Crude oil exploration and production is commonly referred to as the “upstream” segment, whereas refining and product sales are generally referred to as the “downstream” segment – although it is necessary to distinguish between refining and distribution/sales as they are generally operated as separate business areas.
Refining epitomizes the Global Industry, particularly as new companies continue to emerge in Russia, China, India and Brazil. These companies exhibit an international ambition, both in the upstream and downstream segments. In these countries, major companies benefit from a strong domestic base and generally supportive government policies.
EU Refining Industry
The EU refining industry operates in a transparent, open and global market for raw materials, intermediates and final products. In addition, refining is one of the few, well-established industrial activities where marginal cost efficiency-based decisions are made on a daily basis.
The refinery margin reflects the difference between 1) the total market value of all products produced by refineries, 2) the cost of buying crude oil at market price, and 3) the operating costs incurred during the refining process.
A simple comparison of operating costs and the energy efficiency of refineries lets us evaluate their relative competitiveness. The European refining industry is particularly exposed to industrial limitations and, consequently, any disturbance to what is one of the largest global trade balances will have immediate consequences for the EU.