Employment and Industrial Relations Issues in Oil Refining
Report for discussion at the Tripartie Meeting on Employment and Industrial Relations Issues in Oil Refining
Geneva, 1998
International Labour Office Geneva
Copyright ® 1999 International Labour Organization (ILO)
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Contents
2. Recent trends in refining: Economic and technical issues
Employment experience at regional and national level
North America
Asia
Western Europe
Central and Eastern Europe and Central Asia
Latin America
Middle East and Africa
4. Industrial relations issues
5. Summary and points for discussion
Tables
1.1. Refining acquisitions in North America, 1988-95
1.2. Value added in oil refining as a percentage of manufacturing value added in selected countries
2.1. World refinery capacities
2.2. World refinery throughputs
2.3. World refinery capacity (including conversion capacity) by region, 1975-95
2.4. Emission reductions from the transport sector -- 2010 v. 1990
2.5. Middle East refining capacity: 1985-2002
3.1. World refinery employment
3.2. Employment in petroleum refineries by country, 1970-95
3.3. World distribution of refinery throughputs and employment
3.4. Trends in national refinery employment, 1980-97
3.5. Employment and capacity in Chinese refining (1997)
3.6. Composition of staff in one Chinese refinery
3.7. Breakdown by educational level of staff in one Chinese refinery
3.8. Composition of Repsol staff
3.9. Comparative refinery employment and performance data
3.10. Female employees as percentage of total employment in petroleum refineries
3.11. Women's wages as percentage of men's wages in petroleum refineries in selected countries
4.1. Aggregate accident statistics for 22 West European refining companies (1995)
4.2. Oil industry accident statistics (1995)
4.3. Number of accidents reported by the oil and petrochemical industry (Singapore)
4.4. Comparison of accident rates per million work-hours worked (Singapore)
4.5. Comparison of accident-related loss of working days per million work-hours
worked (Singapore)
4.6. Hourly compensation costs for production workers in petroleum refining
4.7. Index of real wages per refining employee in national currency and in US dollars
Figures
1.1. Spot crude oil prices
2.1. Worldwide refining margins, 1993-97
3.1. Employment versus value of gross output
Boxes
At its 267th Session (November 1996), the Governing Body of the International Labour Office decided to include in the programme of sectoral meetings for 1998-99 a tripartite meeting on employment and industrial relations issues in oil refining. The proposal submitted to the Governing Body referred to the issues in the sector in the following terms:
In many parts of the world the refining industry is under considerable pressure. It is being required or expected to make heavy investments to reduce direct emissions and/or to improve the environmental features of the fuels it produces. International competition has intensified because of trade policy developments and new investments in areas like Asia and the Middle East. Large parts of the sector are being privatized, especially in areas such as Central and Eastern Europe, Latin America and southern Europe. In certain regions, such as Western Europe, there is excess capacity. These developments are threatening employment levels and changing the nature of the remaining jobs. Industrial relations are difficult in a number of countries.(1)
This report has been prepared by the International Labour Office as a basis for discussions at the meeting.
Governments from the following 19 countries have been invited to participate in the meeting: Argentina, Azerbaijan, Brazil, China, Ecuador, Egypt, France, India, Indonesia, Islamic Republic of Iran, Japan, Mexico, Nigeria, Romania, Russian Federation, Trinidad and Tobago, Turkey, United Arab Emirates, United States. The following governments were placed on a reserve list from which replacements were to be selected in the event that a government in the first list declined the invitation or failed to reply: Bolivia, Ghana, Italy, Kuwait, Norway, Pakistan, Sierra Leone, Syrian Arab Republic, Tunisia, Ukraine, Uruguay, Venezuela.
Nineteen Employer and 19 Worker representatives were to be appointed on the basis of nominations made by the respective groups of the Governing Body.
This is the first ILO meeting specifically devoted to the refining segment of the petroleum industry. The former Petroleum Committee normally dealt with the whole of the industry, and the most recent (ad hoc) meeting concerning this sector was devoted to the exploration and production ("upstream") part of the industry -- more specifically, to safety issues related to work on offshore petroleum installations.(2) The importance of the refining sector in an ILO perspective relates not only to the level of employment and to working conditions -- employment numbers are lower and working conditions better than in many other sectors -- but to the refining industry's key role in the general economy. If labour difficulties in the sector contribute to a shortage of oil products of appropriate quantities and qualities, then workers in all sectors of the economy are likely to suffer. The focus of the report is on what happens inside the refinery gate. However, the close links between refining and other parts of the oil industry, especially distribution/marketing, need constantly to be borne in mind.
This report was prepared by Jon McLin, Senior Industrial Specialist, ILO. It is based on information from a number of sources, including published literature (especially the "trade press"); information gathered by ILO field offices on the countries that they cover; information supplied directly by employers' and workers' organizations active in this field; material provided by other experts in the sector; and reports commissioned by the ILO and prepared by external authors on refining issues in selected countries:
|
Argentina, Brazil, Venezuela
|
Mr. Enrique Saravia
|
Where not otherwise indicated, statements contained in this report about these countries or regions are based on the studies compiled by the above-mentioned authors.
The report is published under the authority of the International Labour Office. It does not purport to be an exhaustive treatment of any of the subjects examined. Indeed, even if that had been its initial objective, this would have been impossible because the available resources -- including information supplied from the industry -- were too incomplete. The report nevertheless seeks to provide information and analysis that are sufficient in scope and quality to provide a satisfactory basis for the meeting's deliberations.
Notes
1. Document GB.267/STM/1.
2. Regarding the work of the Petroleum Committee, see Consolidated texts of conclusions and resolutions adopted by the Petroleum Committee at its first ten sessions, 1947-86 (Geneva, ILO, 1987); the basic document for the meeting on offshore safety was ILO: Safety and related issues pertaining to work on offshore petroleum installations (doc. TMOPI/1993, Geneva, 1993), and the proceedings of that meeting contained in its Final Report (doc. TMOPI/1993/9, Geneva, 1993).
Trends in demand, supply and price
Predictions on trends in the oil industry occasionally have to be dramatically reviewed. The experience of the "oil shocks" of 1973-74 and 1979-80 led to the popular perception that the world was running out of oil, or that the oil market would increasingly be dominated by a small number of Middle Eastern countries controlling a large share of world oil reserves. Specialized observers meanwhile speculated that future oil prices would be so high that it would be economically justifiable to shift to other fuels for power generation and transport. Oil use, it was expected, would increasingly be concentrated on higher value added purposes such as petrochemicals manufacture.
In the 1980s oil demand and therefore prices weakened, as it became apparent that the price elasticity of demand for oil products, especially in the medium and long term, had been underestimated. A new concern then emerged: that the low level to which oil prices descended -- for example in 1986 -- would render uneconomic many prospective new investments as well as some existing production, thus creating the conditions for a "commodity cycle" as prices fluctuated between the extremes of a wide range.(1) This expectation also proved short-lived, as major advances in exploration and production technologies made it economic to exploit offshore and other reserves outside the traditionally low-cost areas of the Organization of Petroleum Exporting Countries (OPEC). As a result of these developments and political events, such as the Gulf war, which served to remind consumer countries of the danger of over-dependence on supplies from one region, non-OPEC production had continued to prove surprisingly resilient and to form a share of world output that is disproportionately large compared to these countries' share of world reserves.
Finally, the growing awareness of environmental problems associated with fossil fuels, and in particular their contribution to "greenhouse gases" that are allegedly causing a warming of the global climate, has led some observers to regard oil as "yesterday's fuel", destined to play a diminishing role as governments impose policies to give effect to the commitments made in the Rio Declaration of 1992. Here too, the outcome has not so far been dramatic. While more stringent air quality requirements are indeed a problem for the refining industry, as described elsewhere in this report, governments have so far been reluctant to impose "carbon taxes" and other measures aimed specifically at limiting the contribution of oil products to the greenhouse effect.
Many features of the oil industry have thus changed less markedly in the last decade or so than they did in the 12-14 years prior to 1986, when the ILO last examined the general state of the oil industry.(2) Crude oil and product prices have fluctuated in a range that, despite briefly peaking at the time of the Gulf war, has been much more limited than in the 1973-86 period.
Due mainly to the growth in Middle Eastern reserves, known world reserves at the end of 1996 amounted to about 42 years at current rates of consumption -- about eight years more than in 1985. Oil consumption has increased in all but two years since 1985; over the period 1985-96 the average annual rate of increase was 1.6 per cent. The expected increase in OPEC's share of world production -- in line with its large share of world reserves -- has indeed taken place; it grew from 29 per cent in 1985 to 41 per cent in 1996. But this may be attributed mainly to the decline in the production of the former Soviet Union and not, as expected, to the displacement of (relatively higher cost) production from non-OPEC producers in Europe, the Americas and Asia. Thanks to a great extent to technological advances, these regions have maintained their output at levels higher than expected.
There are as usual many views of possible future trends. There is a consensus that oil demand will continue to grow but little agreement regarding the rate. Rapidly growing demand for transport fuels in developing countries, especially in Asia, is expected to be a major source of growth. Some observers maintain that environmental considerations, related to global warming and urban air quality, and government fiscal measures, are the main factors tending to depress demand. Prices could remain stable to weak for some years to come.(3) Refineries tend to benefit from growing oil demand and relatively stable oil prices. Sharply fluctuating crude prices tend, during periods of price increases, to lead to reductions in demand as well as to increases in refineries' feedstock costs.
Figure 1.1. Spot crude oil prices*
|
* |
1972-Nov. 1986 Arab Light.
|
|
Source: Platt's Oilgrand News (New York). | |
The traditional concept of the oil industry is that it consists mainly of large, "vertically integrated" firms, that is firms active in all phases of the industry: exploration, development, production, transport, storage, refining, distribution and retail marketing. The extent to which this image of the industry corresponds to reality has varied over time; however, it is increasingly inadequate to capture changes that have taken place in the industry's structure since the 1970s. Some of these changes are worth noting, as they have important implications for the refining segment, which is the main subject of this report.
The first noteworthy development was the emergence in much of the world, especially in developing countries with large reserves of oil, of state-owned companies as major players in the sector. Much of this development took place, or accelerated, in the 1970s (e.g. Venezuela, the Gulf countries), although in other regions (Algeria, China, Islamic Republic of Iran, Mexico, Russian Federation) it took place earlier. For the multinational oil companies one of the results was that a smaller portion of crude oil supplied to their refineries now came from their own fields, and a larger share was bought from independent producers. While some of the state companies were completely vertically integrated, others (especially in OPEC) were mainly oriented towards production of crude for export. On the whole, countries with state companies were at first not fully integrated into international markets for refined products, technology and investment.
A later trend, which could be noted particularly in the 1980s and 1990s, was for previously integrated companies to "de-integrate" in the sense that transactions among their units in different parts of the chain were conducted on an "arm's length" basis. This implied that oil production units were free to sell to independent traders or refiners if, in the process, they could earn better returns than by supplying refineries belonging to the same enterprise; similarly, refiners could shop around for crude rather than being obliged to take what was on offer from their affiliates. The different parts of the chain became independent profit centres. One implication of this trend was -- as will be seen below -- that when the refining operations of an integrated company became unprofitable, the company concerned was not necessarily prevented from reducing, reshaping or selling these operations entirely. It is a matter of debate how far this trend has gone, but there is general agreement that the different units along the chain in an integrated company have more autonomy today than 15 years ago.(4)
The third structural shift, chronologically speaking, has been the tendency of state oil companies that are major oil producers to reintegrate the chains that were destroyed at the time of nationalization by various kinds of joint ventures and direct investments in refining and marketing operations in consuming countries. The logic of these strategies is the same as for that applied by the private multinationals several decades ago. They set out to capture added value and to provide assured outlets for their crude. The implication for the refining segment of the industry is that refining operations partly or wholly owned by companies that are predominantly producers, especially those that are government-owned and thus subject to extra-commercial considerations, may face less rigorous requirements to be profitable in their own right in order to survive.
Examples of this trend have multiplied in recent years. Table 1.1 provides details of refining acquisitions in North America from 1988-95 by Saudi Aramco, Petroleos de Venezuela (PDV or PDVSA) and Petroleos Mexicanos (Pemex).
Downstream assets in other regions have also been targeted by state-owned producing companies. Recent examples: Kuwait Petroleum Corporation (KPC) acquired a 50 per cent interest in Agip's Milazzo refinery in Sicily and a stake in its marketing network;(5) a government-owned company in Abu Dhabi agreed to a 20 per cent stake in OMV, the Austrian oil and chemicals group;(6) Aramco has invested in downstream assets in Greece, the Republic of Korea and the Philippines;(7) the Islamic Republic of Iran recently signed a joint venture agreement for the construction of a 120,000 barrels per day (b/d) refinery in Pakistan. According to one calculation, OPEC foreign crude refining capacity in 1996 amounted to 2.13 million b/d based on equity ownership, and 3.07 million b/d based on crude oil supply arrangements. These volumes represented 4.6 per cent and 6.9 per cent, respectively, of the total refining capacity in the host countries. The bulk of this is in Western Europe and the United States, a small part in Asia. Several OPEC members have announced their intention of making further downstream investments, especially in markets in Asia, Latin America and Central/Eastern Europe.(8)
One feature of the structural changes just described -- which could be characterized as "reintegration from the top" and "de-integration from the bottom" of the chain -- is a relative shift in the locational pattern of refineries. In the early history of the industry, many refineries were built near supply sources; the refined products were transported to where the markets were. In the 1950s and 1960s the advent of cheap transport for crude oil, especially supertankers, led to the development of refineries close to the final consumer; hence the OECD countries accounted for the largest share of refineries built during that period. In the late 1980s and 1990s a large proportion of new refineries have, for various reasons, been built in the Middle East and justified on the grounds that they are geared for export rather than local markets.
Table 1.1. Refining acquisitions in North America, 1988-95
|
| ||||||||
|
Seller |
Buyer |
Location |
Date |
Estimated price
|
Capacity
|
Nelson
|
Replacement
|
$ per b/d
|
|
| ||||||||
|
Texaco |
Aramco |
Port Arthur |
June 88 |
250 |
9.9 |
|||
|
Texaco |
Aramco |
Convent |
June 88 |
909 |
225 |
7.8 |
27 |
518 |
|
Texaco |
Aramco |
Delaware City |
June 88 |
140 |
12.3 |
|||
|
Average for 12 other deals in 1988 |
42 |
248 | ||||||
|
Southland |
PDV |
Lake Charles |
Oct. 89 |
841 |
320 |
10.1 |
53 |
260 |
|
Unocal |
PDV |
Lemond |
Dec. 89 |
387 |
147 |
9.1 |
49 |
289 |
|
Average for five other deals in 1989 |
35 |
303 | ||||||
|
Seaview |
PDV |
Thorofrae |
Jul. 90 |
50 |
75 |
2.4 |
30 |
278 |
|
Average for two other deals in 1990 |
14 |
174 | ||||||
|
Average for two deals in 1991 |
30 |
217 | ||||||
|
Shell |
Pemex |
Deer Park |
Aug. 92 |
795 |
108 |
14.1 |
58 |
522 |
|
Average for seven other deals in 1992 |
30 |
196 | ||||||
|
Lyondell |
Citgo (PDV) |
Houston |
May. 93 |
519 |
80 |
10.8 |
59 |
600 |
|
Average for three other deals in 1993 |
16 |
122 | ||||||
|
Average for three deals in 1994 |
6 |
36 | ||||||
|
Average for five deals in 1995 |
9 |
65 | ||||||
|
Source: Based on Petroleum Economist (London), Apr. 1996. | ||||||||
Other changes in the structure of the refining industry per se -- in particular consolidation, and changing ownership patterns -- will be considered in the next chapter.
Compared to other parts of the oil industry, refining represents a substantial but not a dominant share. According to one estimate, it accounted in the late 1980s for around one-quarter of world employment in this sector, about one-half being in marketing-distribution and one-quarter in exploration and production.(9) Its share of financial aggregates has tended in recent years to be lower than its share of employment. According to recent estimates of 1997 capital expenditures by the United States oil and gas industry, for example, refining represents only 6.4 per cent -- down from 6.7 per cent in 1996 and 10.1 per cent in 1995; the peak in recent years was 19 per cent in 1992, when major environment-related investments took place.(10) The oil companies' widespread practice of aggregating refining earnings with those of marketing makes it difficult to identify earnings attributable to refinery operations.
In 1995 oil refineries accounted for 2.9 per cent of world manufacturing value added. Within this average, there is a very wide range from country to country, depending on the characteristics of the national economy.(11) Table 1.2 indicates value added in oil refining as a percentage of manufacturing value added in selected countries for which data were available.
Table 1.2. Value added in oil refining as a percentage of manufacturing value added in selected countries
|
| |||
|
Percentage |
|||
|
| |||
|
Argentina |
34 |
||
|
Belgium |
1 |
||
|
Brazil |
5 |
||
|
China |
2 |
||
|
Ecuador |
42 |
||
|
India |
2 |
||
|
Indonesia |
7 |
||
|
Iran, Islamic Republic of |
<1; in> |
||
|
Italy |
1 |
||
|
Japan |
2 |
||
|
Kuwait |
31 |
||
|
Mexico |
11 |
||
|
Netherlands |
2 |
||
|
Nigeria |
2 |
||
|
Norway |
1 |
||
|
Romania |
2 |
||
|
Russian Federation |
3 |
||
|
Saudi Arabia |
10 |
||
|
Singapore |
7 |
||
|
Trinidad and Tobago |
14 |
||
|
Turkey |
11 |
||
|
United States |
2 |
||
|
Venezuela |
24 |
||
|
| |||
* * *
Despite growing concern about the climatic effects of using hydrocarbon fuels, demand for refined petroleum products is still enjoying slow, steady growth -- especially in the form of transport fuels. The structure of the industry supplying these products has become more complex than it was a decade or two ago. In particular, referring to the internal operations of vertically integrated, major multinational oil companies no longer suffices to explain developments in refining. There has been a tendency towards "de-integration from the bottom" of the supply chain, as the refining operations of integrated companies have been obliged to operate as independent profit centres to a greater extent, and some of the major companies have divested some refineries to independent companies. At the same time, there has been a "reintegration from the top", as state oil companies in oil-exporting countries have acquired refining and other downstream assets in importing countries, in order to assure outlets for their crude and to seek to capture more value added. The share of refining in the financial aggregates of the oil industry -- such as capital expenditure and profits -- has, in recent years, been well below its estimated one-quarter share of employment in the industry.
Notes
1. See Jon McLin: "The petroleum price rollercoaster: Some social and economic effects in producing countries", in International Labour Review (Geneva, ILO), Vol. 127, No. 4, 1988, pp. 409-428.
2. The documents relevant to the Tenth Session of the Petroleum Committee are: General Report (Report I); Occupational safety and health and the working environment in the petroleum industry (Report II); Manpower planning and development in the petroleum industry (Report III); and Note on the Proceedings (Geneva, 1986).
3. Paul Stevens: "Oil prices: The start of an era?", in Energy Policy, Vol. 24, No. 5 (United Kingdom, Elsevier Science Ltd., 1996).
4. See the exchanges on this point in Oxford Energy Forum, issues 23 to 26 (Nov. 1995 to Aug. 1996).
5. OPEC Bulletin (Vienna), Nov./Dec. 1996.
6. Financial Times (London), 19 May 1994.
7. ibid., 22 Dec. 1994; Petroleum Economist (London), Apr. 1996.
8. Rezki Lounnas: "Outlook for the refining industry in OPEC Member Countries", in OPEC Review (Oxford, Blackwell), Mar. 1997.
9. Inès Lemarie and Christophe Barret: L'emploi dans l'industrie pétrolière, Sectoral Activities Programme Working Paper No. 31 (Geneva, ILO, 1990).
10. Oil and Gas Journal (Tulsa, Oklahoma), 17 Feb. 1997.
11. UNIDO: Industrial Development. Global Report 1996 (New York, Oxford University Press, 1996), p. 11.
2. Recent trends in refining:
Economic and technical issues
When the ILO last reviewed conditions in the refining sector, in 1986, reference was made to "the difficult situation through which the world refinery sector has been going since the mid-1970s".(1) In the latter part of the 1990s the situation is still difficult, although the nature of the issues, or at least their relative importance, has changed somewhat.
In the 1980s, three main factors were responsible for the industry's difficulties: (1) a deceleration in the growth of demand for oil products, because of the steep oil price increases of 1973-80; (2) the "whitening of the barrel", i.e. a relative decline in demand for the heavier oil products such as fuel oil and a relative increase in demand for the "whiter" products such as kerosene, diesel and gasoline, the implication being that many refineries were no longer configured to make enough of the kind of products that the market wanted; (3) the growth of refinery capacity in OPEC and other producing countries. In combination, these factors led to an excess of basic distillation capacity (the first-stage refinery process) in those parts of the world subject to market forces. The restoration of a supply-demand balance was retarded by the fact that some (mainly state-owned) refiners had more complex motives for staying in the business than the simple profitability of refining operations in their own right. Nevertheless, there have been several waves of refinery closures. In the United States about 100 small refineries closed in the early 1980s,(2) and 29 closed between 1990 and 1997.(3) In the European Community there was a capacity closure of 5 million barrels per day (b/d), or about 30 per cent of peak 1977 capacity, between 1977 and 1985. There was a further 409,000 b/d capacity closure during an 18-month period in 1994-95.(4) The net result of these and other changes is that the world's primary distillation capacity in 1997 is at about the same level as at the end of the 1970s, and lower than in 1981.
The distribution of that capacity and of refinery throughput has changed over this period, as tables 2.1 and 2.2 indicate.(5) The shares of Asia, the Middle East and Africa have increased -- albeit still accounting for a small percentage of the total -- while that of Western Europe has decreased.
