countries 

Other  countries 
of  which  : 
•  Egypt 

TOTAL EXPORTS 
of which : 

.  United  States 

5.5 

16 

0 

2.6 

0.0 

33.7 

0.3 

NET  IMPORTS/(EXPORTS) 

25.7 

6.5 

2.4 
2.4 
0.8 

21 

8 
8 
3 

7.8 

26 

8 
7 
5 
4 
2 

31 

5 

8 

2.6 
2.1 
1.6 
1.1 
0.4 

9.5 

1.5 

2.6 

2.8 

40.5 

1.8 

15.1 

6.5 

2.5 
2.4 
0.8 

2.8 

1.1 
0.2 
0.7 
0.7 
0.0 

6.0 

0.4 

0.4 

32 

12 
12 
4 

14 

5 
1 
3 
3 
0 

30 

2 

2 

4.1 

20 

48.7 

1.5 

(1.0) 

*  For  1985.  EU -  12  does  not  include  ex-GDR. 

Sources  :  IEA  Statistics  and  Eurostat 

TART  F  R S 

S 

Fil  -  12  -  Evolution  of  residual  fuel  oil  trade  1 9 85  -  1 9 90  -  1 9 94 

1985 * 

Mta 

1990 

Mta 

1994 

Mta 

TOTAL  IMPORTS 

EXTRA  -  EU  imports 
(1  +2  +  3  +  4  +  5 + 6) 

1. 

2. 

OECD  countries 
of  which  : 
Norway 
Sweden 

.  United  States 

OPEC  countries 
of  which  : 
Algeria 
Kuwait 
Libya 
Saudi  Arabia 
Venezuela 

3. 

Ex  -  USSR 

4. 

Romania 

5. 

6. 

Other  Eastern  Europe 
countries 

Other  countries 
of  which  : 

•  Egypt 

45.3 

25.4 

3.2 

0.2 
1.4 
1.4 

9.1 

0.6 
2.3 
0.5 
1.1 
3.3 

5.1 

2.4 

5.6 

0.1 

TOTAL EXPORTS 
of which : 

.  United  States 

33.3 

1.6 

NET  IMPORTS/(EXPORTS) 

12.0 

40.2 

42.1 

100 

21.2 

100 

21.5] 

100 

13 

1 
6 
6 

36 

2 
9 
2 
4 
13 

20 

22 

0 

4.5 

0.9 
2.1 
0.3 

7.6 

0.6 
0.9 
1.8 
1.8 
1.9 

4.1 

0.1 

1.7 

3.2 

0.2 

38.5 

3.6 

1.7 

4.0| 

19 

21 

4 
10 
1 

36 

3 
4 
8 
8 
9 

1.3! 
1.5] 
0.7I 

7.5| 

l.o! 

1.5] 
0.8! 
3.0] 

19 

3.7! 

1 

8 

0.3| 

0.5] 

6 
7 
3 

35 

5 

7 
4 
14 

17 

1 

2 

15 

5.5! 

26 

1.1 

37.81 
i 

i 
2.8' 

4.3i 

For  1985.  EU -  12  does  not  include  ex-GDR. 

Sources  :  IEA  Statistics  and  Eurostat 

TABLE B.6 

0 

WORLD PROVEN CONVENTIONAL OIL RESERVES 
AT CURRENT MARKET PRICES 

1100 

1000 i 

900 1 

800 H 

u 
u 
a 
CO 
s 

700 H 

600 H 

500 H 

400 H 

300 H 

200 H 

100 i 

Source:  BP Statistical  Review 

MM  Proven  Reserves 

R/P  Ratio 

CHART B.l 

^P 

DISTRIBUTION  OF WORLD  OIL  RESERVES 
END  1994 

Asia & Australasia 
4% 

Africa 
6% 

North America 
3% 

Latin America 
13% 

OECD Europe 
2% 

Former Soviet Union 
6% 

CHART  B.2 

Middle East 
66% 

Total  Reserves  =  137  Bn.  tonnes 

Source:  BP  Statistical  Review 

^ 

WORLD OIL SUPPLY 

OPEC Supply 

31.5  Mb/d 

17 Mb/d 

Non-OPEC  Supply 

70 

60  -f 

50  4 

40  4-

5 

30  4-

20  4 

10  + 

0 

1970 

1972 

1974 

1976 

1978 

1980 

1982 

1984 

1986 

1988 

1990 

1992 

1994 

CHART B.3 

-$ 

OPEC  SHARE  OF  WORLD  OIL  PRODUCTION 

CRUDE  OIL  PRICES 
1970 to  1994 

OIL IMPORT DEPENDENCY 
EUROPEAN UNION 15 

1990 

1992 

1995 

2000 

2005 

Source: European Commission  Estimates 

® EU  HEU  plus  Norway] 

