Oil refiners baulk at rising environmental costs

The UK's oil companies are projecting a 60% increase in their investments in environmental protection at refineries and downstream facilities over the next four years. Forthcoming EC legislative proposals could push the figure still higher, and the industry is now urging regulators not to proceed with controls on hydrocarbon emissions from car refuelling and sulphur in heating oils on the grounds of their poor cost-effectiveness.

The oil industry has been making increasingly vociferous claims in recent months that current and planned EC environmental legislation is not affordable at a time when refining margins are being squeezed by the continuing glut in oil supplies. A conference late last year heard that the industry may need to invest about $70 billion by the end of the century if all the legislative plans come to fruition (ENDS Report 214, pp 4-5 ).

Cost information for the UK has now been provided by two surveys carried out by the UK Petroleum Industry Association (PIA). Both confirmed that environmental expenditures at oil refineries are likely to rise sharply in the immediate future.

In the period 1989-91, capital expenditures at the UK's 13 main product refineries and in downstream operations totalled £2,558 million. Of this, an estimated 20.3% went on environment and safety projects. The industry is projecting an increase in capital spending to £4,450 million between 1992-96, with 30.0% going on environmental and safety investments.

These figures are based on oil company returns which were not disaggregated into expenditures related to specific environmental issues. A more detailed survey has recently been completed by the PIA in which companies were asked to project their spending on five of the major issues. The main findings were as follows:

  • Stage I: A proposed EC Directive will require controls on emissions of volatile organic compounds (VOCs) from the petrol distribution system, principally at terminals and service stations. The cost of these measures has been in dispute (ENDS Report 220, p 31 ), but the PIA estimates them at £340 million. The expenditure will be spread over the period 1995-2004, but the bulk will be incurred by the end of the century.

  • Stage II: The European Commission is drafting a successor to the Stage I Directive which would require service stations to be fitted with equipment to recover VOCs emitted as vehicles are fuelled. The proposal would affect about 40-50% of the UK's service stations (ENDS Report 216, pp 37-38 ). The PIA estimates that the capital cost involved would be £560 million over about five years, although only one-third to one-half of this would be attributable to the Stage II controls. The remainder would be incurred due to the need to repump service stations in order to meet tighter safety regulations.

  • Integrated pollution control: Oil refineries came under IPC last year, and are due to be upgraded to new plant standards by April 1998.

    The PIA believes that refineries will face little or no capital expenditures to comply with limits on sulphur dioxide emissions, but may have to pay up to about £30 million per year in additional operating costs to buy low-sulphur oil for their fuel needs.

    Tighter limits on emissions of VOCs and nitrogen oxides will require capital expenditures of £180-250 million by 1998, the survey suggested.

    Future regulatory standards for liquid discharges are less predictable, but refiners expect to invest £240-350 million in improved effluent treatment facilities. A small proportion of this figure will be spent at distribution terminals.

  • Sulphur in gas oil: Refiners expect to invest £250-310 million by 1996 in order to comply with tighter limits on the sulphur content of diesel and other gas oils laid down by a new EC Directive (ENDS Report 219, pp 41-42 ). Operating costs will also increase by a projected £25 million per year.

    This may not be the end of the road. A further halving of the permitted sulphur content in heating oils to 0.1% is on the cards, and this would require further capital expenditures of £130-160 million by 1999, according to the PIA.

  • Unleaded petrol: Sales of unleaded petrol have just exceeded 50% of the total. Refineries will have to be upgraded at a cost of £110-180 million by the time all petrol is unleaded.

    The survey findings indicate that refiners are facing capital expenditures ranging between £1.45-1.90 billion in order to comply with these regulatory measures alone. A small proportion of this sum has already been spent, but the vast bulk of the remainder will have to be invested by the end of the century.

    A large number of other environmental issues are looming on the horizon. Tighter limits on the sulphur content of other petroleum fuels, notably ships' bunker oil, are being considered by the Commission (ENDS Report 210, pp 12-14 ). Other standards for fuel quality are also being contemplated, including restrictions on the sulphur and benzene content and the volatility of petrol, and on the aromatics content of diesel. Oil companies are also under growing pressure to clean up contaminated soil and groundwater beneath their service stations (ENDS Reports 219, pp 4-5 , and 220, pp 6-7 ).

    The oil industry is "concerned about the affordability of even the presently projected levels of environmental expenditure," according to the PIA's Director General David Parker. It is urging the regulators to choose priorities for environmental regulation more carefully.

    The PIA is particularly opposed to the proposed Stage II controls. In the UK, these will abate less than 1% of total man-made VOC emissions, and the industry is pressing the Government to curb these by the cheaper method of fitting large carbon canisters to cars to capture VOCs emitted during refuelling.

    A requirement to cut sulphur levels in heating oils to 0.1% would fall in the same cost-ineffective category as the Stage II controls, says Mr Parker. The investments required would be "a very large amount of money for a pretty slender environmental gain, and we're hoping that it may be kept at bay."

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