The tendency of refinery closures to be concentrated in the smaller units reflects a general trend: economies of scale have been getting more important. Manpower levels, maintenance costs and certain overheads do not increase proportionately with size. There are two strong arguments for concentrating operations in refineries of a certain size: they are able to produce a high proportion of light products and the flexible enough to process various kinds of crude (which becomes more important as the dedicated supply chains break down). A further reason for this trend is the high unit costs of equipment to meet various environmental specifications; indeed the capital costs of new units also fail to increase proportionately with size. A typical scale factor is about two-thirds -- which means that a 50 per cent increase in unit size would result in a cost increase of only about 30 per cent. Some examples of the cost in 1995 of process units (of economic size) that serve these purposes will illustrate the point: catalytic cracker, $225 million; hydrocracker, $150-200 million; hydrogen production unit, $50 million; alkylation unit, $50 million; hydrodesulphurization unit, $90-120 million.(6)
The interpenetration of markets through trade in oil products has become a more important aspect of refining than was the case one or two decades ago. The cost of transporting products in relation to their value has tended to decline over this period. The tendency of production to be concentrated in a smaller number of larger refineries also entails an increase in trade. The result is that refiners are subject to import competition in their home markets to a greater degree than before. One indication of the importance of trade arrangements is that Saudi Arabia, which had not found it necessary to subscribe to the General Agreement on Tariffs and Trade (GATT), has applied to join the successor to GATT, the World Trade Organization (WTO). Another is the fact that the first case to be brought before the new dispute settlement machinery of the WTO involved trade in gasoline in North America.
Table 2.1. World refinery capacities
|
| |||||||||||
|
1986 |
1991 |
1996 |
|||||||||
|
|
|
|
|
|
| ||||||
|
Thousand
|
% share
|
Thousand
|
% share
|
Thousand
|
% share
| ||||||
|
| |||||||||||
|
United States |
15 565 |
21.3 |
15 695 |
20.8 |
15 450 |
19.8 | |||||
|
Canada |
2 080 |
2.9 |
1 905 |
2.5 |
1 770 |
2.3 | |||||
|
Mexico |
1 350 |
1.9 |
1 525 |
2.0 |
1 520 |
2.0 | |||||
|
Total North America |
18 995 |
26.0 |
19 125 |
25.3 |
18 740 |
24.1 | |||||
|
Argentina |
670 |
0.9 |
695 |
0.9 |
665 |
0.9 | |||||
|
Brazil |
1 265 |
1.7 |
1 365 |
1.8 |
1 540 |
2.0 | |||||
|
Netherlands Antilles |
320 |
0.4 |
470 |
0.6 |
490 |
0.6 | |||||
|
Trinidad and Tobago |
300 |
0.4 |
245 |
0.3 |
260 |
0.3 | |||||
|
Venezuela |
1 225 |
1.7 |
1 225 |
1.6 |
1 280 |
1.6 | |||||
|
Other S. and Central America |
1 875 |
2.6 |
2 000 |
2.6 |
2 135 |
2.7 | |||||
|
Total S. and Central America |
5 655 |
7.8 |
6 000 |
7.9 |
6 370 |
8.2 | |||||
|
Belgium |
710 |
1.0 |
705 |
0.9 |
690 |
0.9 | |||||
|
France |
2 040 |
2.8 |
1 700 |
2.2 |
1 750 |
2.2 | |||||
|
Germany |
2 215 |
3.0 |
2 210 |
2.9 |
2 105 |
2.7 | |||||
|
Greece |
350 |
0.5 |
360 |
0.5 |
365 |
0.5 | |||||
|
Italy |
2 555 |
3.5 |
2 305 |
3.0 |
2 365 |
3.0 | |||||
|
Netherlands |
1 380 |
1.9 |
1 255 |
1.7 |
1 255 |
1.6 | |||||
|
Norway |
255 |
0.3 |
320 |
0.4 |
295 |
0.4 | |||||
|
Portugal |
390 |
0.5 |
340 |
0.4 |
280 |
0.4 | |||||
|
Spain |
1 245 |
1.7 |
1 245 |
1.6 |
1 245 |
1.6 | |||||
|
Sweden |
415 |
0.6 |
400 |
0.5 |
420 |
0.5 | |||||
|
Turkey |
470 |
0.6 |
675 |
0.9 |
675 |
0.9 | |||||
|
United Kingdom |
1 835 |
2.5 |
1 855 |
2.5 |
1 845 |
2.4 | |||||
|
Other Europe |
3 355 |
4.6 |
3 760 |
5.0 |
3 135 |
4.0 | |||||
|
Total Europe |
17 215 |
23.6 |
17 130 |
22.7 |
16 425 |
21.1 | |||||
|
Former Soviet Union |
12 260 |
16.8 |
12 300 |
16.3 |
10 340 |
13.3 | |||||
|
Bahrain |
250 |
0.3 |
250 |
0.3 |
250 |
0.3 | |||||
|
Iran, Islamic Republic of |
530 |
0.7 |
720 |
1.0 |
1 170 |
1.5 | |||||
|
Iraq |
320 |
0.4 |
320 |
0.4 |
530 |
0.7 | |||||
|
Kuwait |
620 |
0.9 |
170 |
0.2 |
740 |
1.0 | |||||
|
Saudi Arabia |
1 125 |
1.5 |
1 865 |
2.5 |
1 715 |
2.2 | |||||
|
Other Middle East |
1 005 |
1.4 |
1 030 |
1.4 |
1 115 |
1.4 | |||||
|
Total Middle East |
3 850 |
5.3 |
4 355 |
5.8 |
5 520 |
7.1 | |||||
|
Total Africa |
2 550 |
3.5 |
2 860 |
3.8 |
2 880 |
3.7 | |||||
|
Australasia |
740 |
1.0 |
735 |
1.0 |
805 |
1.0 | |||||
|
China |
2 170 |
3.0 |
2 890 |
3.8 |
4 225 |
5.4 | |||||
|
India |
990 |
1.4 |
1 120 |
1.5 |
1 210 |
1.6 | |||||
|
Indonesia |
735 |
1.0 |
780 |
1.0 |
890 |
1.1 | |||||
|
Japan |
4 705 |
6.4 |
4 610 |
6.1 |
4 990 |
6.4 | |||||
|
Singapore |
960 |
1.3 |
1 085 |
1.4 |
1 245 |
1.6 | |||||
|
South Korea |
710 |
1.0 |
930 |
1.2 |
1 815 |
2.3 | |||||
|
Other Asia Pacific |
1 435 |
2.0 |
1 665 |
2.2 |
2 415 |
3.1 | |||||
|
Total Asia Pacific |
12 445 |
17.1 |
13 815 |
18.3 |
17 595 |
22.6 | |||||
|
Total world |
72 970 |
100.0 |
75 585 |
100.0 |
77 870 |
100.0 | |||||
|
Of which OECD |
39 300 |
53.9 |
38 810 |
51.3 |
38 850 |
49.9 | |||||
|
Other emerging market
|
19 055 |
26.1 |
21 690 |
28.7 |
26 570 |
34.1 | |||||
|
* Calendar day. ** South and Central America, Africa, Middle East and non-OECD Asia. Source: BP Statistical Review of World Energy 1997 (London), 1997. | |||||||||||
|
| |||||||||||
Table 2.2. World refinery throughputs
|
| ||||||||||||
|
1986 |
1991 |
1996 |
||||||||||
|
|
|
|
|
|
|
| ||||||
|
Thousand
|
% share
|
Thousand
|
% share
|
Thousand
|
% share
| |||||||
|
| ||||||||||||
|
United States |
12 715 |
22.4 |
13 300 |
21.5 |
14 180 |
21.9 | ||||||
|
Canada |
1 380 |
2.4 |
1 535 |
2.5 |
1 590 |
2.5 | ||||||
|
Mexico |
1 305 |
2.3 |
1 510 |
2.4 |
1 485 |
2.3 | ||||||
|
S. and Central America |
4 310 |
7.6 |
4 665 |
7.6 |
4 895 |
7.5 | ||||||
|
Europe |
12 475 |
21.9 |
13 795 |
22.3 |
14 615 |
22.5 | ||||||
|
Former Soviet Union |
9 665 |
17.0 |
8 840 |
14.3 |
4 685 |
7.2 | ||||||
|
Middle East |
3 765 |
6.6 |
3 790 |
6.1 |
5 370 |
8.3 | ||||||
|
Africa |
1 920 |
3.4 |
2 360 |
3.8 |
2 440 |
3.8 | ||||||
|
Australasia |
580 |
1.0 |
745 |
1.2 |
840 |
1.3 | ||||||
|
China |
1 865 |
3.3 |
2 280 |
3.7 |
3 010 |
4.6 | ||||||
|
Japan |
2 990 |
5.3 |
3 655 |
5.9 |
4 190 |
6.5 | ||||||
|
Other Asia Pacific |
3 920 |
6.9 |
5 255 |
8.5 |
7 545 |
11.6 | ||||||
|
Total world |
56 890 |
100.0 |
61 730 |
100.0 |
64 845 |
100.0 | ||||||
|
Of which OECD |
29 660 |
52.1 |
33 395 |
54.1 |
35 780 |
55.2 | ||||||
|
Other EMEs** |
15 780 |
27.7 |
18 350 |
29.7 |
23 260 |
35.9 | ||||||
|
* Calendar day. ** South and Central America, Africa, Middle East and non-OECD Asia. Source: BP Statistical Review of World Energy 1997 (London), 1997. | ||||||||||||
|
| ||||||||||||
The waves of refinery closures referred to above, combined with continuing increases in the demand for oil products, have raised the average utilization rates in the world from about 70 per cent in 1981 to 82 per cent in 1996. Nevertheless, excess capacity is still a problem in 1997, at least in certain regions. The above tables show how refinery capacities and throughputs are distributed across the world and how they have changed over time. The difference between capacity and throughput is a crude measure of excess capacity. As can be seen, this amounted as of the end of 1996 to 55 per cent for the countries of the former Soviet Union, 23 per cent in Central and South America, 15 per cent in Africa, 11 per cent in Europe, 11 per cent in Asia Pacific, 8 per cent in North America and only 3 per cent in the Middle East.
Aggravating the problem of underutilization of "name-plate" capacity is the phenomenon referred to as "capacity creep", which has been defined as:
... the progressive increase in a refinery's effective capacity, which results from successive minor improvement projects and from work carried out in the course of turnarounds -- the facility's scheduled annual or biennial maintenance shut-downs. In addition to obvious debottlenecking improvements, the increased reliability of pumps, valves and control systems is also contributing to a substantial -- and continuing -- increase in the volume of product, which most of the world's better-maintained refineries can make over a year. These increases, also, are usually not reflected in the official capacity figures.(7)
An increasing, although still small, contribution to the supply of transport fuels is being made from plants that convert natural gas into such products; although it is only one factor, this will tend to aggravate the capacity problem. Such plants are already in operation in Malaysia and South Africa and are being planned in Qatar and elsewhere.(8)
A normal way of restoring equilibrium in this situation would, of couse, be for the less competitive refineries in markets characterized by excess capacity to close. That there have not been more closures is attributable to several factors. First, in the oligopolistic situation found in many markets for refined products the costs of a closure are borne by the firm concerned, while other companies benefit from the firmer prices that result; hence no firm has an incentive to be the first to close. Second, refineries belonging to integrated companies may be configured to process a particular type of crude or assigned to certain markets, so that adapting the supply chain to their disappearance may cause problems. Third, some refineries are subject to broader commercial considerations (e.g. an assured outlet for crude from an affiliated crude-producing company) or to political ones (e.g. to keep in existence a source of employment and incomes in regions where the refineries play a dominant economic role).
Changes in crude oil supply and oil product demand patterns
One of the factors necessitating continuous adjustments by refinery operators is that the "crude slate" being fed to the world's refineries is undergoing constant change, as is the "cut of the demand barrel". The former term refers to the mix of different types of crude oil fed into refineries; the latter to the changing proportions of refinery products -- gasoline, gas oil, kerosene, bunkers, fuel oil -- that the world wishes to consume. Crude oils that are heavier and those that have higher concentrations of impurities, especially sulphur, require more elaborate and expensive installations to produce a given proportion of the lighter products such as gasoline, diesel and kerosene. The heavy investments involved in such installations will be justified if the price differential between low-quality crudes (heavy, high sulphur) and high-quality crudes is sufficiently great. If not, the refinery operator will tend to meet his output requirements by buying higher-quality crudes and foregoing the investment in additional processing capacity.
Similarly, the amount and type of investment in refinery hardware will be strongly influenced by the refiner's expectations about product demand, i.e. in what proportions there will be a market demand for the various products. Where demand is sufficiently strong for the lighter products, so that they command a sufficient price premium, the investments in catalytic crackers or hydrocrackers or other units needed to increase the proportion of such products will be justified -- or alternatively the refiner will pay the premium to use a lighter, higher-quality feedstock. The ability to make light products is measured by "conversion capacity", i.e. the percentage share of the output of distillation (first-stage refining, also called "topping") able to be converted in further stages to lighter products. Conversion capacity is a rough measure of how highly developed refinery installations are. The following table shows how it varies across regions and over time.
Table 2.3. World refinery capacity (including conversion capacity) by region, 1975-95
|
| |||||||||||||
|
1975 |
1985 |
1995 |
|||||||||||
|
|
|
|
|
|
|
|
| ||||||
|
Topping
|
Conversion
|
Topping
|
Conversion
|
Topping
|
Conversion
| ||||||||
|
| |||||||||||||
|
North America |
17.15 |
46.0 |
17.38 |
54.0 |
17.36 |
61.2 | |||||||
|
Latin America |
7.68 |
16.0 |
7.43 |
21.9 |
7.45 |
29.7 | |||||||
|
Eastern Europe* |
10.90 |
n.a. |
14.04 |
n.a |
. |
12.19 |
14.0 | ||||||
|
Western Europe |
21.00 |
7.0 |
15.30 |
18.3 |
14.70 |
29.0 | |||||||
|
Middle East |
3.18 |
10.0 |
4.23 |
14.3 |
5.56 |
20.3 | |||||||
|
Africa |
1.30 |
8.0 |
2.60 |
7.8 |
2.77 |
9.9 | |||||||
|
Asia and Far East |
9.94 |
6.0 |
11.70 |
12.9 |
14.48 |
21.0 | |||||||
|
Oceania |
0.79 |
17.0 |
0.68 |
26.5 |
0.82 |
30.1 | |||||||
|
Total world |
71.96 |
16.0 |
** |
73.35 |
21.9 |
** |
75.35 |
31.2 | |||||
|
OPEC |
4.42 |
9.0 |
6.33 |
15.9 |
7.74 |
20.3 | |||||||
|
OPEC % |
6.10 |
8.60 |
10.30 |
||||||||||
|
* Downward changes as of 1990 reflect more accurate statistics from the former Soviet Union. ** Excludes former centrally planned economies. n.a. = not available. Source: OPEC Review (Vienna), Mar. 1997. | |||||||||||||
|
| |||||||||||||
Refinery operators whose expectations about the crude slate and the cut of the demand barrel are borne out have a better chance than those who get it wrong of building a refinery whose configuration is well-suited to market conditions and, therefore, of being profitable. But they tend to be in the minority, since accurately forecasting such trends over the lifetime of a refinery (some decades) is not easy. For example, it has long been a conventional view that the crude slate would get heavier and sourer (i.e. more sulphur), for the simple reason that a large share of world reserves (e.g. in the Gulf and Venezuela) had those characteristics. However, the tendency of non-OPEC production -- much of which, such as North Sea output, is light and sweet -- to enjoy sustained growth is postponing the date when the "heavier-sourer" forecast will prove to be correct. In the meantime, the widespread availability of light, sweet crudes has reduced the price differential between these and the heavier oils; this creates difficulties for refinery investments predicated on a wide price differential as has been the case, for example, for some European units.
On the demand side, the conventional view in the 1980s was that the demand barrel was getting "whiter", i.e. a larger portion of light products and especially of gasoline was being sought. Accordingly heavy investments were made in catalytic crackers and other units that turned out a high proportion of gasoline. While this has generally proved a correct strategy, at least in the United States, in Europe the light product in greatest demand has been middle distillates, especially diesel rather than gasoline, while in certain regions the demand for fuel oil (the heavier part of the barrel) has remained stronger than expected. Optimizing output in the latter markets would have required different configurations than those based on a high-gasoline-demand model.
Environmental legislation related to oil products has been getting tighter in most parts of the world. The details vary considerably from country to country (or even within countries, as for example in the United States where California follows an independent line); more will be said on these variations later in the chapter. However, the general trends are consistent and the legislation sets out, among other things, to: improve air quality through requirements for reductions in the lead content of gasoline and in the sulphur content of fuel oil and diesel; establish minimum oxygen requirements in gasoline to limit carbon monoxide emissions; set maxima for content of benzene and other aromatics in gasoline; place restrictions on emissions, e.g. sulphur dioxide and nitrogen oxides, from the refinery site.
The challenge facing the refiner has been not only to build new plants in conformity with the tighter specifications but also to retro-fit earlier plants. Both involve major investments. For example, the most effective way to achieve the quality requirements for diesel fuel is often to build a hydrocracker unit; but at a typical cost of some $200 million this is a decision that is not made easily. A tendency which unsettles refinery operators is the ratchet effect: tighter specifications, which are generally introduced in accordance with a phased schedule, are frequently modified before they have had time to take effect. In view of the several-year lead time involved in commissioning and building new refineries or add-ons, the equipment to respond to last year's requirements may not yet be in place when new legislation is enacted which renders that configuration insufficient. The relation between successive quality improvements and cost is often non-linear, so that there is a big pay-off from the first round of quality improvements but successive marginal improvements thereafter -- which are increasingly costly. All of this generates heavy investment requirements which, in view of present and prospective profitability, may be difficult to justify. Some of the investment generates increased revenues based on higher margins for the ensuing higher-quality products. Nevertheless, it has been estimated that in Western Europe, internal rates of return over a ten-year period on most environment-related investments were negative.(9)
There is a further example of the perverse effects that can result from changing the environmental rules within the life of an investment. One of the obstacles to closing older refineries, and thereby bringing about a better balance -- both quantitative and qualitative -- between supply and demand is the environmental liability associated with it, i.e. the cost of restoring the site to standards now considered acceptable and of dealing with possible lawsuits. The cost of closing a medium-sized refinery in an OECD country can be in the order of $200 million.
Concerns about greenhouse gases that contribute to global warming represent another category of environmental issues. Although, their impact on refining is more indirect and general, it could be just as powerful as the specific measures aimed at improving air quality that have, until now, been the immediate issues for the industry. To the extent that such concerns are translated into policies, the effects on refining could be to reduce the overall demand for oil products, and thus refinery throughputs, as non-fossil fuels are substituted for hydrocarbons. Demand for fuel oil would presumably be further depressed, as alternative fuels (hydro, nuclear, natural gas) can more easily be applied to steam generation than to transport. This would accentuate the trend towards a "whiter" barrel of products. Alternative opportunities could arise to compensate for the commercially adverse effects which could include the processing and provision of environmentally more benign fuels -- such as vegetable oils used to substitute for diesel -- or hydrogen or natural gas for use in vehicles equipped to operate on these fuels.(10)
The "margin" of a refinery is the difference between its cash income from product sales and its variable costs (principally the cost of crude oil plus utilities). For the refinery to be profitable, the margin must be sufficient to cover a depreciation charge -- that is the annual payback on the capital cost of the refinery -- and a return to the investor. The size of the depreciation charge will vary according to the type of refinery; in general, the more complex and therefore expensive the refinery hardware, the lighter and more valuable is its product mix, and the wider its margin -- but the higher its depreciation charge. The minimum margin that would be regarded as commercially acceptable will also vary according to the type of refinery and other factors. The historical average margin for simple (hydroskimming) refineries has been about $1.50/barrel. But to justify construction of new plants today, the required margins for hydroskimming and complex refineries, respectively, have been put at $3.50/barrel and $6.50/barrel.(11) A look at figure 2.1 will show that in some regions of the world, notably north-west Europe and the United States Gulf Coast, those levels have generally not been reached in the last several years.
Figure 2.1 Worldwide refining margins, 1993-97
For the period January 1995-July 1996 margins for complex refineries (cracking margins) ranged from 0 to $2.00/barrel in north-west Europe and $0.80 to $4.30 in Singapore.(12) The United States Gulf Coast margins have generally been worse, while on the West Coast -- where substantial refining capacity has been shut down in recent years -- they have been significantly better, ranging from $3.50 to $7.50/barrel.
The situation in the major regions
The interplay of the factors referred to above, and the concrete form they assume, can best be understood by examining the issues facing the refining industry in different parts of the world. The employment issues to be considered later can only be understood by reference to this economic context.
Refiners in Western Europe are beleaguered, and this situation has persisted since the early 1980s. Margins are low, there is little incentive to make the kinds of investments that would increase the region's competitiveness, and exiting the business is made difficult by the potential cost of shutting down and by the scarcity of potential buyers. The causes of this situation relate to excess capacity, changes in the cut of the supply and demand barrel, and government regulations. General downstream profitability has been further aggravated in some countries by the competition that supermarket outlets are presenting for traditional service stations. This is particularly true in France, one of the countries whose refining sector is in greatest difficulty, having registered an after-tax loss of $181 million in 1995.(13)
Capacity problems concern both the basic crude distillation units and the secondary or conversion units that reprocess the output from the former in order to further increase the proportion of valuable light products. There has been a significant reduction in recent years in the number of refineries in the 12 countries of the European Union (EU) (from 141 in 1980, to 94 in 1988, and 95 at the end of 1995) and in the nominal crude distillation capacity (from 920 million tonnes/year in 1980, to 592 million in 1988, and 605 million at the end of 1995). Italy was particularly affected by this adjustment, as some 40 per cent of its capacity was shut down. The nominal utilization rate increased from 63 per cent in 1985 to over 90 per cent by early 1997. However it is generally considered that because of the phenomenon of "capacity creep" the real amount of excess capacity is greater than 10 per cent. According to one estimate this adds some 0.75 per cent per year to capacity in Europe. The second capacity problem concerns conversion processes. Despite the reduction in the total number of refineries, there are 66 more complex refineries -- i.e. those with catalytic cracking or hydrocracking or comparable units -- than in 1980 or 1988, and conversion capacity as a percentage of distillation capacity has increased from 29 per cent in 1990 to 35 per cent in 1997.(14)
If this capacity were well-matched to the slate of crude oil taken into the refineries and the type of products being demanded, the situation would be less troublesome. However, there are problems on both these counts. Much of the conversion capacity was justified on the grounds that crude supplies were expected on average to get heavier and sourer, and to be priced at a differential (relative to better quality crudes) that would enable the investment in upgrading capacity to be paid back in a reasonable period. In the event, the typical barrel of crude supplied to Western European refineries in recent years has become lighter and sweeter than before; this may be attributed to the unexpectedly high output from the North Sea (which is good quality crude) and to decisions made by Saudi Arabia to shift the mix of its output toward the lighter and sweeter crudes as a way to maximize its production revenues. In fact, therefore, less conversion capacity than before would have been needed -- not more.