CHART B.6 

90% 

30% 

20% 

0% 

^ 

AVERAGE  API  VALUES  OF  CRUDE  OIL  SUPPLIES 
IN  THE  EU  1985  -  1995 

38 

37 

36 

35 

34 

33 

32 

JLU.ll.LLL l l | l l l l l l l l l l l l l ll 

L | I I I ' 

! l | l i m i l l l l l | l l l l l l l l l l l |l 

I ll  III  I I II 

JAN 

JAN 

JAN 

JAN 

JAN 

I  85 

I  86 

I  87  1  88 

I  89 

JAN 

JAN 
I  90.  I  91 

JAN 
!  92 

JAN 
I  .93 

JAN 
I  94 

JAN 
I  95 

S o u r ce 

:  C r u de  Oil  R e g i s t er 

w 

CHART  B.7 

GROSS  ENERGY  CONSUMPTION  1995 
EUROPEAN  UNION  15 

RENEWABLES 
50/0 

74  M t 0e 

NUCLEAR 
15% 

205 Mtoe 

574 Mtoe 

277 Mtoe 

TOTAL = 1369 Mtoe 

< 

SOLIDS 
17% 

239 Mtoe 

CHART C.l 

GROSS ENERGY CONSUMPTION 2005 
EUROPEAN UNION 15 

RENEWABLES 
7o/o 

102 Mtoe 

NUCLEAR 
14% 

212  Mtoe 

606  Mtoe 

TOTAL  1521  Mtoe 

SOLIDS 
16% 

237  Mtoe 

CHART C.2 

Oil Product Demand 
European Union 15 

• rm 

wM 

HI 

mszzi. 

1992 

1993 

1994 

1995 

1996 

1997 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

Source: Commission Estimates 

d  Others  •  Fuel oil  S Middle distillates  H Gasolines 

CHART C.3 

700000 

600000  + 

500000 

400000  + 

300000 

200000  + 

100000  + 

Ç* 

Demand  Barrel  Shape - W. Europe 

INCREMENTAL  OIL PRODUCT  DEMAND 
European  Union 15 

Excludes  LPG and  Refinery  Gases 

95/92 

2000/95 

2005/00 

Source:  Commission  Estimates 

^Gasolines  S  Middle  distillates  •  Fuel  oil  DOthers 

CHART  C.5 

12000 

loooo  4 

8000  H 

6000 

4000  •] 

2000 

•2000 

«•o 

Total Products Trade 
European Union 12 

1980 

1982 

1984 

1986 

1987 

1988 

1989 

1990 

1991 

1992 

1993 

1994 

Source: IEA 

Imports  •  Exports 

CHART C.6 

IV 

Net Exports  Mt 

Gasoline Net Exports 
European Union 12 

Consumption  Mt 

1980 

1982 

1984 

1986 

1987 

1988 

1989 

1990 

1991 

1992 

1993 

1994 

Source: IEA 

[ M i N et  Exports  -*-Consumption] 

CHART C.7 

o 

Net  Exports  Mt 

Gas Oil Net Exports 
European  Union 12 

Consumption Mt 

* 

r  200 

1980 

1982 

1984 

1986 

1987 

1988 

1989 

1990 

1991 

1992 

1993 

1994 

Source: IEA 

R> 

mmi Net Exports  —X—Consumption 

CHART  C.8 

Net  Exports  Mt 

Fuel Oil Net Exports 
European  Union 12 

Consumption Mt 

210 

1980 

1982 

1984 

1986 

1987 

1988 

1989 

1990 

1991 

1992 

1993 

1994 

Source: IEA 

Ë212Î Net  Exports  —*— Consumption! 

