Exxon Mobil votes with feet to stay in EU as energy laws loom

Reuters News
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Posted: Oct 16, 2014 7:40 AM

By Barbara Lewis

ANTWERP Belgium (Reuters) - Exxon Mobil <XOM.N> is pouring $1 billion into a refinery in the European Union, setting aside concerns ranging from poor margins to EU green energy rules due to be agreed next week that will cut demand for oil.

The company, which believes all its oil and gas reserves will be ultimately be needed to meet future demand, despite efforts to curb climate change, says the Antwerp refinery upgrade is one of its highly strategic long-term investments.

For those busy lobbying European policy-makers ahead of next week's Brussels summit to agree a new decade of energy and climate policy, the decision to upgrade the refinery in Antwerp, Belgium, has resonance.

Heavy industry and some nations, such as coal-dependent Poland, have argued that energy intensive businesses, such as refining, could be driven out of Europe by its plans to toughen rules to cut carbon emissions.

"Some excessively ambitious ideas to limit CO2 emissions are in our opinion simply harmful for European competitiveness and economic growth," Rafal Trzaskowski, Polish deputy foreign minister responsible for EU affairs, said this month.

"What's worse, they may lead to an escape of energy-intensive industries outside the EU."

Others dismiss such arguments as efforts to persuade the EU executive to dole out incentives, such as free permits to pollute under the EU Emissions Trading System -- the EU's flagship market mechanism to limit carbon emissions.

They say the danger is that innovative green industries will actually be the ones to leave if the European Union fails to agree on sufficiently ambitious climate and energy-saving goals.

Not having a binding energy efficiency targets "will drive us to invest in other parts of the world," Barry Lynham, Director of Strategy for Knauf Insulation, an insulation company with production sites in Russia, Turkey, the Middle East and the United States, as well as Europe.

EU TO SET CARBON-CUTTING PACE

At the talks in Brussels on Oct. 23-24, EU leaders are expected to agree on outline on 2030 climate and energy policy, to follow on from 2020 goals. [ID:nL6N0S44BJ]

Provided it strikes a deal, the EU would be the first major economic bloc to set 2030 carbon-cutting targets ahead of global climate change talks next year in Paris.

The headline EU goal is a 40 percent cut in greenhouse gas emissions by 2030 compared with 1990 levels, a far more ambitious target than any U.S. goal.

U.S. President Barack Obama has only said he wants to cut power plant emissions by 30 percent by 2030 from 2005 levels. The current U.S. goal is a 17 percent cut from 2005 by 2020, equivalent to 3.5 percent below 1990 levels. [ID:nL1N0OJ0FC]

For the EU, two other proposed targets are to get 27 percent of energy used from renewable sources and a 30 percent improvement in energy savings compared with business as usual.

These two goals are expected to only be binding at an EU-wide level, not on individual states, giving some countries leeway provided others are willing to exceed their targets.

Exxon, the world's largest publicly traded oil company, is cautious about commenting on EU energy policy.

Its website statement on policies to manage climate change emphasizes the need to minimize costs and to "allow markets, not regulators" to determine the technologies used.

In an interview with Reuters at the Antwerp ground-breaking ceremony earlier this month, Refinery Manager Todd Sepulveda said it was regulatory certainty that was needed to protect long-term investments.

He rattled off a list of reasons not to be in Europe -- headed by competition from a flood of refined products from the United States and elsewhere, and poor margins.

"Despite all of that, this particular refinery is one of our most strategic," he said. "All of our investments are for the long term, the next 30 to 50 years."

The refinery is strategic because of its location in the port of Antwerp, a hub for northwestern Europe, and Exxon explains its decision to invest is based on sound business reasons rather than any EU policy.

It says the refinery is well adapted to the challenges in Europe, which has yet to experience any boom in shale oil and gas that could lower the cost of the raw materials for refining.

Still, energy makes up 60 percent of the costs at Antwerp, compared with 30-40 percent in the United States, Sepulveda said. To compensate, the plant is the most energy efficient of all Exxon's refineries, which are 10 percent more efficient than the average, according to industry benchmarking.

"Refining is energy intensive and improving energy efficiency is good business," Sepulveda said.

DEFEAT FOR ENVIRONMENT, VICTORY FOR CANADA

However little energy it burns, for climate campaigners, the Antwerp refinery expansion is a symbol of defeat.

They blame the oil industry and a massive lobbying effort led by Canada for a European Commission U-turn on a policy that would have kept some of the most polluting fossil fuel out of Europe. [ID:nL6N0S21AM]

Oil sands, also referred to as tar sands, generate more carbon dioxide than conventional oil over their life cycle, because of the extra energy required to extract them.

The new refining capacity at Antwerp will produce low sulfur diesel in line with EU clean fuel standards, but it has the capability to use Canadian oil sands, in whose exploration Exxon has a stake.

Exxon's Sepulveda says the aim is to ensure "refineries in Europe have equal access to the most economic feedstocks".

Environmental campaigners, however, say oil sands should be left in the clay-like deposits in which they are found.

Otherwise, EU or any other goals on curbing climate change will fail, they say, and the world will be unable to cap global warming at 2 degrees Celsius above pre-industrial times -- the limit scientists say prevents the most devastating consequences.

"Digging tar sands and other unconventional oil out of the ground is incompatible with the 2 degrees objective and will leave Exxon with a stranded investment," said Nusa Urbancic, a program manager at Transport & Environment campaign group.

(Additional reporting by Alister Doyle in Oslo and Marcin Goettig in Warsaw; editing by David Clarke)