Similarly, on the side of product demand, things turned out differently than expected, thereby aggravating the problem. First, demand for fuel oil -- a heavier, less desirable product which conversion processes are designed to break down into lighter products -- declined less rapidly than expected, which has reduced the demand for conversion capacity. Second, the light product for which demand increased most rapidly turned out not to be gasoline, which many refineries had been configured to optimize, but diesel. As a result there was a major deficit of diesel, which had to be imported from elsewhere, especially the Middle East. Meanwhile European refineries were producing a surplus of gasoline, much of which had to be exported. The reasons for this imbalance relate to the next set of problems: changing environmental requirements.
The fact that demand for diesel has grown more rapidly than that for gasoline is due to several factors: improvements in diesel engine design in terms of performance, noise, etc.; better fuel efficiency (up to half) than gasoline engines; and declining cost differentials between diesel- and gasoline-powered cars, which now cost about the same. But a major factor has been the tax incentives which in certain European countries make the cost of fuel per vehicle-kilometre significantly cheaper (about 40-50 per cent less in France, Germany, Italy) than for gasoline vehicles.(15) These discriminatory taxes were imposed largely because the greater fuel economy of diesel engines was thought to be conducive to reduced energy demand and thus to reduced pollution. Fiscal incentives therefore represent one way in which legislative requirements are influencing the demand for different oil products. Other prescriptive regulations which stipulate the maximum or minimum concentrations of certain components in hydrocarbon fuels have a more direct effect. While the issue cannot be treated fully in this report, some explanation is in order since environmental requirements are now one of the main determinants of refinery economics and hence of the employment situation in this sector.
Legislation to deal with air pollution has been a serious concern of most European governments since the 1970s, and a harmonizing role has increasingly been played by the European Commission. Throughout Western Europe laws now limit the amount of lead, benzene and sulphur in gasoline, as well as the content of sulphur in diesel fuel. Since 1993 new cars sold in the EU have been required to be equipped with catalytic converters, which reduce emissions of unburnt fuels, carbon monoxide and nitrogen oxides and require unleaded fuel to be effective. Unleaded gasoline was quick in capturing a large share of the market, stimulated by fiscal incentives to motorists. Substantial investments were made by the refining industry to develop and produce unleaded gasoline of the required specifications. Continuing improvements in car engines and in fuels since the early 1970s have already resulted in substantial reductions in emissions such as lead, carbon monoxide, hydrocarbons and nitrogen oxides.
Although improvements from this round of relatively low-cost measures were still being realized, concerns about whether they were adequate led the European Commission in 1992 to undertake a study programme, called the Auto-Oil Programme, in partnership with the automotive and oil industries. The aim was to assess Europe's present and future air quality problems and to identify the most cost-effective ways to address them. Based on the recommendations that emerged from these studies, the Commission in June 1996 proposed a set of measures expected to yield major reductions in emissions, as indicated in the following table.
Table 2.4. Emission reductions from the transport sector -- 2010 v. 1990
|
| ||||
|
Pollutants |
Applying
|
Applying
|
||
|
| ||||
|
Carbon monoxide |
53 |
75 |
||
|
Benzene |
51 |
75 |
||
|
Nitrogen oxides |
38 |
61 |
||
|
Particulates |
44 |
64 |
||
|
Ozone precursors |
52 |
70 |
||
|
Source: European Commission, quoted in A breath of fresh air (Brussels, European Industry Association, 1996). | ||||
|
| ||||
The total cost of the package was estimated at $6.6 billion per year for 15 years. The implied investment costs were estimated at about $13 billion, approximately evenly divided between the oil and auto industries. Among the measures considered, those which resulted in very slight quality improvements for relatively heavy cost were not recommended. On the basis of the findings of the Auto-Oil study, the Commission made its proposals in June 1996 regarding the specifications to be attained by the year 2000 -- it being understood that in a second phase proposals would be made for the specifications to be met by 2005. The surprise came when the European Parliament, to which the Commission's proposal had been referred, decided on different, and considerably more demanding, specifications than those that had been put forward as a result of the Auto-Oil Programme. For example, as regards diesel the prescribed maximum content of sulphur recommended by the Commission was 350 parts per million (ppm); the figure set by the Parliament was 100 ppm for the year 2000, 50 ppm for the year 2005; numbers for other pollutants are similarly demanding. The Parliament was influenced by the standards that had already been introduced in Sweden. Indeed, that country had introduced a diesel fuel ("City Diesel Class 1"), stimulated by a tax incentive amounting to 7.5 US cents per litre, that had probably the toughest specifications in the world -- for example only 10 ppm of sulphur. What is more, this fuel already accounted for some 90 per cent of the market in Sweden. For gasoline, the sulphur requirement in the Commission's proposals was 200 ppm, while the Parliament proposed 30 -- the same as now required in California. The investment costs required to meet such standards on an EU-wide basis are very high. An estimated $70-100 million per refinery was needed to change the sulphur standard in force from 1990-95 (1,500 ppm) to the present one (500 ppm). It is far from clear in the present economic environment where the funds will come from. This adds significantly to the uncertainty facing the European refining industry and its workforce.(16)
At the time of writing this report, the outcome of this story is not known. The point of recounting it here is not to argue that the environmental standards being set are inappropriate but rather to demonstrate how difficult it is with a technically complex subject to take a rational, science-based approach that will withstand the vagaries of the democratic political process. Among the factors that must be weighed by potential refinery investors is the possibility that the specification schedule on the basis of which they make their investment decisions today may be changed even before the new plants come on stream. Such uncertainty can only be very unsettling to the industry.
The responses of refiners to the difficult situation described above are varied. In what are deemed core refineries, companies are making the heavy investments required to stay in the game (e.g. Conoco's plant in the Humber, United Kingdom, and Shell's plant in Pernis, Netherlands). Elsewhere, the available strategies are to rationalize, consolidate or wait and see. As noted above, the number of refineries has not diminished since 1988. The only significant recent closure is that of the Mobil refinery in Wörth, Germany, in 1995, and this is offset by the new Elf refinery at Leuna, which will come on stream in late 1997. In 1996, BP announced its intention to divest itself of its 200,000 b/d refinery at Lavera, in southern France. In 1996 Shell put its 60,000 refinery in Cressier, Switzerland up for sale, while indicating that it would be looking at possible rationalization measures in south-west France and at the Shell Haven plant in the United Kingdom. Other rationalization measures have been taken or announced by Exxon (Karlsruhe), and BP (Pernis). Buyers for refineries that the major companies wish to divest because of their unprofitability are not plentiful. The main candidates are independents which, by being leaner and more nimble than the large companies, may be able to turn them into profitable operations, as has been the case in a number of instances in the United States (see below) -- although the role played by independents in Europe is smaller than in the United States; they may also be of interest to oil exporters' state companies, which have wider objectives.
The most sweeping measure is the plan of BP and Mobil to combine their European refining and marketing operations as of 1998 to reduce operating costs. The joint venture will own $5 billion in assets, including14 refineries with a combined capacity of about 1.1 million b/d; about 9,000 service stations; and operations in 43 countries.(17) Although it is not yet clear what the disposition of these assets will be, the possibility of some refinery closures must be considered a serious one. A second consolidation arrangement, announced in 1996 and subsequently called off, would have merged the United Kingdom refining and marketing interests of Elf, Gulf and Murco, closing a Gulf refinery in Milford Haven, South Wales, in the process.(18)
Finally, in southern Europe the principal state-owned companies have advanced significantly down the road of commercialization and privatization. In Spain only 10 per cent of Repsol remains in government hands, and that is soon to be sold. In Italy, ENI has been run on an increasingly commercial basis since 1992, and 31 per cent of its share capital has been privatized, with another 19 per cent to be sold before the end of 1997.(19)
In the United States, 163 refineries with a crude capacity of 15.43 million b/d were in operation at the beginning of 1997. The capacity number has been relatively stable throughout the 1990s (15.48 million in 1991) after declining in the 1980s (18.46 million in 1980). The number of refineries has declined from 194 in 1991 and 303 in 1980.(20) Many of the refineries that closed were small: the average capacity of the refineries closed in the 1990s was only about 25,000 b/d, and in total they represented only about 4 per cent of United States distillation capacity.(21) Most of the refineries that closed were also simple distillation units: as a result, total conversion capacity as a percentage of basic crude capacity increased. However, 20 of the refineries that have closed since 1980 were complex, with a total capacity of over 600,000 b/d. Other characteristics of the closed refineries were that their output comprised a heavier product mix than the average surviving refinery; and their utilization rates were lower than those of the survivors. Marginal improvements in the surviving refineries' "capacity creep" -- amounting to about 0.5 per cent per year output growth -- accounts for the fact that output has remained roughly constant despite the closures. Demand for oil products, after falling sharply between 1979 and 1983, has grown at a steady if slow rate in most of the years since 1983. Demand for light products increased at a rate of 0.8 per cent per year in the first half of the 1990s, while conversion capacity -- despite the shut-downs -- was growing at twice that rate.(22)
It is at first glance puzzling that despite demand growth, refinery closures and high utilization rates, margins remain modest and little investment has been made in new capacity. Average capacity utilization has risen from 92 per cent in 1995 to an expected 93.5 per cent in 1997. It is argued that this is near the maximum sustainable capacity utilization, since some spare capacity is needed for maintenance down time and other contingencies.(23) However, the fact that margins have remained low suggests the explanation lies again in the phenomenon of capacity creep. Investments undertaken partly to comply with environmental requirements (see below) have contributed to this. According to one author:
In the past five years, margins haven't improved, even for those who have invested to make reformulated fuels. The intent of these refiners was to add economic value to the investments added for regulatory purposes. But these investments involved the addition of conversion equipment, which had the added effect of increasing product capacity.(24)
Average margins have fluctuated in a range of about $1.80/barrel to $1.00/barrel over the last 20 years. These averages conceal the wide gap between the Gulf Coast refineries, with average margins of $1.39 in 1993, $0.88 in 1994 and $0.33 in 1995, and the surviving West Coast plants (benefiting from the numerous plant closures which reduced capacity overhang in that market), which have enjoyed margins in the range of $3.50 to $7.00 over the same period.(25) Historically, there is a clear correlation between the level of margins and -- with a time lag of about one-and-a-half to two years -- capital expenditure on refineries.(26) This would explain why capital expenditures fell from about $7 billion in 1992 to under $4 billion in 1996 and why little additional capacity is planned in the immediate future. Already the country is a net importer of about 1 million b/d per year of oil products (including 280,000 b/d of gasoline and 150,000 b/d of distillate), and in the absence of new investments this is likely to grow after the year 2000.
As in Western Europe, account must be taken of environmental requirements in assessing supply/demand and investment prospects. These requirements have gone through several stages, relate to various components of fuels and to emissions from the refinery site, vary from one part of the country to the other depending on local legislation -- California being the strictest -- and on local ambient air quality. They have become progressively tougher to meet, and -- as of June 1997 -- were continuing to evolve. Perhaps the most difficult challenges relate to gasoline, which with 8 million b/d of consumption accounts for some 43 per cent of the oil products used in the United States. The introduction of catalytic converters and limitations on lead in gasoline -- banned since 1995 -- represented an early phase of this environmental story; this generated an increased need for oxygen additives to compensate for the octane-enhancing qualities of lead, and investments were made to produce such products, especially methyl tertiary butyl ether (MTBE), in the required volume. The 1990 Clean Air Act Amendments (CAAA) went further. Since 1992 oxygenated gasoline has been required in all areas where carbon monoxide concentrations exceed a threshold level. Since 1995 reformulated gasoline has been required in areas where ground-level ozone exceeds target levels; provisional specifications (the "Simple Model") were introduced while refiners made the adjustments necessary to meet the targets fully, and these stipulated a minimum for oxygen content and maxima for benzene and sulphur and for emissions of volatile organic compounds and toxics. The specifications are to change again in January 1998 (according to the equations of the "Phase 1 Complex Model") and in January 2000 ("Phase 2 Complex Model"). The most severe regulations -- those of the California Air Resources Board (CARB) -- regulate the actual composition of the reformulated gasoline (RFG). At national level, it is the quality of the emissions that is regulated. However, the national emission specifications for 2000 imply a composition that is almost as strict as the 1996 CARB requirements.
"The 1990 Clean Air Act Amendments is (sic) the single most important factor affecting the domestic refining industry, past, present and future", according to one study of the industry. It judges that the impact of the first phase of RFG was limited, as larger refiners had been able to meet the specifications through relatively minor investments in refinery units; for example, the cost of an MTBE unit of 51,000 tonnes capacity is about $10 million. However the requirements of Phase 2 will entail much more investment in hydrotreating and alkylation units, which are more expensive by an order of magnitude. Small refiners have found even the first phase difficult. A number of the refinery closures took place in California, where small refiners were commercially unable to meet the CARB specifications. A survey showed that environmental regulations were primarily responsible for 29 refinery shut-downs between 1990 and 1996.(27) In mid-1997 the regulatory debate was shifting to proposed new air quality standards for particulate emissions. Spokesmen for the industry were arguing that these standards could entail very heavy investment costs that would burden the sector for years to come and were implying that some refineries would close rather than invest such large sums.(28)
As in Western Europe, a number of companies have responded to these pressures by selling refineries to the state companies of oil-exporting countries or to independents, or by consolidating their operations with those of their competitors. Examples of the first of these options include the 50/50 joint venture (JV) Star Enterprise, formed by Texaco and Saudi Aramco in 1988 (three refineries); the 50/50 JV between Unocal and PdVSA (1989, one refinery); Shell Oil Company and Pemex (50/50, one refinery, 1992); and the 90/10 JV between independent Lyondell and Venezuelan-controlled Citgo (one refinery, 1993). As regards the independents, some of them have shown that they are sufficiently lean and nimble to run profitably refineries that the majors found commercially uninteresting. Perhaps the most notable of these success stories is that of Tosco which, after buying one refinery from Exxon, two from BP, and three from Unocal, has become the country's largest "independent".(29) Recent consolidations that are noteworthy include: the merger of Diamond and Shamrock in 1996, and the acquisition by that merged company of the refining and marketing assets of Total Petroleum (North America) in 1997; the announced intention of Shell and Texaco to merge their midwestern and western United States refining and marketing activities (four refineries each), and their total United States transportation, trading and lubricants businesses; and a possibility that Star Enterprise (joint Texaco-Aramco) may combine with Shell Oil's eastern United States refining and marketing business.(30)
For much of this century the Caribbean has been a major centre of refining activity, with close links to crude sources in Venezuela and Mexico, and to markets in the United States. The refineries are based in Trinidad, in the Dutch Antilles (Curaçao and Aruba) and in United States possessions (St. Croix and Puerto Rico). Since the 1970s output from some of these refineries has fluctuated considerably. The refineries were mainly configured to process heavy crudes from nearby sources and produced a high proportion of residual fuel oil, which was sold principally to electric utilities and industrial users along the United States East Coast. In the 1970s and 1980s several developments led to a sharp fall in demand for this product. These factors included: increases in the crude oil price, which resulted in oil products being replaced by coal and natural gas for steam generation; the removal of some United States regulatory controls on the use of natural gas for power generation; and tighter environmental regulations regarding the sulphur content of fuels (the residual fuel oil from these refineries tended to be high in sulphur). The nationalization of some oil production and refining assets in Venezuela and Trinidad also had the effect of "de-integrating" the supply chains which, through common ownership, had previously tied production to refinery to markets. In view of the limited size of the islands' economies, the local employment and economic impacts of such changes have been considerable. In Trinidad and Tobago the effect was particularly marked. The throughput of Trinidad's two refineries in 1970 amounted to 434,000 b/d; a decade later it accounted for only half of that amount (214,000 b/d); and by 1985 -- the year in which the larger refinery was nationalized -- it had dropped to 81,000 b/d, representing a decline of some 80 per cent from its peak. It has subsequently grown slowly, aided in part by an upgrading financed by the Inter-American Development Bank, to reach 150,000 b/d in 1996; the output has become lighter and includes a growing portion of gasoline able to comply with United States environmental specifications. Nevertheless, refining was still unprofitable in 1996.(31) In Curaçao, ownership of the refinery passed in 1985 from the Royal Dutch/Shell group to the government of the island. Since that time, the Government has leased the facility to Petroleos de Venezuela, which now supplies most of the crude to -- and markets most of the output of -- the refinery. The drop in throughput in Curaçao has never been as dramatic as that in Trinidad, as it has failed to decline below 170,000 b/d of the 320,000 capacity. Nevertheless, recent utilization rates have not been high: an estimated 59 per cent in 1996. Upgrading investments have been made to allow the refinery's output to meet current environmental standards that are relevant. In Aruba, the 440,000 b/d Lago refinery was profitably operated by Exxon for much of the postwar period until the early 1980s, when the terms and availability of Venezuelan crude became less favourable. In 1984 the refinery was in effect handed over to the Antillean Government, but it lay idle until operations were resumed in 1991 by Coastal Oil, under an agreement with the Government. Current capacity is 170,000 b/d. The largest Caribbean refinery is the 545,000 b/d facility of the independent Amerada Hess in the United States Virgin Islands.(32) Although the refinery is complex and expanded its catalytic cracker capacity in 1996, the utilization rate for that year was only about 76 per cent. Low profitability appears to have also prompted it to consider joint venture arrangements with a South American partner.(33)
A noteworthy feature of Canada's refining industry is that a growing share of processing activity is devoted to refining heavy oil and oil sands. Since the scale of oil resources available in the world (a high proportion of them in Alberta and in Venezuela) in these relatively difficult-to-process forms is vast, it is significant that progress has been made in getting production costs down to levels that are economic even at present oil price levels. Major new investments in Alberta oil sands production are being considered by existing producers Syncrude and Suncor; Shell Canada/BHP and Mobil are also considering new oil sands ventures.(34)
The refining outlook in Asia contrasts markedly with that in the regions just described. From 1991-95 the demand for oil products in Asia grew at an average annual rate of 5.6 per cent, compared to 1.5 per cent in the United States, 0.5 per cent in Western Europe, and 2.7 per cent in Latin America; in the former Soviet Union the rate was 14.1 per cent. Growth is expected to continue to be buoyant, concentrated mainly in the middle distillates and light products. In response to this expected demand growth, planned investment in refinery capacity in the region is remarkably high. Whereas the share of Asia and Australasia in world refining capacity in 1995 was only 22 per cent, the region's share of planned capacity additions was 51 per cent.(35) According to one estimate, between 30 and 75 world-scale refineries would need to be built in the region by the year 2010.(36) In addition, much of the expected growth in Middle East capacity will be aimed at Asian markets. The need for new investments stems not only from volumetric growth but also from the fact that Asian governments' environmental requirements, like those in other regions, are becoming stricter. The Republic of Korea, Malaysia and Taiwan, China, may at times have a small surplus available for export in the late 1990s, based on capacity additions already committed. At times these capacity additions will affect European and American refiners adversely through their effect on export markets. But looking further ahead, to 2010, the region is likely to be in deficit unless investments are unexpectedly heavy, thus presenting an opportunity to export refineries in other parts of the world -- and especially those in the Middle East.