CHART  C.9 

So 
5o 

Maximum Sulphur Contents for Gas Oil 

TABLE  D.l 

Directive 

Product 

93/12/EEC 
of 23.03.1993 
93/12/EEC 
of 23.03.1993 

Automotive 
Gas Oil 
Non- 
Automotive 
Gas Oil 

1 

%  Sulphur  Content 
fby  weight] 

</= 0.2% by 01.10.1994 
</= 0.05% by 01.10.1994 
</= 0.2% by 01.10.1994 

1 

Maximum Lead Contents for Petrol 

TABLE  D.2 

Directive 
85/210/EEC 
of 20.03.1985 
85/210/EEC 
of 20.03.1985 

Product 
Unleaded 
Petrol 
Leaded 
Petrol 

1 

[ 

Lead  Content  fgms/litrel 
</= 0.013 g/1 by 01.04.1990 

</= 0.15 g/1 by 01.01.1986 

Maximum Benzene Content of  Petrol 

TABLE  D.3 

Directive 

Product 

Benzene  Content 
fby  volume] 
. 

85/210/EEC 
of 20.03.1985 

1 

Petrol 

</= 5% from 01.10.1989 

1 

^ 

ENVIRONMENTAL  INVESTMENT  COSTS 

Measure 

Some Recent  Measures: 

TABLE  D.5 

Investment  Cost 
(ECUbn) 

Reduction of sulphur level in gasoline to 0.05  % 
Reduction  of sulphur level in diesel to 0.05  % 
Reduction of hydrocarbons (VOC) emissions by Stage-I 
(Costs for  changing from top to bottom loading excluded) 

2.5 
3 -  5  . 
0.8 

Total Some Recent  Measures: 

6.3 -  8.3 

Potential  Measures: 

Reduction  of benzene  level in gasoline to  1  % 
Reduction  of gasoline volatility (RVP) by  10 kPa 
Reduction  of sulphur  level in gasoline to 200 ppm 
Reduction  of sulphur  level in gasoline from 200 to  50 ppm 
Reduction  of sulphur  level in diesel to 200 ppm 
Increase of diesel cetane number to  52 
Increase of diesel cetane number from 52 to  58 
Reduction  of diesel FBP (T95: 340 °C) 

Reduction  of sulphur  level in inland heavy fuel  oil to  1  % 
Reduction  of sulphur  level in bunker fiiel to  1.5  % for  30 % of 

demand 

Application  of strict  BAT to  refinery  emissions over existing 

measures 

Reduction  of hydrocarbons (VOC) emissions by Stage II 
Reduction  of sulphur  level in heating gas oil to  0.1% 

6 -7 
1.5 
1 
4 
6 
1.5-2 
15 
3 

* 8 - 10 

38-39.5 
7 - 12 
1.5-2.5 

8 - 10 

1-1.5 
1.5-2 

Total Potential Measures: 

27 - 29 

57.0 - 67.5 

Grand  Total All Measures: 

63.3 - 75.8 

Source:  Industry  Figures  and  ^Commission updates based on 
latest available  Auto  Oil Programme  Results 

Xh 

E U - 15  DESULPHURISATION  CAPACITY 
OF  MIDDLE  DISTILLATES 

( m i l l i on  m e t r ic 

t o n s / y e a r) 

BE 
DK 

.DE 
EL 
ES 
FR 
IR 
IT 
NL 
PO 
UK 
SF 
SV 
OS 

EU 

1.1.1995 

12.4 
2.4 

2 7 .8 
3.8 
16.4 
24.0 
0.3 
27.1 
15.2 
2.6 
23,4 
3.7 
6.3 
4.2 

169.6 

S o u r c es 

:  EC  R e g u l a t i on  1 0 5 6 / 72  & 
N a t i o n al  A d m i n i s t r a t i o ns 

TABLE  D.6 

EU-12  REFINERY  STRUCTURE  EVOLUTION  1 9 8 0 - 1 9 8 8 - 1 9 95 
N u m b er  &  C a p a c i ty  of  R e f i n e r i es  by  T y pe 

( S i t u a t i on  at  1st 

J a n u a r y) 

R e f i n e ry 
T y pe 

No 

1980 

P r i m a ry 
Distil. 
C a p a c i ty 
m ta  % 

No 

1988 

P r i m a ry 
Distil. 
C a p a c i ty 
m ta  % 

No 

1 9 95 

P r i m a ry 
Distil. 