China accounts for much of the expected increase in demand. In 1990-96 its demand for oil products grew at an average rate of 8.2 per cent per year. Its 3.5 million b/d domestic refining capacity is not being fully utilized; in 1996, for instance, its utilization rate was only slightly above 70 per cent. Nevertheless, there is a perceived need to invest significantly in additional capacity, for several reasons: first, improvements must be made to the quality of the fuels being produced, including quality control, environmental characteristics and, in the case of gasoline, the octane rating; second, there should be a change in the locational pattern as too many of the existing refineries are in the north of the country, near the oil wells, rather than in the south and east, where demand is growing most rapidly; and, third, the refineries are configured to process domestic sweet crudes and have little flexibility to adapt to sourer imported crude (in 1993 China, formerly a net crude exporter, became a net importer). Several multinational oil companies have developed large refinery investment projects, aimed at least partly at gaining access to the country's growing domestic market. However, the Government's wish to protect local refiners and to increase exports has led it to impose stiff requirements, e.g. that 60 per cent of output from foreign-owned refineries be exported. As a result, progress has been slow; in only one case -- Total's joint venture in Dalian -- had construction been initiated by early 1997.(37) In late 1996 the State Planning Commission was reported to have blocked the construction of any new refineries before the year 2000, to allow demand to catch up with supply; this did not, however, apply to foreign-funded projects.(38)
In India, refining capacity is already inadequate. Both oil products demand and refinery throughput have increased rapidly in recent years, but demand has increased faster. As a result, capacity utilization has been around 100 per cent of name-plate capacity for most of the 1990s, and in 1995-96 reached 106 per cent. Even so, the domestic supply of most products has been insufficient to meet demand; a substantial share of gas oil/diesel and kerosene supplies, as well as a small share of gasoline supplies are imported. Although the industry is highly regulated, continuing on the present course has become untenable. First, government subsidies for the prices of politically sensitive products such as kerosene and transport fuels have grown so rapidly as to become a burden on the public treasury. Second, the share of crude and oil products in total imports rose sharply to 26 per cent in 1995-96. In 1996 the oil minister recommended the complete deregulation of the oil sector -- in part to create conditions that might attract the needed investment in additional refining capacity; however, it remains to be seen whether this proposal will be translated into action, given the political difficulty. Firm expansion plans will in any event result in a substantial increase in distillation capacity by the early years of the next century, and an even larger increase in conversion capacity. The magnitude of these increases will depend heavily on how successful the Government is in creating conditions attractive to private investors, including foreign investors who, in principle, are now welcome.(39)
Japan is the one country in Asia in which problems are somewhat similar to those of Western Europe -- at least as far as low profitability and resulting low investment are concerned. Capacity is not fully utilized; product imbalances (too much gasoline, too little middle distillates), stemming from differential tax incentives that discourage gasoline and encourage diesel use, account for the fact that only some 72 per cent of the oil products consumed are refined within the country. The main current issue is the removal in 1996 of barriers to the importation of refined products -- barriers that had been put in place in 1986. Local refiners are thus subject to new competition. Added to this, service stations, as in certain parts of Europe, are facing major new competition from non-traditional retailers. It is widely expected that consolidation is in store. Already two of the largest refiners, Mitsubishi and Showa Shell, have announced that they are considering a merger of their eight refineries; if combined, the group would be the largest refiner in Japan, accounting for some 20 per cent of the market.(40)
In the Republic of Korea, oil consumption and refinery output have both increased very rapidly throughout the 1980s and 1990s. Consumption increased at an average annual rate of 9 per cent over the 1980-96 period, during which time the share of light products in total consumption grew from 43 to 66 per cent. Refinery capacity grew almost fourfold over this same period, from 640,000 b/d in 1980 to 2.438 million b/d in 1996. The growth has taken the form of capacity additions at existing refineries, as no new refineries have been built since 1980. The latest crude distillation unit added at Yukong Limited's Ulsan refinery brought its capacity to 810,000 b/d, which made it the world's largest refinery. In the 1990s, price controls and restrictions on imports and exports in crude and products have been completely eliminated. The refineries are all owned by private companies, two of which are joint ventures with foreign enterprises: LG Caltex with Caltex of the United States, and Ssangyong with Saudi Aramco. Environmental requirements have been tightened over the years: only unleaded gasoline has been sold since 1993, and the permissible limit of sulphur content in diesel has been lowered to 0.1 per cent as from 1996.(41)
Singapore has played a very important role in Asian refining for many years, serving as a "swing" supplier (able to balance supply and demand of individual products) for the region. It is still the region's largest exporter of petroleum products. It is the world's third largest refining centre, after the United States Gulf Coast and the Rotterdam-Antwerp area. Its posted prices serve as the benchmark for the region. Its four refineries, all complex, have a total capacity of 1.2 million b/d, and units have been regularly added to allow importers' environmental standards to be met. As refining capacity and exports have grown in other Asian countries, Singapore's dominant role and its refining margins have weakened somewhat. Advantage has increasingly been taken of the refining assets to move downstream into petrochemicals and chemicals manufacture.(42)
Elsewhere in the region, demand and capacity are also growing rapidly in Indonesia, Malaysia and Taiwan, China. Saudi Aramco has bought a 40 per cent stake in Petron, the national oil company in the Philippines, where Shell has recently built a new refinery. The Government of Viet Nam has announced its intention to build its first oil refinery, with a capacity of 130,000 b/d, in a project that has aroused considerable interest from foreign investors.
Central and Eastern Europe and Central Asia
Refineries in the transitional economies have not been spared the problems affecting other sectors. Output has fallen sharply since about 1990 on account of: falling GDP; disruptions in the former supply networks; financing problems; and imbalances between the location and composition of output on the one hand and market demand on the other. Most countries in the region are committed to privatization, and considerable progress has been made in carrying out their plans. Although there is a surplus of basic distillation capacity, considerable investment is needed to modernize it so as to shift output toward the lighter products and improve the environmental characteristics.
Some two-thirds of the refining capacity of the former Soviet Union, 29 out of 48 plants, was located in the Russian Federation. Most of the 28 plants still operating belong to the 18 vertically integrated oil companies that have emerged from the dissolution of the state monopoly and the privatization process; the sale of some refineries to private interests or other firms was still under way in mid-1997.(43) In general, the scale of the refineries is large, the average distillation capacity of the largest 23 refineries being about 148,000 b/d. Complexity is low, however; secondary processing as a share of primary distillation capacity is only a fraction of that in OECD countries. Accordingly, light products account for a smaller share of output than is the case in most OECD refineries. Many of the refineries were sited near the oilfields rather than the markets. The problems associated with this locational pattern have been aggravated with recent increases in the cost and decreases in the reliability of transport. In view of these problems, and reduced effective demand, the utilization rate has fallen sharply; in 1995 it was 57 per cent. Nevertheless, major investments are being planned. Much existing capacity is old; indeed, 70 per cent has been in service 25 years or more. Investments are needed to lighten the barrel and to locate some refineries closer to markets. The Ministry of Fuel and Energy projects expenditures for reconstruction and modernization for the 1995-2000 period at $7 billion, much of it for imported equipment. In early 1997 more than 60 refinery projects were reported to be in various stages of planning or implementation.(44) There is a project to build a major new refinery (180,000 b/d) at Krasnodar, and several foreign firms have indicated an interest in participating.(45) A Chevron/Lummus joint venture has participated in two refinery modernization projects, at Angarsk and at Kirishi, near St. Petersburg.(46)
The situation is similar in other parts of the former Soviet Union, including Belarus and Ukraine, which account for 7 and 12 per cent, respectively, of primary capacity. The republics with the next largest capacity are oil producers. Azerbaijan operates two refineries in Baku, which are wholly owned by the state oil company. Whereas they previously refined some oil from Western Siberia and Kazakstan, they now only process locally produced crude. The recent utilization rate has been below 50 per cent. Although there is considerable foreign investor interest in the country, it is directed mainly at exploration and production. The refineries are in need of modernization, including an upgrading of environmental standards.(47) In Kazakstan there are three refineries, two of which have been wholly privatized, the third having failed to find a buyer for the 41 per cent of shares still held by the Government. The two that have been successfully privatized process crude that comes by pipeline from Tyumen in the Russian Federation. The third, Atyrau, processes crude produced in west Kazakstan. At times crude supplies have been interrupted because of financing problems, thus reducing the utilization rates sharply.(48) The republics of Dagestan and Kyrgyzstan both acquired their first refineries in 1996 through cooperation with foreign investors. The former bought a Wyoming (United States), plant of 4,000 b/d that was disassembled, transported and reassembled at its new site. In the case of Kyrgyzstan, a 10,000 b/d unit was built with finance provided by a joint venture with a Canadian independent, Kyrgoil.(49)
In Central Europe, refiners face various pressures for change. One is the need to lower barriers to the importation of oil products as part of their bid to join the European Union. There may be growing competition from imports from both west (Germany) and east (Belarus, Lithuania, Ukraine). Existing capacity is expected to be insufficient to meet demand both in quantitative and qualitative terms. Environmental standards are being raised, in order to be able to compete on export markets as well as for domestic purposes. The required modernization calls for capital in excess of what is available locally. Foreign investment is therefore being sought. Investors, however, tend to be more attracted by access to retail marketing networks than to refining per se. Privatization is seen as the necessary means to modernize and strengthen local enterprises so that they can supply the products required and meet the pressure of foreign competition.
In Poland the privatization process has become very active. All oil companies have been brought under a government-owned joint stock company, which is seeking to privatize the assets in two groups, organized around the two major refineries in Gdansk and Plock. Only companies with their own oil deposits -- therefore only foreign companies -- will be allowed to bid. They could acquire up to 30 per cent of the shares initially, and up to 51 per cent after fulfilment of their investment obligations. To make the offer attractive, investors are to be given access to the retail distribution network. The Government says it is determined to carry through the modernization programme (estimated cost: $3.4 to $4.8 billion) whether or not the privatization is successful, although this might prove difficult.(50) At present the country is a net importer of both gasoline and gas oil/diesel. In the Czech Republic the Government owns 51 per cent of Unipetrol, the holding company to which the refining assets belong, the other 49 per cent are held by a consortium of international oil companies. The Government intends to preserve its majority stake until at least the year 2000. In Hungary, the Hungarian Oil Company (MOL Rt.) owns the country's three refineries and also plays a dominant role in distribution. The refineries were in state ownership up until 1995, since when 42 per cent of the shares have been sold to private investors. The government share is expected to be reduced further, to well below half, but it will retain a "golden share". In Romania too, privatization is seen as a necessary part of the solution to the sector's problems. Hard currency shortages have led to a decline in oil imports and thus to refinery throughput; half of the country's capacity was mothballed between 1989 and 1995, and in 1995 the remainder operated at only 68 per cent of capacity. Two studies -- one done for the World Bank and the other for the Ministry of Industry -- have recommended refinery closures that would permanently reduce capacity. Foreign capital is thought necessary for the modernization of the sector (including the upstream); the question is how to attract it.(51) The problems which led to economic and political crisis in Bulgaria in early 1997 were particularly acute in the downstream oil sector. Until then retail prices of oil products were controlled, at levels which -- in combination with currency depreciation, which raised the price of imports -- made refining/distribution operations unprofitable. This led to physical shortages of oil products at the service stations, even when products were available in storage tanks.(52) The country has three refineries, the largest of which -- Neftochim in Bourgas -- has a crude capacity of 240,000, making it the largest refinery in the Balkans. Most of the shares of the two smaller refineries were sold in 1996, although one of them -- Plama -- has not been in operation since 1995. Neftochim was partially privatized in 1996, and in early 1997 agreement was reached to sell the remaining shares to a group of international investors. The plants in general are in need of modernization. Capacity utilization in 1996-97 was only 30-40 per cent. Again, the aim is to attract foreign capital to restructure and modernize the sector.(53)
Middle East refiners, especially those around the Gulf, face much more expansive prospects than those in other parts of the world. The combination of abundant crude oil supplies, financial resources and transport infrastructure puts them in an unusually good position not only to meet their own rapidly growing needs but also to meet a significant portion of the import needs of other regions, especially Asia. Although the two major wars fought in the region since 1980 resulted in substantial damage to existing refineries, by 1997 virtually all repairs had been made, and major new projects were under way or planned. Table 2.5 shows the distribution of basic capacity and its past and expected growth.
As may be seen in table 2.5, Saudi Arabia is expected to continue to account for the largest share of capacity, but projected capacity additions are the highest in the Islamic Republic of Iran and Jordan. In Saudi Arabia all seven refineries are managed by state-owned Aramco, which took responsibility from the marketing company Samarec in 1993. With its upstream interests, and its downstream investments both in Saudi Arabia and abroad, Aramco increasingly has the profile of a vertically integrated, international company. Partly as a result of this profile, its increase in earnings in 1996, attributable to unexpectedly firm crude oil prices and to upstream operations, was partly reinvested in new refining capacity. In addition to repairs and upgrading already under way at the Ras Tanura plant, a contract was awarded in early 1997 for upgrading the Rabigh refinery. There have been suggestions that at a later stage Ras Tanura could be expanded from 300,000 b/d (1998) to 1 million b/d (2007); this would make Aramco the world's largest refining enterprise and could create as many as 30,000 new jobs.(54) Despite the fact that a state subsidy for petroleum products came to an end in 1995, internal demand has remained strong; a substantial share of output therefore will be consumed domestically. However, it is the prospect of continuing Asian demand for imports -- despite new investments within that region -- that is driving much of this development in Saudi Arabia and elsewhere in the region.
Table 2.5. Middle East refining capacity:* 1985-2002 (thousand b/d)
|
| |||||
|
1985 |
1995 |
2002** |
|||
|
| |||||
|
Bahrain |
280 |
280 |
280 |
||
|
Iraq |
690 |
550 |
550 |
||
|
Kuwait |
633 |
830 |
1 000 |
||
|
Qatar |
63 |
63 |
93 |
||
|
Saudi Arabia |
1 536 |
1 676 |
1 836 |
||
|
Syrian Arab Republic |
233 |
233 |
233 |
||
|
United Arab Emirates |
180 |
240 |
557 |
||
|
OAPEC |
3 615 |
3 872 |
4 269 |
||
|
Iran, Islamic Republic of |
1 220 |
1 240 |
1 572 |
||
|
Israel |
220 |
220 |
220 |
||
|
Jordan |
103 |
103 |
313 |
||
|
Lebanon |
52 |
0 |
0 |
||
|
Oman |
50 |
80 |
80 |
||
|
Yemen |
190 |
200 |
280 |
||
|
Total Middle East |
1 835 |
1 843 |
2 465 |
||
|
* Design capacity. ** Projected. Sources: Petroleum Economist (London), Apr. 1997; Organization of Arab Petroleum Exporting Countries (OAPEC). | |||||
|
| |||||
In the Islamic Republic of Iran the new Bandar Abbas refinery (232,000 b/d) is expected to come on stream in 1997, thus making the country -- previously a net importer of light products -- self-sufficient and providing a small margin for export. Further expansion at Shiraz and Bandar Abbas is foreseen later in the decade. Domestic consumption in Kuwait, unlike that in Saudi Arabia and the Islamic Republic of Iran, is modest. Almost all of its projected increase in output is for export to Asian markets. Some 90 per cent of that region's imports of petroleum products already come from Saudi Arabia and Kuwait. In the United Arab Emirates there are no fewer than six new refinery projects -- in Dubai, Abu Dhabi and the northern emirates -- which, if all are realized, will more than double its 1995 capacity by 2002.(55)
Generally, all of these expansion plans would serve to lighten the product mix and to improve the environmental characteristics of the crude.
Most countries in Latin America have one or more refineries, but the bulk of capacity is concentrated in four countries: Argentina, Brazil, Mexico and Venezuela -- the last three of which are the only countries in the region with capacities in excess of 1 million b/d. In these countries -- as in other parts of the region -- the history of the oil industry is closely related to political history, especially to nationalist movements. The natural outcome of that link has been that in most countries a dominant role in the industry has been assigned to a state oil company.(56) In the last few years economic pressures to improve oil company performance have become so great that the previously unthinkable solution of privatization has been considered or applied, to one or more segments of the industry in many countries of the region.(57)
Argentina has carried out the most radical privatization. Yacimientos Petroliferas Fiscales (YPF), the one-time state company, has been entirely sold to private investors -- with ensuing dramatic repercussions on employment. The demonstration effect of this experience has arguably increased the political difficulty of carrying out privatizations in other countries in the region.(58) The consequences for the refining segment of the industry were, however, more limited than for the upstream segment, as YPF had never had a monopoly downstream. In mid-1997 the 12 refineries in the country were operated by eight enterprises -- including the privatized YPF, which accounted for about half of capacity and played a dominant role in the sector.
With a capacity equal to some 80 per cent of that of Mexico, and slightly in excess of that of Venezuela, Brazil is the second largest refiner in Latin America. Although two of its small refineries are privately owned, the sector is dominated (as is the upstream segment of the industry) by the state company Petrobrás. As national oil production has expanded, the share of Brazilian crude in total feedstocks of Brazilian refineries has grown over the last decades. The refinery configuration is generally flexible and modern. The conversion ratio is 29 per cent, comparable to that of Western Europe. In 1994 the utilization rate was 87 per cent. The output of products has succeeded fairly well in keeping pace with a changing demand barrel, despite the ups and downs of the country's alcohol fuel programme. Gasoline and fuel oil production is in slight surplus, while that of diesel, naphtha and liquid petroleum gases (LPGs) is somewhat short of demand. The trade balance in oil products is nevertheless negative, as the export product mix is less valuable than imports -- and this has become even more the case recently. Investments are needed to restore balance and accommodate growing demand. A major new refinery in the north-east is planned to come on stream in 1999 (capacity: 190,000 b/d, cost $1.5 billion). Other investments may be awaiting a clarification of government policy. In 1995 the monopoly of Petrobrás was ended by constitutional amendment. At the time of writing this report it was not clear how that decision would be translated into detailed policies as regards refining. Certain petrochemical companies have been privatized, but the degree to which the sector (upstream and downstream) will be open to private and foreign investment remains to be seen.(59)
Mexico resembles Brazil in that the national oil company, Pemex, has a virtual monopoly in all segments of the oil industry (there is some private marketing in Brazil) and is imbued with a sense of national mission. A further similarity is that as far as privatization is concerned, there has so far been more discussion than action, with petrochemicals being the first segment affected. There are now six refineries (1997), down from nine in 1990. Two old, small topping plants were closed in the early 1990s. In 1991 the large and complex -- but old and polluting -- Azcapotzalco refinery in Mexico City was closed. Capacity in 1997 is approximately the same as in 1980; output, however, is about 150,000 b/d higher. The utilization rate in 1995 was 84 per cent.(60) In 1992, Pemex's structure and management were reviewed, and the company was restructured as from 1994. Since then the subsidiary Pemex-Refining has been an independent profit centre within the corporation. Given the arm's-length pricing arrangements with other Pemex units, it incurred a heavy loss in 1996 due largely to higher crude oil prices, which it was unable fully to pass on in its product prices. The company spent $180 million on its "Ecological Package", which included several hydrodesulphurization units for middle distillates and fuel oil, and isomerization and oxygenate units to improve gasoline quality. By 1997 unleaded gasoline accounted for 97 per cent of consumption, and low-sulphur diesel (maximum 0.05 per cent sulphur) for 95 per cent of the market for that product. The inability to produce sufficient unleaded gasoline was one factor leading to a joint venture with Shell Oil Company in the United States; as a result of this venture, Pemex swaps heavy Maya crude in exchange for unleaded gasoline. A large new refinery is being constructed at Salina Cruz to remedy present shortfalls and accommodate future growth ($1.2 billion, 150,000 b/d).(61) Despite the monopoly position of the company, funds have not been adequate for investment because of the tendency of the Government to use oil revenues for general purposes; in 1996 Pemex paid $19 billion in taxes and royalties, which represented over one-third of government spending and 93 per cent of the company's pre-tax profits.(62)
In Venezuela the oil industry was nationalized in 1976, since which time vertically integrated state-owned companies -- Lagoven, Maraven, Corpoven (each of which took over the assets of one of the local affiliates of the multinational oil companies) -- have coexisted under the umbrella of the state holding company Petroleos de Venezuela SA (PdVSA). PdVSA units operate the six refineries in the country and also control -- through lease -- the Isla refinery in Curaçao and the six Citgo refineries and associated marketing network in the United States; they also have shares ranging from 16 to 50 per cent in nine refineries in Europe.(63) In at least one ranking of international oil companies, PdVSA is placed second after Exxon.(64) In 1996 the utilization rate of the refineries within Venezuela was 85 per cent -- the best for several years. New capacity being developed at the refineries in Falcon will give it an increased ability to convert the heavy crudes with which it is so well-endowed: "When the process of converting its heaviest crudes into lighter products is perfected, a not unlikely outcome, its usable reserves will be close to those of Saudi Arabia."(65) Although in the last few years Venezuela has once again opened limited opportunities for private investment in the upstream segment of its industry, and leading politicians have raised the possibility of re-privatizing the industry, formal proposals for privatization in refining are not on the table.
In most of the other countries of South America national oil companies predominate in both refining and upstream activities. In some of these, such as Bolivia and Peru, significant steps toward privatization have been taken; in others, including Chile and Colombia, there were no serious privatization plans as of early 1997.(66)
In this continent there is a sharp difference between the situation in the majority of States, especially those in sub-Saharan Africa -- which account for a total of 24 refineries -- and in Algeria, Egypt, Nigeria and South Africa (all of which have large and relatively modern refining sectors and produce crude or synthetic oil) which account for a total of 20. The former group of countries, most of them coastal, comprises Angola, Cameroon, Congo, Eritrea, Gabon, Ghana, Côte d'Ivoire, Kenya, Liberia, Madagascar, Senegal, Sierra Leone, Somalia, the Sudan, the United Republic of Tanzania, the former Zaire and Zambia. As a general rule, there is only one refinery per country (three in Libya, two each in Côte d'Ivoire and Morocco) which is usually small and of simple configuration; in addition, they are often not properly maintained. Their utilization rates tend to be low -- around 63 per cent on average in the early 1990s. Their problems, which are similar, were the subject of a study carried out for the World Bank in the early 1990s dealing with the whole of the downstream petroleum sector. Some excerpts from this document are worth citing, as they indicate how vital it is for the economies of the region -- and hence their employment outlook -- to restore health to the refining sector:
Petroleum products currently provide for 69 per cent of the commercial energy requirements in sub-Saharan Africa (SSA), or 21 per cent of total energy consumption ... Petroleum products are used as a tax base which contributes to nearly 40 per cent of the fiscal revenues in sub-Saharan countries. With the exceptions of Nigeria, Congo, Cameroon, Angola and Gabon, SSA countries are net importers of oil, devoting on average a third of their hard currency earnings to these imports. There is no other region in the world than SSA -- with the lowest GDP per capita -- that dependence on oil imports has become such a dominant factor in the macroeconomic calculus (sic) ... The use of petroleum products in SSA remains largely confined to the transport sector and to the existing light industry ... Total petroleum consumption ... is less than 4 per cent of world petroleum consumption for a population of about one tenth of the world total ... Per capita oil consumption ... is still less than half of the corresponding figure for the Indian subcontinent.
The cost of the average ton of petroleum products supplied to SSA exceeds, at present, US$357. Out of this, US$235 are paid for the procurement of these products, US$57 for the refining operations, and US$65 for their distribution. A reduction of this figure to approximately $306 per ton is within the realm of possibility. Savings in the order of US$25 per ton of products can be made in procurement activities, US$20 in refining, and US$6 in inland distribution.
If the economies of SSA are to grow, there is a compelling need to rationalize the petroleum downstream activities by eliminating inefficient monopolies, attracting private capital for needed investments, and facilitating the preparation of a large policy change ... The potential savings to be derived from a rational system of petroleum supply are perhaps the most readily available financing source in the hands of the African economies.(67)
The policy prescription derived from this analysis was the same as for the similarly small, uncompetitive refineries in Central America:
Most ... refineries need to be upgraded or to be closed if they cannot be operated economically. Where governments persist in delaying such reform, the technical and environmental gap between these refineries and the international industry will continue to widen ... Protected operations, such as uneconomic refineries operating under cost-plus systems, must adapt or disappear. A large number of small hydroskimming refineries in Central America and SSA are generating significant losses to their economies. Such protectionism, even for security reasons, is no longer justified.(68)
Although the possibilities of interesting private investors in many of the refineries will be limited, Morocco's recent experience was encouraging. The larger of its two refineries -- the Samir plant in Mohammedia -- was sold to a Saudi-owned, Swedish-registered group for some $420 million; the sale also involved a commitment to make further refining investments of a similar amount over the next five years.(69)
In Algeria and in Egypt the share of conversion capacity is very low; hence the output of fuel oil is relatively high and that of light products low. Egypt's seven refineries in 1995 had an output of 524,000 b/d (capacity: 548,000 b/d), and processed about 60 per cent of the country's crude output. In this country, some light products have to be imported, but substantial fuel oil exports make the net trade balance in oil products positive in volumetric terms. All existing refineries are owned by a state-owned company, the Egyptian General Petroleum Corporation (EGPC); privatization of these assets is being considered but no actual plans have yet been put forward. However, there is a desire to attract private capital for future expansion projects. In the case of one major refinery under construction, the 100,000 b/d Midor plant being built in Alexandria at an estimated cost of $1.3 billion, it was originally intended that this refinery would have only a 20 per cent EGPC participation, the remainder being divided between private Egyptian and Israeli investors. The EGPC share was later increased when the private investors had difficulty raising the required amount of capital. The aims of this and other planned investments are to: reduce or eliminate the need for imports of light products; strike a balance between crude oil exports and refined products exports whereby full capacity utilization is achieved, local demand is met and the surplus of both crude and refined products is exported; develop a hydrocracking capacity to convert to light products the increased volume of fuel oil that will be available as that product is increasingly replaced by natural gas for steam generation; and to meet rising national and international environmental and other quality specifications.(70)
In terms of basic hardware, Nigeria has the potential to be a major player in African refining. Its four refineries are owned by the state company, the Nigerian National Petroleum Corporation (NNPC). They have a total installed capacity of 455,000 b/d, and with 83,000 b/d of catalytic cracking potential and other secondary processing units, the conversion capacity is relatively high. Despite this, the sector has been beset by problems in recent years. A series of difficulties related to fires, maintenance and inadequate supplies of crude allocated to the national refineries has resulted in very low utilization rates in recent years. For most of the 1994-95 period only one of the four refineries was on stream. There have been recurrent product shortages, and since 1994 the bulk of the country's refined products have been imported. The smaller (and older) of the two refineries in Port Harcourt was destroyed by fire in 1989, reopened only in 1995 and mothballed again in 1996. Leaving this case aside, the utilization rate for the three remaining plants in 1997 was about 65 per cent. Funds earmarked for maintenance have tended to be released only partially or belatedly, and regular turn-around maintenance intervals have become abnormally long. The possibility of privatizing the refineries has been on the agenda for several years, partly at the instance of the World Bank, and in the autumn of 1996 the Minister of Finance publicly advocated that course. However, no action has followed, and it appears that the Government is divided over the issue.(71)
In South Africa the oil sector has been one of those most significantly affected by the end of the apartheid regime. Prior to the change, a high priority was assigned to the synthetic fuels programme in order to increase national self-sufficiency. Most aspects of the sector, and import arrangements in particular, were subject to government-imposed secrecy, in view of the United Nations sanctions in force. In order to protect Sasol, the state-owned synfuels company, conventional oil refiners were required to mothball some of their capacity and were paid a synfuel levy by way of compensation. Since 1990 the sector has undergone substantial development. The role of the private sector, and of the international companies in particular -- Caltex, Shell, BP, Mobil, Total -- has become even more predominant. Only one of the four refineries is owned by Sasol, and the Government now holds a minority participation in that company. The synfuel levy has been discontinued. All refineries have been upgraded and expanded since 1990, at a cost of some $700 million, with an increase in capacity of nearly 70 per cent. In 1992 the industry was deregulated. In 1997 capacity was about 450,000 b/d, and output about 400,000 b/d for a utilization rate of 90 per cent. Crudes come mainly from the Middle East. The output is consumed locally and exported, mostly to East African but also to Indian Ocean and Atlantic markets. The country consumes about 460,000 b/d of products, 45 per cent in the form of gasoline and 26 per cent diesel. The high proportion of light products reflects the fact that liquid fuels provide only 21 per cent of the energy requirements of the country -- mainly in transport; indeed, given the country's abundant coal reserves, coal plays a dominant role in steam generation. This abundance is also reflected in the fact that Sasol supplies 44 per cent of the country's liquid fuel requirements, principally from synfuels. Demand for oil products within the country and for export is expected to increase, but incremental capacity additions at existing sites seem more likely than major new refineries.(72)
* * *
The above-mentioned examples reveal recurrent themes and paradoxes. Despite the very different characteristics of the various regions, they all seem to be following a similar path, linked to their stage of economic development: the tendency is to move from a heavier to a lighter cut of the barrel and then to processes and products that meet stringent environmental requirements. The various regions are at different points on that trajectory. Some of the late-comers may be able -- and may be required -- to shorten the intermediate stage: the trend towards an international levelling up of environmental standards will entail that some investments aimed at lightening the product mix will at the same time incorporate internationally acceptable specifications for environmental performance.
Estimates of future quantitative and qualitative needs suggest that in most regions, if not all, there is a need for major new investments. Yet, paradoxically, utilization rates indicate that there is much excess capacity. And generally low margins do not provide the incentives needed to generate the new investment. Environmental requirements and liabilities provide the explanation for this paradox. The need to return the sector to profitability requires not only volumetric adjustments but adaptations to the refinery configurations, so as to produce an appropriate mix of products. The economic preconditions for improving profitability -- and thus the investment outlook -- and for making the refineries' output more responsive to market demand seem to include: (a) privatization, or at least exposure to market forces through commercialization, joint ventures, etc. (and in large parts of the world that process is currently the main influence on the sector); and (b) consolidation, not only of enterprises but of plants, which implies closure of a number of refineries too small to reap the economies of scale.
More may be required. Views of the future differ, with optimists believing that the combination of growing oil demand and limited new investment will lead to an improvement in margins and thus to economic health over the next five years or so. The pessimistic view is that a low rate of demand growth, capacity creep in OECD countries and new investments in other regions -- sometimes justified in broader terms than direct return on refinery investment per se -- will keep margins weak. In this case, it is possible that there may be closures of larger refineries, or that some oil companies may exit the refining business altogether in some regions. There are other kinds of logic than that of economics, and in many countries there are real social and/or political factors that may impede the adjustments that would return the sector to equilibrium. And these factors -- some of which will be discussed in the remaining chapters -- make it probable that the more pessimistic scenarios will prevail.
Notes
1. ILO: General Report, Petroleum Committee, Tenth Session, Geneva, 1986, p. 131.
2. This was mainly due, however, to the removal of domestic crude oil price controls and the accompanying removal of subsidies for small refineries that had been in place since 1974.
3. Oil and Gas Journal (Tulsa, Oklahoma), 10 Mar. 1997.
4. European Energy (Salomon Brothers, Inc., London), 8 Nov. 1996.
5. BP Statistical Review of World Energy 1997 (London), 1997.
6. Salomon Brothers, Inc.: European Refining Review, Sep. 1995.
7. Petroleum Economist (London), Sep. 1996.
8. Oil and Gas Journal (Tulsa, Oklahoma), 23 June 1997.
9. Salomon Brothers, op. cit., pp. 19-21.
10. For an oil company view on this issue, see the article by BP Chief Executive Officer (CEO) John Browne, in Oil and Gas Journal (Tulsa, Oklahoma), 9 June 1997.
11. Oil and Gas Journal (Tulsa, Oklahoma), 17 June 1996.
12. Petroleum Economist (London), Sep. 1996.
13. Petroleum Economist (London), Aug. 1996.
14. European Commission: Report on the situation of oil supply, refining and markets in the European Community (Brussels, 1997, doc. COM (96) 143 EN); and European Commission: Panorama of EU Industry 97 (Brussels/Luxembourg, 1997).
15. Oil and Gas Journal (Tulsa, Oklahoma), 28 Apr. 1997.
16. On the Auto-Oil Programme, see the brochure: A breath of fresh air (Brussels, European Petroleum Industry Association, 1996).
17. Oil and Gas Journal (Tulsa, Oklahoma), 4 Mar. 1996.
18. ibid., 11 Nov. 1996.
19. Wall Street Journal (Brussels), 25 Mar. 1997.
20. Based on Oil and Gas Journal (Tulsa, Oklahoma), 23 Dec. 1996, and similar annual reviews in other years.
21. ibid., 10 Mar. 1997.
22. ibid., 28 Oct. 1996.
23. ibid., 27 Jan. 1997.
24. ibid., 10 Mar. 1997. The author of this comment was Roger Hemminghaus, Chairman and CEO of Ultramar Diamond Shamrock.
25. Oil and Gas Journal (Tulsa, Oklahoma), 17 June 1996.
26. Salomon Brothers: "Refining industry -- Light at the end of the tunnel", as reported in Oil and Gas Journal (Tulsa, Oklahoma), 28 Oct. 1996.
27. Oil and Gas Journal (Tulsa, Oklahoma), 28 Oct. 1996 and 10 Mar. 1997.
28. Financial Times (London), 27 June 1997.
29. The Economist (London), 17 May 1997.
30. Lloyd's List Energy Day (London), 20 Mar. 1997.
31. Petroleum Economist (London), June 1996.
32. Dennis Pantin, unpublished report prepared for the ILO.
33. Petroleum Economist (London), June 1997.
34. Petroleum Economist (London), Aug. 1996; Financial Times (London), 19 June 1997; Oil and Gas Journal (Tulsa, Oklahoma), 9 June 1997.
35. Petroleum Economist (London), Sep. 1996.
36. Oil and Gas Journal (Tulsa, Oklahoma), 17 June 1996.
37. Petroleum Economist (London), Feb. 1997; Qiang Rongkun, Employment and industrial relations issues in oil refining in China, paper prepared for the ILO, 1997; and Oil and Gas Journal (Tulsa, Oklahoma), 11 Nov. 1996.
38. International Herald Tribune, 23 Nov. 1996 and 23 June 1997.
39. U.K. Dikshit and A.K. Bhat, Employment and industrial relations issues in oil refining in India, paper prepared for the ILO, 1997; Oil and Gas Journal (Tulsa, Oklahoma), 29 Apr., 10 June and 7 Oct. 1996; Petroleum Economist (London), Apr. 1997; Financial Times (London), 17 June 1996.
40. For information on Japan, the author is grateful to Ryo Kawano for data and analysis. See also The Economist (London), 26 Oct. 1996; and the Oil and Gas Journal (Tulsa, Oklahoma), 26 Aug. 1996.
41. Information supplied by the Government of the Republic of Korea; Oil and Gas Journal (Tulsa, Oklahoma), 30 Dec. 1996; and the Korean Development Bank: Quarterly Industrial Review, June 1992.
42. Information supplied by the Government of Singapore; Petroleum Economist (London), July 1996; Chemical and Engineering News, 13 Jan. 1997.
43. Financial Times (London), 18 June 1997.
44. Oil and Gas Journal (Tulsa, Oklahoma), 13 Jan. 1997.
45. Petroleum Economist (London), Mar. 1997. Other information in this paragraph has been taken from a paper prepared for the ILO by Mr. Andrei Shugaev and from the Oil and Gas Journal (Tulsa, Oklahoma), 25 Mar. 1996.
46. Oil and Gas Journal (Tulsa, Oklahoma), 24 Mar. 1997.
47. Communication from the Free Trade Union of Oil and Gas Industry Workers of Azerbaijan.
48. Serikzhan Berishev, paper prepared for the ILO; and Financial Times (London), 15 Apr. 1997.
49. Oil and Gas Journal (Tulsa, Oklahoma), 8 Apr. 1996 and 5 May 1997.
50. Communication from Maria Danuta Stefanska based, inter alia, on information reported in the daily newspaper Rzeczpospolita, 22 Apr. 1997.
51. Petroleum Economist (London), Dec. 1996.
52. Wall Street Journal Europe (Switzerland, United Kingdom, Belgium), 28 Feb.-1 Mar. 1997; Oil and Gas Journal (Tulsa, Oklahoma), 24 Feb. 1997.
53. Paper prepared for the ILO by Ms. Raya Simeonova.
54. Oil and Gas Journal (Tulsa, Oklahoma), 17 Jan. 1997.
55. Petroleum Economist (London), Apr. 1997; and Middle East Economic Digest (London), 17 Jan., 21 Mar. and 11 Apr. 1997.
56. See: El papel de las industrias del petróleo en la promoción del desarrollo nacional (Montevideo, INDUSTR/ILO-ARPEL, 1989), for the proceedings of an ILO-sponsored symposium on the role of Latin American state oil companies in national development. A summary of the discussions is contained in Laura Randall: The role of petroleum industries in promoting national development (Geneva, ILO Sectoral Activities Working Paper No. 33, 1990).
57. Enrique Saravia: Proceso de privatización en Argentina y Brasil: Consecuencias en materia de mercado de trabajo y desempeño empres (Geneva, ILO Sectoral Activities Working Paper No. 97, 1996).
58. Alastair Forsyth: "Privatization of oil companies in Latin America", in Oxford Energy Forum, Feb. 1997.
59. Enrique Saravia, paper prepared for the ILO; Oil and Gas Journal (Tulsa, Oklahoma), 16 Dec. 1996.
60. Pemex: Anuario Estadistico 1996, Mexico City.
61. Paper prepared by George Grayson for the ILO, 1997.
62. Financial Times (London), 12 Feb. 1997.
63. Enrique Saravia, op. cit.
64. See Alastair Forsyth, in Oxford Energy Forum, Feb. 1997. The ranking in question is that of Petroleum Economics Ltd.
65. ibid.
66. ibid.
67. World Bank, Africa Technical Department: Industry and Energy. Division Note No. 17 (Washington), Sep. 1992.
68. Eleodoro Mayorga-Alba: "Deregulation and Reform of Petroleum Markets", in Energy issues (Washington, World Bank Group, FPD Energy Note No. 6, Sep. 1995). Available on the Internet at http://www.worldbank.org/html/fpd/energy/ energynotes/energy06.h.
69. Middle East Economic Digest (London), 16 May 1997; Privatisation International (London), June 1997.
70. Mr. Amr Hamouda and Ms. Nadia Rifaat, paper prepared for the ILO, 1997.
71. Funmi Adewumi, paper prepared for the ILO. See also Financial Times (London), 9 Apr. 1997 and 7 Nov. 1995, The Economist (London), 25 Jan. 1997, and Oil and Gas Journal (Tulsa, Oklahoma), 28 Oct. 1996.
72. Mbendi Information Services: http://mbendi.co.za; Oil and Gas Journal (Tulsa, Oklahoma), 17 Jan. 1997. The assistance of Fabrice Leclercq in gathering information on South Africa is gratefully acknowledged.
The oil refining sector's direct contribution to world employment is relatively modest. In 1995 one author estimated that about 270 million persons worldwide were employed in manufacturing, of which the 1 million plus in refining represented less than one-half of 1 per cent.(1) Oil refining is not a sector which would be selected for job creation programmes, given that the capital stock per employed worker in a modern refinery is in the order of US$1 million. Indirectly, however, its contribution is substantially greater, as a source of value added and as provider of key energy inputs to fuel a modern economy; and the absolute number of workers in the sector is far from negligible, however modest it may be in relative terms.
World refinery employment was relatively stable from 1980 to 1994, the most recent year for which relatively consistent statistics are available. Refinery throughputs at the beginning of this period were near their historic peak, reached in 1979; they subsequently declined by 10 per cent to bottom out in 1983, then increased steadily until 1996 when they were about 9 per cent higher than in 1980 -- or 20 per cent higher than in 1983. Thus physical productivity -- barrels per day processed per worker -- appears to have declined in the early 1980s, and to have increased thereafter.
It is apparent from table 3.1 how the regional shares of the relatively stable total world employment varied over this period. The main changes were a sharp employment increase in Asia, and a significant reduction in the former Soviet Union and some other countries in Central and Eastern Europe. The evolution in the figures may be attributed to major political and economic developments which were only indirectly related to the demand and supply of oil products. Of these, the most significant were the two wars in the Gulf region, which had a significant impact on refinery installations and therefore on employment in the Islamic Republic of Iran, Iraq and Kuwait in particular; and the breakup of the former Soviet Union and the transition of the countries in that region to a market economy. Table 3.2 gives a breakdown of world refinery employment during the 1970-95 period. It will serve as a reference to much of the following discussion.