C a p a c i ty 
m ta  % 

S l ni p 1 e 

62 

2 49 

27 

16 

43 

7 

14 

37 

S e m i-

c o m p l ex 

24 

148 

16 

20 

89 

15 

13 

52 

6 

9 

C o m p le x 

55 

523 

57 

58 

460 

78 

66 

506 

85 

T o t al 
of  w h i c h: 

R e f i n e r i es 
>1  m ta 

14-1 

9 20 

100 

94 

592 

100 

93 

5 95 

100 

129 

9 15 

90 

590 

90 

5 93 

R e f i n e ry 

t y pe  d e f i n i t i on 

: 

S i m p l e ' r e f i n e ry 

:  p r i m a ry  d i s t i l l a t i on  p l u s,  w h e re 

a p p r o p r i a t e, 
' S e m i — c o m p l e x ' r e f i n e ry 

' C o m p l e x ' r e f i n e ry 

:  ' s i m p l e'  or 

h y d r o d e s u l p h u r i z a t i on 

r e f o r m i ng  a nd 
:  ' s i m p l e ' p l us  v i s b r e a k i ng 
t h e r m al 

o t h er 

c r a c k i ng 
' s e m i - c o m p l e x ' p l us 

c r a c k i n g , h y d r o c r a c k i ng  a n d / or 

a n d / or 

c a t a l y t ic 
c o k i ng 

S o u r ce 

:  C o m m i s s i on 

-  DGXVII-B2 

TABLE  E.l 

2G 

REFINING  CAPACITY  IN  THE  E.U.  AT  1.1.1995 
(capacity  in  service  in  million  tons  per  a n n u m) 

ATMOS. 
DIST. 

REFOR.  HYDRO. 
CRACK. 

CAT. 
CRACK. 

THERM.  VIS- 

COKING 

CRACK.  BREAK. 

BE 
DK 
DE 
EL 
ES 
FR 
IR 
IT 
NL 
PO 
UK 
SF 
SV 

OS 

EU 

34.5 
9.2 
113.1 
18.2 
60.0 
90.4* 
2.8 
102.3 
59.6 
14.4 
90.7 
11.0 
21.0 

10.0 

4.7 
1.4 
17.6 
2.1 
8.0 
11.0 
0.6 
12.0 
7.3 
2.2 
16.4 
2.1 
3.2 

1.4 

- 
- 
8.6 
1.3 
0.7 
0.8 

7.1  * 
5.1 
0.5 
2.5 
1.1 
- 

- 

' 

5.9 
- 
15.4 
3.0 
8.4 
18.2, 
- 
14.7 
7.5 
1.7 
23.7 
2.7 
1.5 

1.3 

- 
1.9 
3.9 

- 
- 
- 
6.2 
3.1 
- 
2.2 
- 
1.4 

0.3 

4.2 
2.2 
10.9 
2.6 
8.4 
8.1 
-
15.9 
4.1 
1.4 
3.1 
1.9 
2.3 

1.0 

5.0 

1.5 

,  -

2.6 
2.1 

3.3 

637.2 

90.0 

27.7 

104.0 

19.0 

66.1 

14.5 

*  of  which  5.9  m ta 

in  r e s e r v e, 

i m m e d i a t e ly  u s e a b le 

S o u r c es 

:  N a t i o n al  A d m i n i s t r a t i o ns  &  EC  R e g u l a t i on 

1 0 5 6 / 72 

TABLE  E.2 

E U - 15  -  CONVERSION  CAPACITY 

( m i l l i on  m e t r ic 

t o n s / y e a r) 

CAT.  CRACKING 

VISBREAKING 

HYDROCRACKING 

THERM.  CRACK. 
COKING 

FLEXICOKING 

) 
) 

) 

TOTAL  CAPACITY' 