Table 3.1. World refinery employment
|
| ||||
|
1980 |
1985 |
1990 |
1994 | |
|
| ||||
|
Africa |
40 000 |
44 000 |
53 000 |
60 000 |
|
Americas |
199 000 |
168 000 |
152 000 |
170 000 |
|
Asia |
241 000 |
388 000 |
609 000 |
585 000 |
|
Western Europe |
138 000 |
127 000 |
113 000 |
112 000 |
|
Central and Eastern Europe and Central Asia |
450 000 |
427 000 |
320 000 |
249 000 |
|
Middle East |
50 000 |
34 000 |
33 000 |
38 000 |
|
Australasia |
5 000 |
6 000 |
5 000 |
5 000 |
|
World total |
1 123 000 |
1 194 000 |
1 285 000 |
1 219 000 |
|
Sources: UNIDO Industrial Statistics Database and ILO estimates. | ||||
|
| ||||
Table 3.2. Employment in petroleum refineries by country, 1970-95
|
| ||||||||||||||
|
Country |
1970 |
1975 |
1980 |
1985 |
1986 |
1987 |
1988 |
1989 |
1990 |
1991 |
1992 |
1993 |
1994 |
1995 |
|
| ||||||||||||||
|
Africa | ||||||||||||||
|
Algeria |
1 793 |
3 317 |
4 028 |
7 361 |
7 711 |
7 517 |
7 681 |
8 065 |
8 433 |
8 533 |
8 385 |
8 227 |
8 208 |
|
|
Angola |
400 |
348 |
346 |
235 |
||||||||||
|
Cameroon |
170 |
476 |
476 |
529 |
502 |
565 |
567 |
|||||||
|
Côte d'Ivoire |
229 |
327 |
879 |
|||||||||||
|
Egypt |
7 900 |
10 400 |
11 000 |
11 798 |
12 096 |
12 176 |
15 616 |
17 000 |
17 200 |
18 400 |
17 500 |
17 377 |
17 282 |
|
|
Ethiopia and Eritrea |
656 |
740 |
914 |
1 257 |
1 677 |
1 448 |
1 433 |
1 471 |
||||||
|
Gabon |
393 |
|||||||||||||
|
Ghana |
386 |
450 |
621 |
674 |
672 |
678 |
328 |
337 |
||||||
|
Kenya |
172 |
293 |
355 |
321 |
243 |
287 |
293 |
318 |
264 |
264 |
264 |
264 |
||
|
Libyan Arab Jamahiriya |
1 247 |
|||||||||||||
|
Madagascar |
222 |
251 |
500 |
|||||||||||
|
Mozambique |
399 |
1 370 |
860 |
840 |
950 |
457 |
454 |
455 |
460 |
745 |
||||
|
Nigeria |
5 000 |
44 |
46 |
|||||||||||
|
Senegal |
668 |
1 106 |
377 |
326 |
281 |
245 |
299 |
228 |
||||||
|
Sierra Leone |
156 |
|||||||||||||
|
Somalia |
213 |
|||||||||||||
|
South Africa |
9 000 |
10 000 |
13 000 |
15 000 |
15 000 |
16 000 |
18 000 |
18 000 |
18 000 |
18 000 |
18 000 |
20 000 |
19 000 |
19 590 |
|
Tanzania, United Republic of |
324 |
973 |
927 |
1 301 |
1 315 |
1 328 |
||||||||
|
Tunisia |
360 |
381 |
389 |
484 |
484 |
|||||||||
|
Zaire |
1 650 |
|||||||||||||
|
Zambia |
342 |
336 |
471 |
458 |
||||||||||
|
Zimbabwe |
13 |
14 |
22 |
23 |
24 |
|||||||||
|
America | ||||||||||||||
|
Argentina |
8 227 |
11 304 |
8 944 |
8 042 |
8 260 |
8 326 |
8 615 |
9 507 |
10 118 |
7 071 |
6 002 |
|||
|
Bermuda |
19 |
36 |
60 |
65 |
70 |
|||||||||
|
Bolivia |
8 |
5 |
5 042 |
865 |
743 |
714 |
597 |
574 |
592 |
602 |
1 057 |
1 046 |
1 065 |
|
|
Brazil |
13 000 |
14 000 |
25 023 |
25 779 |
||||||||||
|
Canada |
15 000 |
16 000 |
20 000 |
16 000 |
14 000 |
14 000 |
14 000 |
15 000 |
15 000 |
14 000 |
12 000 |
13 000 |
12 000 |
11 988 |
|
Chile |
2 150 |
2 380 |
1 750 |
1 165 |
1 177 |
1 193 |
1 207 |
1 218 |
1 242 |
1 284 |
1 315 |
1 319 |
1 286 |
1 238 |
|
Colombia |
2 200 |
4 000 |
5 400 |
4 956 |
4 905 |
4 709 |
4 773 |
5 182 |
5 400 |
4 789 |
6 303 |
6 412 |
6 474 |
6 476 |
|
Costa Rica |
1 696 |
2 109 |
2 591 |
2 654 |
2 448 |
2 115 |
2 760 |
2 318 |
2 389 |
|||||
|
Dominican Republic |
130 |
148 |
198 |
|||||||||||
|
Ecuador |
956 |
646 |
1 203 |
1 338 |
1 349 |
1 488 |
1 498 |
1 567 |
1 665 |
1 410 |
1 410 |
2 632 |
2 277 |
|
|
El Salvador |
92 |
55 |
59 |
62 |
70 |
64 |
72 |
|||||||
|
Guatemala |
93 |
137 |
142 |
140 |
182 |
239 |
94 |
|||||||
|
Honduras |
89 |
2 512 |
212 |
3 286 |
3 483 |
3 609 |
3 750 |
214 |
212 |
220 |
160 |
175 |
||
|
Jamaica |
84 |
89 |
121 |
306 |
319 |
303 |
226 |
210 |
219 |
230 |
||||
|
Netherlands Antilles |
1 669 |
1 714 |
||||||||||||
|
Nicaragua |
33 |
42 |
53 |
54 |
||||||||||
|
Panama |
518 |
503 |
||||||||||||
|
Paraguay |
122 |
27 |
||||||||||||
|
Peru |
2 800 |
3 855 |
3 807 |
3 886 |
3 854 |
4 590 |
3 782 |
3 780 |
2 994 |
|||||
|
Puerto Rico |
2 910 |
2 620 |
3 020 |
3 291 |
2 190 |
1 690 |
1 570 |
1 700 |
1 120 |
980 |
920 |
890 |
900 |
|
|
Trinidad and Tobago |
6 900 |
7 400 |
8 500 |
3 800 |
3 500 |
3 500 |
3 500 |
3 034 |
2 466 |
2 505 |
2 543 |
2 600 |
||
|
United States |
108 000 |
101 000 |
103 000 |
86 000 |
84 000 |
75 000 |
73 000 |
72 000 |
72 000 |
74 000 |
75 000 |
73 000 |
72 000 |
71 530 |
|
Uruguay |
3 500 |
4 000 |
2 293 |
1 560 |
1 638 |
1 605 |
1 600 |
2 083 |
2 061 |
1 813 |
1 486 |
615 |
1 094 |
1 027 |
|
Venezuela |
4 690 |
4 600 |
6 570 |
6 400 |
6 700 |
6 600 |
6 900 |
7 200 |
7 100 |
7 800 |
7 700 |
6 592 |
||
|
Asia | ||||||||||||||
|
Bangladesh |
220 |
471 |
480 |
595 |
587 |
600 |
608 |
874 |
815 |
934 |
889 |
|||
|
Cambodia |
300 |
328 |
332 |
273 |
343 |
215 |
187 |
|||||||
|
China |
154 000 |
297 000 |
332 000 |
354 000 |
413 000 |
422 000 |
510 000 |
570 000 |
590 000 |
460 000 |
480 000 |
|||
|
Hong Kong |
100 |
100 |
100 |
|||||||||||
|
India |
11 000 |
13 000 |
17 000 |
15 963 |
16 384 |
18 000 |
18 000 |
19 751 |
22 223 |
21 538 |
24 407 |
24 170 |
||
|
Indonesia |
340 |
378 | ||||||||||||
|
Japan |
23 000 |
30 000 |
29 000 |
24 000 |
23 000 |
22 000 |
21 000 |
21 000 |
21 000 |
21 000 |
21 000 |
22 000 |
22 000 |
22 000 |
|
Korea, Republic of |
3 200 |
4 100 |
4 800 |
4 800 |
4 400 |
4 500 |
5 300 |
6 000 |
7 100 |
7 275 |
7 670 |
7 926 |
8 247 |
8 644 |
|
Malaysia |
986 |
631 |
689 |
1 400 |
1 500 |
1 100 |
1 100 |
1 100 |
1 100 |
1 200 |
1 200 |
1 300 |
1 436 |
1 602 |
|
Mongolia |
94 |
|||||||||||||
|
Pakistan |
2 160 |
2 131 |
2 967 |
2 900 |
2 800 |
2 518 |
2 448 |
2 359 |
2 250 |
2 536 |
2 652 |
|||
|
Philippines |
1 000 |
1 050 |
1 200 |
2 300 |
2 400 |
2 400 |
2 400 |
2 400 |
2 500 |
2 400 |
2 500 |
2 167 |
2 279 |
2 231 |
|
Singapore |
2 200 |
3 330 |
3 340 |
3 494 |
3 367 |
3 245 |
3 125 |
3 113 |
3 291 |
3 725 |
3 808 |
3 896 |
3 960 |
3 900 |
|
Sri Lanka |
476 |
621 |
5 261 |
5 433 |
3 834 |
5 775 |
1 052 |
1 141 |
1 352 |
978 |
1061 |
1 207 |
||
|
Taiwan, China |
6 731 |
8 562 |
13 056 |
13 765 |
14 227 |
14 256 |
15 121 |
15 711 |
15 548 |
16 472 |
17 269 |
16 347 |
16 110 | |
|
Thailand |
2 266 |
1 900 |
4 845 |
2 430 |
||||||||||
|
Western Europe | ||||||||||||||
|
Austria |
2 500 |
2 500 |
2 800 |
3 900 |
3 900 |
3 700 |
3 700 |
3 700 |
3 700 |
4 000 |
4 000 |
3 308 |
3 552 |
3 668 |
|
Belgium |
8 000 |
5 000 |
6 000 |
|||||||||||
|
Cyprus |
128 |
148 |
183 |
166 |
163 |
151 |
140 |
143 |
141 |
157 |
152 |
153 |
146 | |
|
Denmark |
900 |
600 |
600 |
600 |
600 |
577 |
600 |
600 |
621 |
630 |
674 |
|||
|
Finland |
1 600 |
2 400 |
2 600 |
2 800 |
2 686 |
2 812 |
3 600 |
3 200 |
3 100 |
3 100 |
3 100 |
3 000 |
2 700 |
2 450 |
|
France |
28 141 |
29 021 |
30 200 |
28 900 |
28 100 |
26 700 |
25 700 |
24 600 |
23 400 |
22 400 |
21 700 |
20 800 |
||
|
Germany |
36 000 |
29 797 |
27 907 |
|||||||||||
|
Germany (Western) |
33 000 |
29 000 |
32 000 |
29 461 |
27 379 |
26 638 |
25 718 |
24 351 |
22 995 |
23 344 |
22 625 |
|||
|
Greece |
1 100 |
2 820 |
3 100 |
3 400 |
3 540 |
3 680 |
3 760 |
4 320 |
4 633 |
4 111 |
4 108 |
3 819 |
4 155 |
4 224 |
|
Ireland |
306 |
300 |
400 |
400 |
400 |
368 |
400 |
400 |
400 |
400 |
401 |
402 |
408 |
407 |
|
Italy |
15 738 |
15 738 |
14 951 |
16 525 |
16 525 |
17 312 |
17 016 |
11 159 |
13 060 |
15 376 |
15 284 |
15 224 |
||
|
Netherlands |
8 000 |
8 000 |
8 000 |
8 000 |
7 000 |
7 389 |
6 995 |
6 715 |
6 403 |
6 398 |
6 303 |
5 148 |
4 747 |
4 610 |
|
Norway |
400 |
700 |
800 |
898 |
909 |
1 000 |
1 200 |
1 200 |
1 192 |
1 169 |
1 173 |
1 173 |
1 191 |
1 066 |
|
Portugal |
1 600 |
2 200 |
2 300 |
2 219 |
2 200 |
2 205 |
2 259 |
2 157 |
5 228 |
4 238 |
3 727 |
3 553 |
3 672 | |
|
Spain |
7 000 |
8 000 |
9 000 |
8 579 |
8 382 |
8 080 |
7 924 |
7 488 |
7 229 |
7 082 |
7 051 |
7 000 |
7 172 |
6 800 |
|
Sweden |
1 000 |
1 400 |
1 700 |
1 600 |
1 500 |
1 600 |
1 600 |
1 600 |
1 600 |
1 429 |
1 764 |
1 450 |
1 348 |
|
|
Turkey |
1 300 |
2 400 |
6 700 |
3 700 |
3 955 |
4 939 |
5 000 |
4 945 |
5 021 |
4 921 |
4 942 |
5 078 |
4 394 |
|
|
United Kingdom |
18 000 |
18 000 |
17 000 |
11 000 |
10 000 |
9 000 |
9 000 |
9 000 |
9 000 |
8 000 |
8 000 |
8 000 |
7 800 |
7 800 |
|
Eastern Europe and Central Asia | ||||||||||||||
|
Albania |
2 586 |
|||||||||||||
|
Azerbaijan |
4 732 |
4 666 |
4 872 |
5 672 |
6 202 |
|||||||||
|
Bosnia and Herzegovina |
2 622 |
2 397 |
||||||||||||
|
Bulgaria |
46 890 |
40 830 |
43 480 |
59 400 |
59 400 |
47 600 |
48 000 |
48 400 |
53 700 |
54 800 |
52 900 |
51 400 |
||
|
Croatia |
4 817 |
5 004 |
5 004 |
8 292 |
6 360 |
7 340 |
5 410 |
5 150 |
5 010 |
|||||
|
Czech Republic |
17 000 |
17 000 |
17 000 |
13 000 |
16 000 |
14 000 |
14 000 |
|||||||
|
Czechoslovakia (former) |
20 000 |
22 000 |
23 000 |
23 000 |
26 000 |
26 000 |
26 000 |
26 000 |
23 000 |
24 000 |
||||
|
Former Yugoslav Republic of Macedonia |
1 469 |
1 459 |
1 476 |
1 419 |
1 338 |
1 304 |
1 318 |
552 |
||||||
|
Germany (eastern part) |
114 000 |
118 300 |
120 000 |
121 400 |
119 700 |
119 000 |
115 000 |
90 000 |
||||||
|
Hungary |
7 000 |
8 000 |
7 000 |
6 000 |
6 000 |
6 000 |
6 000 |
6 000 |
6 000 |
6 000 |
22 000 |
22 000 |
19 690 |
19 540 |
|
Latvia |
169 |
166 |
152 |
138 |
133 |
123 |
120 |
396 |
86 |
|||||
|
Poland |
10 000 |
14 000 |
17 000 |
16 000 |
16 000 |
16 000 |
16 000 |
16 000 |
16 000 |
18 000 |
16 000 |
16 000 |
||
|
Romania |
45 000 |
63 000 |
65 000 |
48 000 |
43 000 |
40 000 |
34 000 |
31 000 |
25 900 |
25 500 |
25 300 |
27 300 |
35 500 |
|
|
Russian Federation |
107 800 |
111 500 |
||||||||||||
|
Slovakia |
8 549 |
8 023 |
7 510 |
6 468 |
||||||||||
|
Slovenia |
553 |
1 286 |
743 |
500 |
1 151 |
1 139 |
1 126 |
880 |
||||||
|
USSR (former) |
171 000 |
182 000 |
198 000 |
179 000 |
177 000 |
169 000 |
163 000 |
158 000 |
140 000 |
|||||
|
Ukraine |
50 000 |
51 000 |
15 000 |
15 000 |
15 000 |
15 000 |
16 000 |
|||||||
|
Yugoslavia |
4 500 |
|||||||||||||
|
Yugoslavia (former) |
13 000 |
6 000 |
11 000 |
14 000 |
14 000 |
14 000 |
15 000 |
20 000 |
||||||
|
Middle East | ||||||||||||||
|
Bahrain |
2 729 |
|||||||||||||
|
Iran, Islamic Republic of |
1 074 |
1 370 |
18 760 |
1 211 |
1 096 |
2 620 |
2 400 |
2 700 |
2 100 |
2 423 |
1 751 |
1 741 |
||
|
Iraq |
3 130 |
4 550 |
7 570 |
10 005 |
10 243 |
9 282 |
8 328 |
8 000 |
||||||
|
Israel |
880 |
1 657 |
1 900 |
2 000 |
1 800 |
1 980 |
1 900 |
1 900 |
||||||
|
Jordan |
1 631 |
2 282 |
2 812 |
2 786 |
2 828 |
2 926 |
3 078 |
3 374 |
3 404 |
3 544 |
3 844 |
3 947 |
||
|
Kuwait |
1 257 |
2 822 |
3 425 |
5 093 |
5 468 |
5 690 |
6 365 |
6 358 |
4 856 |
3 758 |
4 133 |
4 753 |
4 933 |
4 889 |
|
Lebanon |
1 200 |
1 000 |
1 100 |
|||||||||||
|
Qatar |
458 |
554 |
594 |
619 |
599 |
571 |
564 |
558 |
||||||
|
Saudi Arabia |
5 936 |
|||||||||||||
|
Syrian Arab Republic |
2 720 |
4 500 |
||||||||||||
|
United Arab Emirates |
750 |
|||||||||||||
|
Yemen (former People's Democratic Republic of Yemen) |
1 815 |
1 655 |
||||||||||||
|
Pacific | ||||||||||||||
|
Australia |
4 000 |
5 000 |
5 000 |
5 000 |
4 000 |
4 000 |
4 000 |
4 000 |
4 000 |
4 000 |
4 000 |
|||
|
New Zealand |
390 |
340 |
493 |
1 072 |
1 070 |
990 |
880 |
838 |
750 |
750 |
667 |
|||
|
Source: Industrial Statistics (UNIDO, 1997). | ||||||||||||||
|
| ||||||||||||||
Every effort has been made to compile the figures in table 3.1 in a consistent and accurate manner. At world level they are consistent with estimates made in 1990 using a different methodology.(2) Nevertheless they should be regarded as only indicative. The 14 per cent variation between the totals for 1980 and 1990 is probably smaller than the range of uncertainty surrounding the figures, so the main conclusion that can be drawn about the total is that it was roughly stable over the period in question. The single greatest source of uncertainty is the data reported for China (table 3.2); this number fluctuated from 154,000 in 1980 to 590,000 in 1992, to 480,000 in 1994. It doubled between 1980 and 1985, and again between 1985 and 1992; one must wonder whether the real figures fluctuated as sharply as the reported figures. For China, the former Soviet Union and some other countries a significant part of the statistical puzzle is related to the use of definitions. In these countries a significant portion of those reported in refining employment consists of persons performing social and economic services that elsewhere would be statistically recorded outside the refining sector. More will be said on this issue below.
For this reason and others, there are major differences between the contribution of the major geographic regions to world refining employment and to various measures of economic performance. Table 3.3 compares regional shares of employment and of refinery throughputs, i.e. oil actually processed. A comparison of employment with refinery capacities would produce similar results.
Table 3.3. World distribution of refinery throughputs and employment
|
| ||
|
1994 throughput
|
1994 employment
| |
|
| ||
|
United States |
22.2 |
5.8 |
|
Canada |
2.5 |
1.0 |
|
Mexico |
2.6 |
1.9 |
|
South and Central America |
7.9 |
5.1 |
|
Western Europe |
20.8 |
9.0 |
|
Central and Eastern Europe and Central Asia |
9.9 |
23.1 |
|
Middle East |
8.2 |
3.1 |
|
Africa |
3.8 |
5.0 |
|
Australia |
1.3 |
0.4 |
|
China |
4.0 |
38.8 |
|
Japan |
6.7 |
1.8 |
|
South Asia |
2.1 |
2.3 |
|
Other Asia |
8.0 |
2.8 |
|
Total world |
100.0 |
100.0 |
|
Sources: Throughput: BP Statistical Review of World Energy 1995. Employment: UNIDO Industrial Statistics Database. | ||
|
| ||
In most parts of the world, the major employment issue is job security. In the industrialized market economies, the major cause of employment reduction is increasing productivity due to advances in technology, especially those related to process control. Virtually all refining companies have installed -- or are installing -- integrated information systems that provide current operating data, recent history, plans and schedules, laboratory information, and basic refinery fixed data at workstations for all staff. This change has transformed the console operator's role into one of process management, while tending to reduce the number of management layers. These developments have raised the skill requirements for other jobs, and have posed challenges for traditional divisions into union and non-union staff.(3)
A growing share of the world's refining activity is subject to the same kind of forces that have been driving that process in the industrialized market economy countries (IMECs). Falling transport costs and more liberal trade policies are mainly responsible for this opening of formerly protected markets. As the discussion in Chapter 2 should have made clear, refining activities are increasingly subject to competitive pressures. As a result, all costs over which some control might be exercised, including labour costs, are being scrutinized closely. Given the relatively low labour-intensiveness and relatively high skill requirements of this industry, job numbers are affected more than wage rates.
At the same time, stricter environmental requirements are generating demands for major new investments over and above those that would be needed to renew obsolete equipment and keep pace with growing demand. Since modern environmental technology goes hand in hand with modern technology in general, refinery facilities will undergo general modernization as they upgrade their environmental capabilities. Among other things, that means introducing modern process control systems which are less labour-intensive than those that preceded them.
In most OECD countries, there have been significant staff reductions since 1980. In Western Europe, "a typical refinery now [1995] employs 50 per cent of the people compared with ten years ago".(4) The decline has in some cases been steady, in others concentrated in certain periods. As noted, much of the decline has been due to the introduction of modern process control systems that require fewer staff to operate it. Another important factor has been a tendency for refining enterprises to contract out tasks formerly performed by their own staff. In the view of some experts this process has largely run its course in many countries in this group, with employment numbers now down to levels which it may not be sensible to reduce further. For the emerging skill categories numbers of workers are not excessive. Indeed it is interesting to speculate whether the downstream oil industry could next experience the skills shortages, following a prolonged period of "downsizing", that is now the case for the upstream industry in regions such as the North Sea and the Gulf of Mexico.(5)
In some countries of this group, especially in Western Europe and perhaps Japan, employment will continue to be threatened by potential refinery closures. One consulting firm, Salomon Brothers, has analysed the factors that could lead to further refinery closures in Europe and has identified those which are "at risk" according to these criteria. It reasoned that lack of conversion capacity, and therefore a high proportion of fuel oil production -- which entails a high cost of meeting desulphurization requirements -- was one key factor. Twenty-one refineries in Europe (not counting the FSU) were identified as having no conversion capacity -- and therefore as being in greatest danger of closure. Of these, five were in the Czech Republic, two each in Greece and Italy, and one each in Cyprus, France, Germany, Hungary, Ireland, Poland, Portugal, Slovenia, Spain, Sweden, Turkey and Yugoslavia (Serbia). It was judged likely (in 1995) that as many as ten or 11 of these refineries would close. Second, 15 refineries were identified with a conversion ratio of less than 20 per cent, some of which were in addition smaller than the 100,000 b/d size judged necessary to reap economies of scale. From this list, two each were in Belgium, Croatia, Italy and Turkey, and one each in France, the Netherlands, Norway, Poland, Slovakia, Switzerland and the United Kingdom. It was estimated that one or two of these refineries might close.(6) Even in countries such as the United States where significant closures are less likely, the unfavourable investment climate, stemming largely from environmental regulation, tends to prevent growth in refinery employment that might otherwise take place. Employment may also be threatened by closures in regions such as Central America and sub-Saharan Africa, where there is economic pressure to rationalize the refining sector on a regional scale, so as to achieve available economies of scale.
In transitional economies, and to some extent in those where state oil companies have monopoly or protected positions, the scale of the problem is greater and the process of adjusting staff numbers to economic requirements still has much farther to go. Adjustment is aggravated by the disruptions involved in changing the economic system. As refinery siting in these countries was more subject to political direction than in OECD countries, it is likely that more of the refineries are situated in relatively isolated communities where there are few other economic activities. In these instances, it is not only harder to take a decision on rationalizations but the repercussions are much greater if they are carried out.
Privatization is a special source of workers' anxiety in those parts of the world where it is an issue. These include the transitional economies of Central and Eastern Europe (reviewed below) and Central Asia, southern Europe, Africa and Latin America. The impact of privatization in countries already largely subject to market forces -- such as Finland, France, Italy, Portugal, Spain, more recently Morocco -- has been relatively benign. The effects have been limited as the employment adjustments required have been comparable to those taking place anyway in private firms at more or less the same time. In Latin America and parts of Africa it is more of an issue. The number of jobs at risk is higher, and the experience of countries such as Argentina shows that the fear of substantial job losses is well-founded. This explains the opposition of workers' organizations in a number of countries to privatization measures that have been mooted -- opposition which has served in some cases to stop or slow the process.(7) These countries include: Bolivia -- where oil workers threatened strikes in the event of layoffs, and appear to have succeeded in having the refining part of the oil sector withdrawn from privatization plans; Ecuador -- where workers came out on strike against privatization plans; Mexico -- where there were demonstrations seeking assurances that the "strategically important" operations of Pemex would not be privatized; Peru -- where a large majority of workers in Petroperu took industrial action against a planned phased privatization; and Egypt and Nigeria.
That the trend is ongoing and extensive is suggested by a list, prepared in the spring of 1997, of selected candidates for partial or total privatization.(8)
|
| |
|
Country |
Companies or plants |
|
| |
|
Finland |
Neste |
|
Norway |
Norsk Hydro, Statoil |
|
Portugal |
Petrogal |
|
Bolivia |
YPFB |
|
Colombia |
Ecopetrol |
|
Guyana |
GuyOil |
|
Jamaica |
Petrojam |
|
Peru |
Iquitos refinery |
|
Trinidad and Tobago |
Port Fortin refinery |
|
India |
Bharat Petroleum, Hindustan Petroleum, Indian Oil Corporation; Bongaigaon, Cochin and Madras Refineries |
|
Kazakstan |
Atyrau, Pavlodar and Schimkentneftorgsyntez Refineries |
|
Philippines |
Filoil Refining |
|
Thailand |
PTT |
|
Turkey |
TUPRAS |
|
Israel |
Ashdod, Haifa refineries |
|
Oman |
Oman Refinery |
|
Ghana |
Ghana Oil, Tema Oil Refinery |
|
Morocco |
SAMIR, SCP |
|
Senegal |
SONACAS |
|
Uganda |
Total (Uganda) |
|
Russia |
Lukoil |
|
| |
In the formerly centrally planned economies and in China, the effects of commercialization and privatization are likely to be greater still. The scale of the problem is discussed below. In other parts of the world, there is a standard list of remedial measures to ameliorate the effects of privatization-induced job losses, as well as large-scale redundancies caused by other factors. It comprises: recourse to a social safety net provided by the State; indemnity payments to laid-off workers; retraining schemes; and programmes to promote the creation and sustenance of small enterprises.(9) But in the countries of Central and Eastern Europe and China, where major changes are taking place throughout the economy and society, these measures are likely to be inadequate, and it is far from clear what supplementary policies might be required. One issue it will be important to address is the attribution of costs for social services performed by refining enterprises on behalf of the communities where they are based -- operation of schools, kindergartens, medical services, maintenance of infrastructure, township management, etc. In the market economy countries most of these expenses are normally borne by local authorities. If formerly protected enterprises in the transitional economies are to be expected to compete internationally, then it may be unfair to require them to provide uncompensated services which are not required of their competitors. It may instead be appropriate for such services to be shifted to the budgets of the public authorities.
The regional trends depicted in table 3.1 become more complex when disaggregated to the national level. An examination of net gainers and losers in two periods -- 1980-89 and 1990-97, respectively -- produces the picture shown in table 3.4.
Table 3.4. Trends in national refinery employment, 1980-97
|
1980-89 |
Growing |
1990-97 | ||||
|
| ||||||
|
Algeria |
Cameroon |
Argentina |
¦
|
Cameroon |
South Africa |
Bolivia |
|
South Africa |
Kuwait |
Venezuela |
Colombia |
Ecuador |
Trinidad and Tobago | |
|
Ecuador |
Peru |
Rep. of Korea |
India |
Rep. of Korea |
Malaysia | |
|
China |
India |
Taiwan, China |
Pakistan |
Singapore |
Taiwan, China | |
|
Malaysia |
Philippines |
Ireland |
||||
|
Finland |
Greece |
Former Soviet Union |
||||
|
Former Czechoslovakia |
Kenya |
|||||
|
| ||||||
|
Stable |
||||||
|
| ||||||
|
Egypt |
Austria |
Norway |
¦
|
Egypt |
Austria |
Norway |
|
Sweden |
Poland |
Poland |
Chile |
Kenya | ||
|
Kuwait |
Japan |
|||||
|
| ||||||
|
Declining |
||||||
|
| ||||||
|
Bolivia |
Canada |
Chile |
¦
|
Algeria |
Venezuela |
China |
|
Colombia |
Trinidad and Tobago |
Pakistan |
Peru |
France |
Finland | |
|
United States |
Japan |
Italy |
Philippines |
Greece |
Ireland | |
|
Singapore |
France |
Turkey |
Germany |
Spain |
Sweden | |
|
Netherlands |
Spain |
United Kingdom |
Netherlands |
Romania |
Turkey | |
|
Former Fed. Rep. of Germany |
Former German Democratic Rep. |
United Kingdom |
Canada |
United States | ||
|
Argentina |
||||||
The experience of these 40 countries, which have relatively good employment data, could be summarized as follows. In Western Europe, the trend was down in both periods. In Asia, in both periods, there were more countries with growing than with falling employment. In Latin America and Central/Eastern Europe the picture is relatively balanced -- some growing, some falling. In Africa more countries were growing than falling in both periods. In North America, there was a decline in the early period, followed by rough stability. In the Middle East, the trend was up, then stable. Because the countries and time periods covered in table 3.4 are somewhat different from those in table 3.1, this summary agrees only partially with the picture given in that table.
Employment experience at regional
and national level(10)
The main employment issues vary considerably from region to region as a function of their different histories and situations. A look at the experience of selected regions or countries will help to understand the range of issues and the form they take in different settings.
In the United States the total number of persons employed in refining remained relatively stable at around 150,000 from 1963 until 1980. The peak level of 172,800 was reached in 1981. Since that time, the number has been in almost continuous decline, and reached an average of 100,200 in 1996. The average annual rate of decline was as follows:
|
1980-85 |
1.8 per cent |
|
1985-90 |
3.6 per cent |
|
1990-96 |
2.7 per cent. |
The proportion of workers classed as production workers has tended to rise. From 1970 to 1985 the share was relatively constant in the range of 58-61 per cent; however, since 1990 it has been around 64 per cent. This suggests that a disproportionately large share of jobs lost have been white-collar jobs. Throughput increased between 1980 and 1996 by 660,000 b/d or 5 per cent, while employment fell by 35 per cent.
While there have been substantial increases in productivity, there has also been increasing recourse to contract labour and to overtime work (see sections on contract labour and remuneration and working conditions in Chapter 4). Routine maintenance work has increasingly been contracted out, and the in-company maintenance workforce has declined by approximately 30 per cent.(11)
In Trinidad and Tobago, refining employment was relatively constant at around 2,400 from 1980 to 1989, since when it has fallen to 1,642. The refinery employment in Curaçao fell steadily between 1980 (2,925) and 1997 (1,386) -- an annual average decline of 4.3 per cent. Interestingly the share of production workers in the total has declined steadily (from 67 per cent in 1980 to 52 per cent in 1997), in contrast to the experience of the United States.
The place of China accounts for a substantial share of total world refinery employment. Unfortunately the considerable inconsistencies in available data make it difficult to say much with confidence about the structure of its employment. Table 3.5 presents the best information available to ILO on national refining employment.(12)
Table 3.5. Employment and capacity in Chinese refining (1997)
|
| ||||||
|
Firm |
Employment |
Capacity (%) |
||||
|
| ||||||
|
Sinopec |
200 000 |
80.8 |
||||
|
CNPC |
80 000 |
12.1 |
||||
|
Local 1 |
21 000 |
4.6 |
||||
|
Local 2 |
27 000 |
2.5 |
||||
|
Total |
328 000 |
100.0 |
||||
|
Local 1 = Run by local people; production and management included in state plan. Local 2 = Run by local people; production and management not included in state plan. | ||||||
|
| ||||||
Of perhaps greater value is table 3.6, which presents figures gathered on-site from one refinery -- built in 1969 and revamped at various times -- which has a capacity of 132,000 b/d. Capacity per worker is only about 22 b/d, which is between one-fifth and one-tenth of what would be considered normal in industrialized countries.
Table 3.6. Composition of staff in one Chinese refinery
|
| |||||||||
|
1984 |
1989 |
1996 | |||||||
|
No. |
Share (%) |
No. |
Share (%) |
No. |
Share (%) | ||||
|
| |||||||||
|
Production workers |
3 517 |
65.5 |
3 530 |
59.6 |
3 744 |
61.1 | |||
|
Apprentices |
178 |
3.3 |
89 |
1.5 |
8 |
0.1 | |||
|
Engineering and technical, seasonal |
283 |
5.3 |
549 |
9.3 |
703 |
11.5 | |||
|
Management and administration |
418 |
7.8 |
641 |
10.8 |
592 |
9.7 | |||
|
Service staff |
711 |
13.2 |
880 |
14.9 |
892 |
14.6 | |||
|
Other |
203 |
3.8 |
234 |
4.0 |
187 |
3.1 | |||
|
Total |
5 370 |
100.0 |
5 923 |
100.0 |
6 126 |
100.0 | |||
|
| |||||||||
The educational level of staff in this refinery has improved notably since the mid-1980s, as shown in table 3.7. Broadly this trend can be seen also on a national level: in Sinopec as a whole, the share of engineering and technical personnel in total staff rose from 7.9 per cent in 1983 to 12.9 per cent in 1995.
In the oil and gas industry as a whole, there are plans to restructure the enterprises so that 800,000 workers would be engaged in oil/gas activities, 800,000 in related businesses (petrochemicals, other chemicals, machinery, electronics) and 100,000 in social services (education, health, cultural). This implies large reductions in the staff of CNPC and Sinopec and also in national oil/gas employment, from the 1996-97 figure of about 2.1 million (1.5 million in CNPC, and 650,000 in Sinopec) to about 1.7 million.
Table 3.7. Breakdown by educational level of staff in one Chinese refinery (see table 3.6)
|
| ||||||||||||
|
Level of education |
1984 |
1989 |
1996 | |||||||||
|
Number
|
% share
|
Number
|
% share
|
Number
|
% share
| |||||||
|
| ||||||||||||
|
Postgraduate |
6 |
|||||||||||
|
University |
255 |
4.80 |
360 |
6.00 |
489 |
8.00 | ||||||
|
College |
92 |
0.04 |
324 |
5.50 |
645 |
10.50 | ||||||
|
Polytechnic school |
326 |
6.00 |
416 |
7.00 |
644 |
10.50 | ||||||
|
Technical school |
412 |
7.70 |
732 |
12.40 |
1 256 |
20.50 | ||||||
|
Senior middle school |
1 075 |
20.00 |
1 006 |
17.00 |
840 |
13.70 | ||||||
|
Junior middle school |
2 420 |
45.00 |
2 409 |
40.70 |
1 795 |
29.30 | ||||||
|
Primary school |
726 |
13.50 |
678 |
11.50 |
451 |
0.70 | ||||||
|
Illiterateness |
64 |
1.20 |
None |
None |
||||||||
|
Total |
5 370 |
5 923 |
6 126 |
|||||||||
|
| ||||||||||||
India's refinery employment grew from 13,991 in 1981-82 to 23,144 in 1995-96, an increase of 65 per cent; over the same period throughput increased by 94 per cent. Employment grew rapidly during the first part of this period -- at an average annual rate of 9.4 per cent from 1981-82 to 1988-89, since which time growth has averaged only 0.6 per year. In 1995-96 staff per refinery varied from 954 (Bongaigaon) to 2,749 (Mumbai). In relation to throughput, there is also considerable variation. In the Guwahati refinery, one of the oldest in the country, manpower per million metric tonnes of throughput in 1995-96 was 1,491, whereas at the Mathura plant -- commissioned in 1982 and relatively sophisticated technologically -- it was only 199. On a national level, average throughput per production worker increased by 24 per cent (from 2,312 to 3,349 million metric tonnes (MMT) per workman per year) from 1981-82 to 1995-96. Comparisons have indicated that manpower levels at Indian refineries are between 60 and 300 per cent higher than those at United States Gulf Coast refineries of comparable configuration. Sixty-one per cent of the total staff are production workers (blue-collar), 14 per cent are white-collar workers and 25 per cent managerial. Of the blue- and white-collar workers taken together, 83 per cent are skilled and 17 per cent unskilled. The educational profile of the workforce has risen in recent years. The numbers of those in the four highest educational categories have increased, while those in the two lowest ones have fallen. Induction-level qualifications have shifted over the years so that more new recruits now have training in science or engineering; after being given on-the-job training, many become plant/process operators.(13)
In Japan refinery capacity and employment is approximately equally divided between one group of companies that only do refining and another group that has both refining and marketing activities. Consistent figures going back to 1980 are available only for the former group, which experienced a 24 per cent decline in numbers between 1980 and 1995; the sharpest fall, of 20 per cent, took place between 1985 and 1990. Figures for employment in refining-only companies plus the refining segment of the refining/marketing companies are available on a consistent basis for the period 1992-95; during this period the total refinery employment was roughly constant at around 19,000. In 1995 the breakdown of the workforce (all-refining companies only) was as follows: senior management, 1.7 per cent; white-collar staff, 16 per cent; and production workers (blue-collar), 82 per cent.(14)
In the Republic of Korea employment, like capacity and production, has increased steadily: from 5,320 in 1980 to 13,370 in 1997, an annual average increase of 5.6 per cent. The share of blue-collar workers in the workforce has fluctuated over this period in the range of 45 to 48 per cent.(15)
In 1994 Singapore counted 3,960 in its refinery workforce. At 292 b/d capacity per worker, one of the highest ratios in the world, productivity is high.(16)
Several countries in Western Europe have experienced sharp declines in refinery employment in the period 1980-96. These include Germany, the Netherlands and the United Kingdom. In France total employment in the whole oil and gas sector declined from 41,000 in 1980 to 21,500 in 1996 (average annual rate: 4 per cent). The categories of workers most affected have been operatives (ouvriers) and white-collar staff (employés), whose numbers fell by 77 per cent and 80 per cent, respectively. The two remaining categories, skilled workers (agents de maitrise et assimilés) and engineers/managers (ingénieurs et cadres), which suffered smaller declines, now represent 50 per cent and 30 per cent, respectively, of total staff. Refinery staff, which fell from 30,200 in 1980 to 20,800 in 1993 and continued to fall thereafter, have absorbed much of this reduction. During this period, nine refineries were closed and total capacity was reduced by 46 per cent.(17) In Italy, where 12 refineries have closed since 1975 and 18 remain operational, employment has fallen from 13,000 in the late 1970s to 9,000 in 1996. Between 1980 and 1990 the ratio of blue-collar/white-collar staff increased from 62-38 to 69-31.(18) Most (86 per cent) of Turkey's refinery capacity is held by the Turkish Oil Refineries Corporation, Tüpras, formed in 1983. Employment in its four refineries has fluctuated in the range of 4,000 to 5,000 since then; the number in 1997 is 4,519. This figure is composed of 599 managerial staff, 3,784 skilled workers and 136 unskilled workers. Since the beginning of the period, there has been a shift of 5 per cent from unskilled (from 8 to 3 per cent) to skilled (from 80 to 84 per cent) workers, the balance representing managerial staff.(19) In 1996 there were 7,463 persons employed in the nine refineries in Spain, 27 per cent fewer than the 10,187 of 1980. The breakdown in staff in the largest of the enterprises, Repsol -- state-owned in 1980, largely privatized by 1996 -- is shown in table 3.8.(20)
Table 3.8. Composition of Repsol staff (percentage)
|
| ||||
|
|
1980 |
1996 |
| |
|
| ||||
|
|
Senior management |
0.5 |
2.0 |
|
|
|
Technical and managerial staff |
34.5 |
62.0 |
|
|
|
Clerical staff |
11.0 |
6.0 |
|
|
|
Skilled workers |
44.0 |
29.0 |
|
|
|
Unskilled workers |
5.0 |
0.4 |
|
|
|
Temporary |
5.0 |
1.0 |
|
|
|
Total |
100.0 |
100.0 |
|
|
| ||||
Central and Eastern Europe and Central Asia
A large part of the estimated 200,000 decline in refinery employment in this region between 1980 and 1994 is attributable to the dramatic reduction in the refinery workforce in eastern Germany. The former German Democratic Republic reported an employment of 120,000 workers in 1980, and 90,000 in 1989. Following its absorption into the Federal Republic, the total in the enlarged Germany amounted to 36,000 in 1991, and fell to 28,000 by 1994; in 1980 employment in western Germany alone had been 32,000. Much of the remainder can be attributed to the countries of the former Soviet Union before its dissolution: the figure reported to UNIDO in 1980 was 198,000, and this had fallen to 140,000 by 1990. The latter figure does not appear to have fallen substantially since 1990. The total reported to UNIDO in 1994 by the independent republics amounted to some 133,000 (Russian Federation 112,000; Ukraine 11,000; Azerbaijan 6,000). Inclusion of the other republics with refineries (Belarus, Kazakstan, Uzbekistan, Turkmenistan) would put the total at or above the reported 1990 total. The maintenance of employment at 1990 levels, while output was falling for various reasons, led to a substantial reduction in productivity in terms of physical output per worker employed. For example, in the Russian Federation this figure fell by some 44 per cent between 1990 and 1995. For a sample of ten enterprises that were surveyed (representing 26 per cent of refinery employment) 17 per cent of staff had university or advanced degrees, and 28 per cent secondary school diplomas. Turnover was high -- about 10 per cent per year in the enterprises surveyed. On a national basis, between 1992 and 1995 about one-sixth of the refinery workforce was renewed.(21)
Up until the mid-1990s, at least, most other countries in the region appear not to have experienced significant change in the sector's employment. In Poland, industry sources reported 1996 employment to be 15,324 -- not significantly below the 16,000 reported to UNIDO between 1985 and 1993. About 10 per cent of these (a figure that is rising) had university and 70 per cent secondary education.(22) In Bulgaria, the figure was relatively constant around 13,000 between 1991 and 1996. In 1993 22 per cent of these held university degrees, and 21 per cent had completed secondary school. These shares have been rising.(23) In Kazakstan the numbers have actually been rising, due to the introduction of new units: from about 1,800 staff in the 1980s, the number had risen to 3,000 in 1996. Meanwhile, the share of managers, specialists and white-collar workers increased from 19 per cent to 23 per cent. Similarly, educational and skill levels rose. The portion of the workforce having diplomas from specialized technical schools or equivalent rose from 20 to 33 per cent, and the share of blue-collar workers in the two highest skill categories rose from 23 to 33 per cent.(24) Hungary is an exception: 1997 employment is down 30 per cent in 1992, and 50 per cent in 1980. In the last five years or so, the proportion of blue-collar workers has fallen from 70-75 to 50 per cent. The share of female staff has also fallen somewhat. Staff qualifications have improved significantly.(25)
Comparisons of refinery employment between this and other regions are complicated by the practice of including in the count persons engaged in auxiliary services that in other parts of the world would not form part of refinery employment. In the Russian Federation a distinction is made between industrial and production personnel (IPP) and total employment. The former comprise workers engaged in production and services directly related to production, including white-collar workers, guards and apprentices. Figures for total employment may also include those engaged in the communities where the refineries are located in transport, housing, auxiliary agricultural production, schools, kindergartens and medical services. In 22 Russian refineries the share of IPP workers in total employment in 1995 varied from 62 to 90 per cent, the average being 79 per cent.(26) In Gazprom, the large natural gas enterprise, over one-quarter of staff are reported to be engaged in social services.(27) It is the IPP figure that appears to be used for UNIDO reporting.
Even IPP numbers (in Central/Eastern Europe and, to a greater extent, in the Russian Federation) are high by Western standards. Among the reasons is the tendency of maintenance departments to undertake major fabrication of equipment that in other countries would be purchased and to maintain large stocks of raw materials and spare parts to protect against supply difficulties. For example, one Central European enterprise in 1991 employed up to 200 men in the manufacture of pressure vessels and exchangers; up to 250 in rebuilding machine tools, repairing fire-fighting apparatus, etc.; and up to 500 men in construction of housing, offices, buildings, including the maintenance of the local township. Of the 2,100 people employed in this enterprise, 753 were in operations, 954 in maintenance, 210 in technical support and 107 in administration. In contrast to the heavy staffing in technical/production functions, relatively few staff worked in commercial functions such as sales, planning, etc.(28)
According to one specialist on the reform process in Central and Eastern European refining, manning levels in that region in comparable refineries and on a like-for-like basis (i.e. excluding non-IPP workers) tend to be anything from three (Central Europe) to six (FSU) times higher than the levels prevailing in Western Europe. If social support staff (non-IPP workers) is included, the multiple can be up to ten.(29)
Privatization, with its associated restructuring, is the spectre haunting refinery workers in this region. Government plans or commitments -- more or less advanced, more or less firm -- to privatize refineries exist in almost all countries in the region, as was discussed in Chapter 2. Such plans usually project major staff reductions, the issue being more the scale and timing of such reductions than whether they will take place. In Romania one proposal (World Bank-financed) is to close four of the country's ten refineries and to eliminate 17,000 jobs in the process; a further 7,600 jobs would be eliminated at the remaining refineries. In combination, some two-thirds of the sector's jobs would disappear. An alternative proposed by the Ministry of Industry would reduce capacity by about a quarter and phase in the job reductions over a longer period.(30) In Bulgaria the new owners of one of the two refineries that was privatized before the end of 1996 (Plama) undertook not to shed any jobs for five years. Its workforce, which numbered 2,148 in 1996, is not negligible, but represents only 20 per cent of that of the large Neftochim refinery whose future was still very much in the air in mid-1997. Moreover, the Plama refinery was not in operation at the time it was privatized, thus creating doubt about the credibility of the new owners' commitment.(31) In Poland, it is expected that the privatization programme under way will lead to significant staff reductions. For example, the Gdansk refinery has plans to outsource maintenance and social services and utilities. In both Bulgaria and Poland workers are concerned that the value of shares to which they are entitled will fall because of the way that the privatizations are handled.
The resistance to staff reductions on the scale economic factors would indicate has been -- and is likely to continue to be -- considerable. In fact, the pattern of staff reductions in the region has been far from uniform. In a number of cases the numbers have actually increased somewhat. As noted above, the high level of departures from Russian refineries -- which might have provided an opportunity to reduce numbers by attrition -- was matched by an equally high level of recruits, so that staff levels did not diminish. In fact, the number of IPP workers increased by about 10,000 (9 per cent) between 1990 and 1996.
These countries face a dilemma. To improve the economic and environmental performance of their refineries, and to preserve employment, they need to attract private, including foreign, investment. Yet potential refinery investment resources are limited, compared to the large needs in many parts of the world. The tendency to require new investors to retain redundant staff serves to some extent to discourage them and to divert them to regions where opportunities are more inviting. One inducement that can be effective in attracting investment is to give those firms agreeing to invest in refining the possibility of obtaining access to the retail market for oil products, as part of the bargain. It is no accident that this consideration has played a critical role in negotiations regarding investments made by foreign oil companies in the Czech Republic, Hungary, Poland and elsewhere.