CATC RACK.  EQUIV* 

AS  %  CDU  CAPACITY 

1985 

8 8 .0 

5 2 .0 

11.0 

1990 

8 8 .2 

6 3 .8 

23.2 

1 9 95 

104.0 

6 6 .1 

2 7 .7 

27.8 

28.0 

3 3 .5 

1 7 8 .8 

2 0 3 .2 

2 3 1 .3 

146 

.  21 

171 

28 

199 

31 

*  R a t i os  u s ed  a re 

:  Vis b r e a k er  0.33 

T h e r m al  C r a c k er  0 . 65 

--. H y d r o c r a c k er  1.3 
1.7 

-  C o k er 

-

S o u r c es 

:  N a t i o n al  A d m i n i s t r a t i o ns  &  EC  R e g u l a t i on 

1 0 5 6 / 72 

TABLE  E.3 

TAXES  AND  DUTIES  AT  FEBRUARY  1996  -  ECUS 

CD 
3 
a 
5) 
<u 
CO 

21.0 

21.0 

21.0 

21.0 

21.0 

21.0 

21.0 

21.0 

546.0 
485.3 
302.0 
14.2 
0.0 
18.1 
19.4 
6.5 

w 
ro 
E 
c 
«J 
O 

25.0 

25.0 

25.0 

25.0 

25.0 

25.0 

25.0 

25.0 

0.0 
448.5 
300.4 
241.4 
208.5 
315.5 
284.5 
284.5 

-a 
c 
CO 
c 
o 

a; 
Û 

15.0 

15.0 

15.0 

15.0 

15.0 

15.0 

15.0 

15.0 

573.0 
519.9 
328.9 
42.4 
169.8 
265 
15.9 
15.9 

c 
Q. «/) 

16.0 

16.0 

16.0 

16.0 

16.0 

16.0 

16.0 

16.0 

408.7 

375.3 

272.5 

79.5 
31.5 
7.4 
13.6 
13.6 

4) 
O 
C 

20.6 

20.6 

20.6 

20.6 

20.6 

20.6 

20.6 

20.6 

616.9 

576.2 

354.4 

78.0 

68.2 

0.0 

24.3 

18.0 

XJ 
c 
ra 
a) 

21.0 

21.0 

21.0 

12.5 

21.0 

12.5 

12.5 

12.5 

380.6 

349.3 

302.5 

50.2 

69.4 

22.9 

17.8 

17.8 

ÛJ 

18.0 

18.0 

18.0 

18.0 

18.0 

18.0 

.  18.0 

18.0 

410.6 
358.9 

248.9 

135.8 

5 82 

12.9 

42.0 

42.0 

.5 

19.0 

19.0 

19.0 

19.0 

19.0 

10.0 

10.0 

10.0 

537.3 

494.2 

361.3 

361  3 

157.3 

173  7 

43.5 

21.8 

5 
o 
JO 
E 
0) 
X 

15.0 

12.0 

15.0 

12.0 

6.0 

6.0 

12.0 

12.0 

415.9 
361.7 
263.3 
5.4 
56.8 
0.0 
14.2 

6.5 

•o 
c 
J2 
a> 

z 

17.5 

17.5 

17.5 

17.5 

17.5 

17.5 

17.5 

17.5 

608.7 

542.0 

327.1 

81.6 

29.1 

0.0 
31.5 
31.5 

JC 
o 
55 
0) 

O 

20.0 
20.0 
20.0 
20.0 
20.0 

20.0 

O 
Q. 

17.0 

17.0 

5.0 

17.0 

17.0 

5.0 

5.0 

08.02.96 
495.1 

457.8 

326.1 

89.0 

0.0 

28.1 

12.8 

430.2 

300.7 

79.0 

104.8 

0.0 

37.7 

Ê 
o 
to 

. 

22.0 

22.0 

22.0 

22.0 

22.0 

a> 
o> 
c 
> 

CO 

25.0 
25.0 
25.0 
25.0 
25.0 

22.0 

25.0 

548.0 

291.2 

36.5 

0.0 

0.0 

479.1 

291.4 

189.3 

162.4 

131.3 

36.9 

213.3 

17.5 
17.5 
17.5 
8.0 
17.5 
8.0 
17.5 
17.5 

463.3 
406.2 
406.2 
27.6 
333.6 
0.0 
21.6 
21.6 

1.VAT(%) 
Premium  gasoline 
Unleaded  gasoline 
Automotive  dieseloil 
Heating gasoil 
LPG  (Vehicles) 
LPG  (Heating) 
Heavy  fueloil HTS 
Heavy  fueloil  BTS 

2.EXCISETAX(1000L 
Premium  gasoline 
Unleaded  gasoline 
Automotive  dieseloil. 
Heating gasoil 
LPG (Vehiclas) (4) 
LPG (Heating)  (T) 
Heavy  fueloil HTS (T)" 
Heavy  fueloil BTS (T) 

DAN MARK: 
Fuel oil lourd - Depuis  le  1er Janvier  1993, le montant  de la taxe récupérable  par  le secteur  industriel  s'élève à 1820 CD par tonne. 
Heavy fuel oil - As from  1 January  1993 the tax récupérable  by the industrial  sector  amounts  to  1820 CD per ton. 

Premium  gasoline - Cancelled  as from  1/1/96 
(1) ROYAUME-UNI: par/by  tonne 
Exchange  rates  as at 08.01.1996 

1 ECU = 

13.2595  OS.  38 7384  BEF,  1.88485 DM, 7.29054  DKR,  158 542 PTA,  5.7135 FMK. 6 46731 FF,  .844401  UKL,  309.318  DRA. 
.818238  IRL,  2068.64  LIT, 38.7384  LUF, 2.11041 HFL,  195.925  ESC, 8.6825 SKR 

?0 

T A B LE  E .4 

E U - IS  DISTILLATION  CAPACITY  UTILIZATION* 
EVOLUTION  1 9 8 5 - 1 9 94 

MIO TONS 

1985  1986  1987  1988  1989  1990  1991  1992  1993  1994 

Dist.Capacity(mio 

t) 

Crude  I n t a k e ( m io 

t) 

•*—  Utilization  rate(%) 

c r u de  onl}7,  mid  y e ar  c a p a c i ty 

o 

CHART  E.l 

E U - 15  REFINING  UPGRADING  CAPACITY 
IN  CAT.  CRACKING  EQUIVALENT 

1985 

21 

146 

1990 

28 

1995 

31 

171 

199 

35  30  25  20  15  10  5 

% 

% OF CDU CAPACITY 

0 

40  80  120  160  200 
MIO/TONS YEAR. 
M  CAT.  CRACKING  EQUIV. 

240 

S o u r c es  :  Nat.  Admin.  &  EC  R e g . 1 0 5 6 / 72 

CHART  E.2 

REFINING  MARGINS  1 9 8 8 - 1 9 95 
NW  EUROPE  &  MEDITERRANEAN  ZONES 

$/bbl  (Quarterly  Average) 

"*—  IEA-NWE-BRENT 

+- 

IEA-NWE-HYDROSKIM 

-*-  WMC-NWE-ARAB  L 

- 0-  WMC-MED-ARAB  L 

1 2 3 4 1 2 3 4 1 23  4  1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 34 
I  95  I 
I  88 

I  90 

I  94 

I  89 

I  91 

I  93 

I  92 

10 

9 

8 

7 

6 

5 

4 

3 

2 

1 

0 

-1 

-2 

WMC  :  Wood  M a c k e n z ie 

CO 

CHART  E.3 

BRENT/DUBAI  &  LEADED  GASOLINE/FUEL  OIL 
PRICE  DIFFERENTIALS 

14 

barrel 

* 

B r e n t / D u b ai  Differ. 

~ *~  Gasoline/FO  l%s  Dif. 

** 

* 

*

** 

. 

* 

** 

* 

* 

JAN  APR  JUL  OCT  JAN  APR  JUL  OCT  JAN  APR  JUL  OCT  JAN  APR  JUL  OCT 

I 

92 

I • 

93 

I 

94 

I- 

95 

S o u r ce 

:  IEA  M o n t h ly  Oil  M a r k et  R e p o rt 

Oo 

CHART  E.4 

FUTURE  NET  EXPANSION  OR  NET  REDUCTION 
IN  THE  REFINING  CAPACITY  OF  THE  E U - 15 

(thousand metric tons/year) 

1995 

1996 

1997 

After or date 
not defined 

ATMOS. DIST. 

- 2400  - 2300  + 4400 

+ 1600 

REFORMING 

+ 100 

HYDROCRACK. 

- 280  +  700 

CAT. CRACK. 

+ 580 

+  1800 

+ 4700 

THERM. CRACK.  + 273 

VISBREAKING 

COKING 

DESULPHURIS. 
OF  MID.  DIST. 

-  300 

+  100 

+  1000 

+ 6 6 72 

+17029 

+  1805 

+  1040 

SOURCE 

:  EC  REGULATION  1 0 5 6 / 72 

-

QUESTIONNAIRES  OF  BEGINNING  1995 

TABLE  E.5 
3e! 

OPEC  FOREIGN  REFINING 
Net  S h a re  in  t h o u s a nd  b a r r e l s / d ay  as  of  end  1995 

Iran 
Kuwait 
Libya 
Saudi  Arabia 
U.A.E 
Venezuela 

Total  OPEC 

Asia/ 
Pacific 

Western 
Europe 

USA 

Total 
(3  reg.) 

32 

152 

184 

210 
234 
50 
142 
230 

866 

32 
210 
234 
502 
142 
980 

300 

750 

1 050 

2  100 

Total  of  the 

region 

14 803 

14 151 

15 354 

44 308 

OPEC  s h a re 
in  t he 

region 

1.2% 

6.1% 

6.8% 

4.7% 

Source 

:  DGXVII  on 

the  basis  of  OPEC 
official  data  &  p r e ss  a r t i c l es 

TABLE  E.6 

IN  U  lYJLO  J U JU  Wl 

1  J U1  H WL 

1VJUJL  Z\JLJU  W  ^J  1  JUJU  l O J L IN 

l

l

l JU 

JU  ^ 

J L^ 

(in 

t h o u s a nd  of  u n i ts  at  year  end) 

1985 

1987 

1989 

1991 

1992 

1993 

1994 

7.3 

3.6 

19.8 
6.8 

5.2 

34.6 
3.4 
36.4 
8.1 
1.9 
21.1 
2.0 
4.4 
4.1 

6.7 

3.4 

20.8 

6.3 
5.2 

31.1 

3.3 
34.7 
7.6 
1.8 
20.2 

2.0 
4.3 
4.1 

6.5 

3.2 

19.9. 
6,4 

5.3 
27.7 
3.2 

33.9 
6.9 
1.8 
19.8 
1.9 
4.2 
4.0 

6.0 

2.9 

18.9 
6.4 
5.7 

22.6 
2.7 
30.4 
6.0 
1.8 
19.3 
2.0 
4.0 
3.9 

5.7 

2.9 

18.8 
6.5 
5.8 
21.2 

2.8 
30.1 
5.6 
2.0 
18.5 
1.9 
3.8 
3.8 

5.5 

2.8 

18.5 
6.6 

6.3 

19.8 
2.8' 

29.9 
5.1 
2.1 

18.0 
1.9 

3.8 
3.7 

5.4 

2.7 

18.3 

6.8 

6.6 

19.1 
2.7 

28.8 
4.1 

2.3 
17.0 

1.9 
3.6 

3.6 

158.7 

151.5 

144.7 

132.6 

129.4 

126.8 

122.9 

BE 

DK 

DE 

EL 

ES 
FR 

IR 
IT 
NL 
PO 
UK 

SF 
sv 
OS 

EU 

Source 

:  National  Statistics 

TABLE  F.l 

MARKETING  OF. OIL  PRODUCTS  IN  THE  E U - 15 
NUMBER  OF  PETROL  RETAIL  OUTLETS  8 5 - 94 

T h o u s a nd  of  u n i ts  at  year  end 

180 

160 

140 

120 

100 

80 

60 

40  h 

20 

0 

1985 

1986 

1987 

1988 

1989 

1990 

1991 

1992 

1993 

=^^W 
1994 

158.7  157.3  151.5  147.7  144.7  138.6  132.6  129.4  126.8  122.9 

Source  :  National  Statistics 

CHART  F.l 

E U - 12  EVOLUTION  1 9 0 6 - 1 9 94  OF  AVERAGE 
THROUGHPUT  PER  SERVICE  STATION 

MILLIONS  OF  LITRES  PER  ANNUM 

1986 

1987 

1988 

1989 

1990 

1991 

1992 

1993 

1994 

Source  :  Wood  Mackenzie 

CHART  F.2 

ISSN 0254-1475 

COM(96) 143 final 

DOCUMENTS 

EN 

12 

Catalogue number  :  CB-CO-96-172-EN-C 

ISBN 92-78-02657-3 

Office  for  Official  Publications  of the European  Communities 

L-2985 Luxembourg