This region is second only to Central and Eastern Europe in the vulnerability of its refinery staff to employment changes associated with privatization and liberalization. The process of adjustment has gone farthest in Argentina, where some 27,000 persons took voluntary retirement between 1991 and 1993 from the state company (YPF), which was being privatized at the time.(32) By 1997 the total staff of the enterprise had been reduced from 50,000 to under 6,000.(33) While most of this contraction took place in other business segments than refining (where YPF never had a monopoly position), the figures are indicative of the scale of the rationalization exercise. In Brazil the state company, Petrobrás -- which has a monopoly of refining -- has so far seen only small parts of its business, mainly in petrochemicals, privatized. But its protected position is being eroded, as consideration is being given to how far the exploration/production and the marketing segments of the oil industry are to be opened to private investment. In the process, the refining employment of Petrobrás, which peaked at 15,592 in 1989, fell to about 12,000 (a decline of 23 per cent) by March 1997. Of this latter number, some 1,500 employees had university-level education.(34)
Mexico has perhaps the most uncertain employment prospects in the region. Pemex, the state-owned company which holds a monopoly of all oil activities, has undergone employment reductions even greater in absolute terms than those of YPF in Argentina. From 280,000 in 1989, the number of staff fell to about 133,000 in early 1997. There was a particularly sharp fall in temporary employees, whose number was in excess of 100,000 in 1980; this dropped to about 22,000 in early 1997. During this period there were significant changes in the management of the company and in the leadership of the oil workers' trade union, and the company's role in relation to major national issues was much debated. The refining segment of Pemex was less dramatically affected than the other parts; its staff fell from 27,000 in the early 1980s to 23,000 (including 2,615 temporary staff) at the end of 1996. The decline would likely have been sharper but for the fact that capacity at the Salina Cruz and Tula refineries was doubled; on the other hand, three refineries were closed during this period. The ratio of professionals to blue-collar workers remained constant at about 20/80 through this period, but emphasis was placed on upgrading skills of the workforce -- especially through courses given by the Mexican Petroleum Institute, a state entity allied to Pemex. There are no significant differences in the employment structures at the six refineries, but the output per worker varies considerably among them: from 33 b/d per worker at Cadereyta to 96 at Tula. As pointed out by one author, this relates more to the historic evolution of the workforce at each facility rather than to markedly different skills and expertise possessed by employees.(35)
The small refineries in Central America (Costa Rica, Guatemala, Honduras, Nicaragua) would likely be candidates for rationalization if economic rather than political logic were to prevail. There would be localized employment effects, but as the number of jobs is small -- save perhaps in Costa Rica where the 2,000-plus refining jobs are not insignificant in relation to the local economy -- they would not be great.
In the Middle East, refinery capacity and therefore employment are expanding. Employment levels remain modest, however, reflecting both the labour market situation and the relatively modern, capital-intensive character of refinery installations. In Kuwait the manpower of the Kuwait National Petroleum Company (KNPC), responsible for all refining activities, has risen from 4,303 in 1980 to 6,210 in 1997. During this time the share of Kuwaiti nationals in the staff has risen from 23.5 per cent to 71.3 per cent. This was the result of a deliberate "Kuwaitization" policy, based on recruitment and training programmes aimed at finding and developing Kuwaitis who could take over jobs previously performed by expatriates. Of the many non-Kuwaiti staff who left the country during the Gulf war, the company only recalled those whose skills were deemed to be absolutely necessary.(36)
The experience of Egypt shows clearly the different staffing levels in new refineries equipped with modern process control systems and the older plants. The 828 workers of the Asyut refinery, built (1987) more recently than the other five plants, represent only about one-quarter of the staff of the others; with 5 per cent of the country's refinery staff, it produces 10 per cent of the output. The Midor plant now under construction will have a capacity (100,000 b/d) comparable to the largest existing plants, but is expected to have only about 500 staff. These developments may reverse the trend in total employment, which previously had been on the increase: 11,000 in 1983-84, 16,000 in 1993-94 (+48 per cent). Over this period there was a slight increase in the number of managers and supervisors (from 21 to 25 per cent), and a corresponding fall in the number of production workers (60 to 55 per cent); administration and clerical staff remained roughly constant (at 19 to 20 per cent). Irrespective of their occupational category, 25 per cent of staff in 1993-94 (v. 20 per cent in 1983-84) were concerned with production, and 55 per cent (v. 54) with production services (maintenance, catering, etc.). In 1997, the four refineries in Nigeria employed a total of about 6,000 workers, broken down as follows: management, 3.3 per cent; senior staff, 56.9 per cent; junior staff, 39.7 per cent. Only 6.2 per cent of the workforce is unskilled. The smaller countries of sub-Saharan Africa are in a position analogous to those in Central America. They can expect more pressure from donors and lenders to rationalize their oil supply and refining arrangements, based on more regional cooperation. The employment effects of such changes could be minor and localized, the economic benefits considerable.
Employment and refinery performance
The relation between employment levels and refinery size and output varies considerably over time and between countries. Table 3.9 presents an overview of the situation in 1994 (the most recent year for which relatively comprehensive employment data are available).
The table must be viewed with a number of reservations. It implies that the labour input of all full-time refinery workers is comparable, whereas in reality there may be significant differences between refineries and between countries as regards working hours (statutory hours and extent of overtime), the share of work performed by contractors and whether or not they are included, the inclusion or not of headquarters staff, etc. Nevertheless, if read with those reservations in mind the table gives a rough idea of the range of average staffing levels per refinery, capacity per employee, and value added per employee in different groups of countries.(37) Crudely, it suggests that best-practice refineries tend to be staffed at the level of one employee per 200 b/d or higher of capacity and to add value in excess of $200,000 per employee.
To get an idea of how output per worker has changed over time, the graphs in figure 3.1 plot the value of gross refinery output against the national refining employment level for several countries for which relatively consistent (UNIDO) data exist. Their diverging paths are a measure of productivity trends in the sector. In a number of countries these trends have been negative. Caution is required in interpreting these trends, which may be seriously affected by changing prices for petroleum products and by changing exchange rates. Comparative labour productivity figures in the United States show that the average annual change in refining output per hour amounted to 2.6 per cent over the period 1979-90 and 4.0 per cent over 1990-95.(38) When refining was last reviewed at an ILO meeting, the benchmark used was 50 to 65 workers directly employed per 10,000 b/d of capacity.(39) Based on the figures in table 3.9 for countries with modern refining sectors and good statistics, such as the Netherlands and Singapore, it would appear that today this estimate would be more in the order of 40 workers per 10,000 b/d, a reduction of between 20 and 38 per cent. If this notional calculation has some validity, it implies that a number of OECD countries still have further adjustments to come.
Box 3.1 contains one well-informed view on the relation between the role and level of the workforce, and refinery performance.(40)
Table 3.9. Comparative refinery employment and performance data
|
| |||||||||||
|
Country
|
No. of
|
Latest employment
|
Latest
|
Total
|
Average
|
Average
|
Average
|
Average
|
Average
|
Value added
| |
|
4/1 |
2/1 |
3/1 |
4/2 |
4/3 |
|||||||
|
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 | ||
|
| |||||||||||
|
Africa | |||||||||||
|
Algeria |
5 |
8 208 |
465 000 |
93 000 |
1 642 |
57 |
|||||
|
Angola |
1 |
2 351 |
(1993) |
390 |
32 100 |
32 100 |
235 |
390 |
137 |
82 |
|
|
Cameroon |
1 |
567 |
460 |
42 000 |
42 000 |
567 |
460 |
74 |
91 |
||
|
Congo |
1 |
300 |
21 000 |
300 |
70 |
||||||
|
Côte d'Ivoire |
2 |
879 |
(1980) |
800 |
64 400 |
32 200 |
440 |
400 |
73 |
81 |
|
|
Egypt |
8 |
17 282 |
16 075 |
532 153 |
66 519 |
2 160 |
2 009 |
31 |
33 |
70 239 | |
|
Ethiopia and Eritrea |
1 |
1 471 |
(1989) |
1 000 |
18 000 |
18 000 |
1 471 |
1 000 |
12 |
18 |
|
|
Gabon |
1 |
393 |
(1980) |
450 |
17 300 |
17 300 |
393 |
450 |
44 |
38 |
|
|
Ghana |
1 |
337 |
450 |
25 315 |
23 315 |
337 |
450 |
75 |
56 |
||
|
Kenya |
1 |
264 |
(1993) |
300 |
90 000 |
90 000 |
264 |
300 |
341 |
300 |
|
|
Libyan Arab Jamahiriya |
3 |
1 247 |
(1980) |
348 400 |
116 133 |
416 |
279 |
||||
|
Madagascar |
1 |
500 |
(1980) |
16 350 |
16 350 |
500 |
33 |
||||
|
Nigeria |
4 |
5 000 |
(1985) |
5 941 |
433 250 |
108 313 |
1 250 |
1 485 |
87 |
73 |
|
|
Senegal |
1 |
228 |
17 000 |
17 000 |
228 |
75 |
|||||
|
Sierra Leone |
1 |
156 |
(1993) |
10 000 |
10 000 |
156 |
64 |
||||
|
Somalia |
1 |
213 |
(1986) |
10 000 |
10 000 |
213 |
47 |
||||
|
South Africa |
4 |
19 000 |
401 038 |
100 260 |
4 750 |
21 |
45 295 | ||||
|
Sudan |
1 |
180 |
21 700 |
21 999 |
180 |
121 |
|||||
|
Tanzania, United Rep. of |
1 |
1 328 |
(1988) |
400 |
17 000 |
17 000 |
1 328 |
400 |
13 |
43 |
|
|
Tunisia |
1 |
484 |
34,000 |
34 000 |
484 |
70 |
|||||
|
Zaire |
1 |
1 650 |
(1970) |
700 |
17 000 |
17 000 |
1 650 |
700 |
10 |
24 |
|
|
Zambia |
1 |
458 |
400 |
23 750 |
23 750 |
456 |
400 |
52 |
59 |
||
|
America | |||||||||||
|
Argentina |
12 |
6 002 |
664 600 |
55 383 |
500 |
111 |
|||||
|
Bolivia |
3 |
1 065 |
45 250 |
15 083 |
355 |
42 |
196 854 | ||||
|
Brazil |
13 |
25 779 |
(1985) |
12 200 |
1 252 860 |
96 374 |
1 983 |
938 |
49 |
103 |
|
|
Canada |
25 |
12 000 |
1 907 800 |
76 312 |
480 |
159 |
150 831 | ||||
|
Chile |
3 |
1 286 |
164 615 |
54 872 |
429 |
128 |
|||||
|
Colombia |
5 |
6 476 |
248 850 |
49 770 |
1 295 |
38 |
21 243 | ||||
|
Costa Rica |
1 |
2 389 |
(1993) |
15 000 |
15 000 |
2 389 |
6 |
||||
|
Dominican Republic |
2 |
198 |
(1985) |
48 000 |
24 000 |
99 |
242 |
||||
|
Ecuador |
4 |
2 277 |
148 000 |
37 000 |
569 |
65 |
|||||
|
El Salvador |
1 |
72 |
18 984 |
28 984 |
72 |
264 |
62 301 | ||||
|
Guatemala |
2 |
94 |
(1993) |
20 000 |
10 000 |
47 |
213 |
||||
|
Honduras |
1 |
175 |
14 000 |
14 000 |
175 |
80 |
2 824 | ||||
|
Jamaica |
1 |
230 |
(1992) |
35 500 |
35 500 |
230 |
154 |
||||
|
Mexico |
7 |
23 005 |
1 524 000 |
217 714 |
3 286 |
66 |
|||||
|
Netherlands Antilles |
2 |
1 714 |
(1986) |
490 000 |
245 000 |
857 |
286 |
||||
|
Nicaragua |
1 |
54 |
(1985) |
16 500 |
16 500 |
54 |
306 |
||||
|
Panama |
1 |
503 |
(1975) |
40 000 |
40 000 |
503 |
80 |
||||
|
Paraguay |
1 |
27 |
(1991) |
7 500 |
7 500 |
27 |
278 |
||||
|
Peru |
5 |
2 994 |
(1992) |
184 250 |
36 850 |
599 |
62 |
||||
|
Puerto Rico |
2 |
900 |
127 000 |
63 500 |
450 |
141 |
|||||
|
Trinidad and Tobago |
2 |
2 600 |
(1993) |
1 642 |
245 000 |
122 500 |
1 300 |
821 |
94 |
149 |
|
|
United States |
173 |
72 000 |
95 400 |
15 318 635 |
88 547 |
416 |
551 |
213 |
161 |
284 019 | |
|
US Virgin Islands |
1 |
545 000 |
545 000 |
||||||||
|
Uruguay |
1 |
1 094 |
35 000 |
35 000 |
1 094 |
32 |
|||||
|
Venezuela |
6 |
6 592 |
(1993) |
1 167 000 |
194 500 |
1 099 |
177 |
||||
|
Asia | |||||||||||
|
Bangladesh |
1 |
889 |
(1992) |
31 200 |
31 200 |
889 |
35 |
||||
|
China |
34 |
480 000 |
328 000 |
2 867 000 |
84 324 |
14 118 |
9 647 |
6 |
9 |
6 262 | |
|
India |
12 |
24 170 |
(1993) |
23 144 |
1 086 371 |
90 531 |
2 014 |
1 929 |
45 |
47 |
|
|
Indonesia |
7 |
19 196 |
804 745 |
114 964 |
2 742 |
42 |
56 329 | ||||
|
Japan |
41 |
22 000 |
19 000 |
4 846 650 |
118 211 |
537 |
463 |
220 |
255 |
||
|
Korea, Republic of |
6 |
8 247 |
13 370 |
1 169 900 |
194 983 |
1 375 |
2 228 |
142 |
88 |
445 661 | |
|
Malaysia |
4 |
1 436 |
286 400 |
71 600 |
359 |
199 |
131 348 | ||||
|
Pakistan |
3 |
2 652 |
(1992) |
138 850 |
46 283 |
884 |
52 |
||||
|
Philippines |
4 |
2 279 |
280 350 |
70 088 |
570 |
123 |
241 485 | ||||
|
Singapore |
5 |
3 960 |
3 960 |
1 091 000 |
218 200 |
792 |
792 |
276 |
276 |
282 490 | |
|
Sri Lanka |
1 |
1 207 |
(1993) |
50 000 |
50 000 |
1 207 |
41 |
||||
|
Taiwan, China |
2 |
16 347 |
542 500 |
271 250 |
8 174 |
33 |
|||||
|
Thailand |
3 |
2 430 |
(1991) |
346 550 |
115 517 |
810 |
143 |
||||
|
Western Europe | |||||||||||
|
Austria |
1 |
3 552 |
210 000 |
210 000 |
3 552 |
59 |
133 351 | ||||
|
Belgium |
4 |
6 000 |
(1980) |
614 000 |
153 500 |
1 500 |
102 |
||||
|
Cyprus |
1 |
153 |
22 000 |
22 000 |
153 |
144 |
52 910 | ||||
|
Denmark |
3 |
674 |
(1992) |
188 200 |
62 733 |
225 |
279 |
||||
|
Finland |
2 |
2 700 |
200 000 |
100 000 |
1 350 |
74 |
149 776 | ||||
|
France |
14 |
20 800 |
(1993) |
21 500 |
1 768 430 |
126 316 |
1 486 |
1 536 |
85 |
82 |
|
|
Germany |
21 |
27 907 |
2 316 860 |
110 327 |
1 329 |
83 |
|||||
|
Greece |
4 |
4 155 |
400 500 |
100 125 |
1 039 |
96 |
79 776 | ||||
|
Ireland |
1 |
408 |
52 500 |
52 500 |
408 |
129 |
67 416 | ||||
|
Italy |
17 |
15 224 |
(1993) |
9 000 |
2 259 818 |
132 930 |
896 |
529 |
148 |
251 |
|
|
Netherlands |
6 |
4 747 |
1 186 500 |
197 750 |
791 |
250 |
177 390 | ||||
|
Norway |
3 |
1 191 |
284 740 |
94 913 |
397 |
239 |
104 663 | ||||
|
Portugal |
2 |
3 553 |
304 285 |
152 143 |
1 777 |
86 |
|||||
|
Spain |
10 |
7 172 |
1 283 000 |
128 300 |
717 |
179 |
200 894 | ||||
|
Sweden |
5 |
1 348 |
427 500 |
85 550 |
270 |
317 |
186 032 | ||||
|
Turkey |
5 |
4 394 |
4 741 |
713 275 |
142 655 |
879 |
948 |
162 |
150 |
||
|
United Kingdom |
15 |
7 800 |
1 869 240 |
124 616 |
520 |
240 |
245 897 | ||||
|
Eastern Europe and Central Asia | |||||||||||
|
Albania |
3 |
2 586 |
(1993) |
40 000 |
13 333 |
862 |
15 |
||||
|
Azerbaijan |
2 |
6 202 |
10 000 |
441 808 |
220 904 |
3 101 |
5 000 |
71 |
44 |
||
|
Bulgaria |
3 |
(1993) |
13 135 |
300 000 |
100 000 |
4 378 |
23 |
||||
|
Croatia |
3 |
5 010 |
294 172 |
98 057 |
1 670 |
59 |
|||||
|
Czech Republic |
6 |
14 000 |
(1993) |
307 099 |
51 183 |
2 333 |
22 |
||||
|
Former Yugoslav Republic of Macedonia |
1 |
552 |
51 180 |
51 180 |
552 |
93 |
|||||
|
Hungary |
3 |
19 690 |
4 000 |
241 500 |
80 500 |
6 563 |
1 333 |
12 |
60 |
23 270 | |
|
Kazakstan |
3 |
2 988 |
393 611 |
131 295 |
996 |
132 |
|||||
|
Poland |
7 |
16 000 |
(1993) |
15 324 |
352 000 |
50 286 |
2 286 |
2 189 |
22 |
23 |
|
|
Romania |
10 |
35 500 |
650 788 |
65 079 |
3 550 |
18 |
|||||
|
Russian Federation |
38 |
111 500 |
125 800 |
6 526 672 |
171 755 |
2 934 |
3 311 |
59 |
52 |
||
|
Slovakia |
1 |
6 468 |
193 400 |
193 400 |
6 468 |
30 |
13 236 | ||||
|
Slovenia |
1 |
880 |
11 400 |
11 400 |
880 |
13 |
1 180 | ||||
|
Ukraine |
6 |
16 000 |
1 259 155 |
209 859 |
2 667 |
79 |
|||||
|
Middle East |
|||||||||||
|
Bahrain |
1 |
2 729 |
(1992) |
250 000 |
250 000 |
2 729 |
92 |
||||
|
Iran, Islamic Republic of |
8 |
1 741 |
(1993) |
1 183 700 |
147 963 |
218 |
680 |
||||
|
Iraq |
8 |
8 000 |
(1992) |
347 500 |
43 438 |
1 000 |
43 |
||||
|
Israel |
2 |
1 900 |
(1989) |
220 000 |
110 000 |
950 |
116 |
||||
|
Jordan |
1 |
3 947 |
100 000 |
100 000 |
3 947 |
25 |
9 308 | ||||
|
Kuwait |
3 |
4 933 |
6 210 |
759 000 |
253 000 |
1 644 |
2 070 |
154 |
122 |
||
|
Lebanon |
2 |
1 100 |
(1980) |
37 500 |
18 750 |
550 |
34 |
||||
|
Qatar |
1 |
558 |
57 500 |
57 500 |
558 |
103 |
|||||
|
Saudi Arabia |
8 |
5 936 |
(1989) |
1 661 200 |
207 650 |
742 |
280 |
||||
|
Syrian Arab Republic |
2 |
4 500 |
(1980) |
242 140 |
121 070 |
2 250 |
54 |
||||
|
United Arab Emirates |
2 |
750 |
(1975) |
192 500 |
96 250 |
375 |
257 |
||||
|
Yemen |
2 |
1 655 |
(1975) |
120 000 |
60 000 |
828 |
73 |
||||
|
Pacific | |||||||||||
|
Australia |
9 |
4 000 |
(1992) |
704 650 |
78 294 |
444 |
176 |
||||
|
New Zealand |
1 |
667 |
(1992) |
89 000 |
89 000 |
667 |
133 |
||||
|
Total (unadjusted) |
691 |
1 160 620 |
71 588 939 |
||||||||
|
Total (adjusted) |
1 376 177 |
Average: |
92 090 |
1 379 |
119 |
||||||
|
* OGJ: Oil and Gas Journal (Tulsa, Oklahoma). Sources of employment data in column 3 are as follows: for Egypt, Nigeria, Brazil, Mexico, Trinidad and Tobado, China, India, Bulgaria, Kazakstan and the Russian Federation, the papers written for the ILO, as listed in the Introduction; for African countries (other than Egypt and Nigeria), World Bank, 1990; and for the Republic of Korea, Singapore, Hungary, Poland and the United States, the figures were provided by national governments. | |||||||||||
|
| |||||||||||
Figure 3.1 Employment versus value of gross output
|
People, practices and refinery performance A key ingredient for producing low-cost products is people. The workplace in refining has dramatically changed over the past 15 years. From managers to mechanics to process operators to clerical personnel, each person is being challenged to improve productivity through the use of computers, technology and information. Fewer people are required to operate the plants, but the remaining personnel are required to exercise greater authority through the use of more information. Cash operating expenses
This graph shows the range of operating costs for various regions versus the average costs of United States refineries. The range of performance is shown for each region, with the regional averages represented by the vertical line in each bar. The data presented here represent the state of the industry in 1994-95. We offer three points from this graph. First, the range of performance within each region is enormous, with some refineries having more than triple the cost of the most efficient plants. Second, the most efficient plants in each region are in areas where competition is intense. Examples are the United States Gulf Coast, Singapore, the Caribbean, north-west Europe and the Middle East export refineries. Third, the least efficient plants are refineries producing domestic products with geographic barriers or product import restrictions. Examples are Japan, Latin America, the Middle East domestic refineries and the Rocky Mountain refineries of the United States. The least efficient refineries are generally high in maintenance costs, poor in energy efficiency and high in personnel. This group generally has poor operating performance, with more unplanned process disruptions, more on-the-job injuries and more environmental releases. Higher costs result from poor operating practices, lack of focus on improvement steps and economic value, wasteful spending on repairs and turnarounds, and management practices which create poor morale in the workforce. In an average Asian refinery, energy is about 35 per cent of the operating cost, maintenance is roughly 25 per cent, operations account for about 20 per cent and other costs are about 20 per cent. The least efficient plants in the industry incur energy costs which are about 40 per cent above the better performers and maintenance costs which are two-and-a-half times higher -- even after adjustments for currencies, local labour rates and fuel costs. Clearly, the cost differences between efficient and inefficient refineries are great. What do the successful refineries do differently from the failing ones? (1) In successful plants, business economics guide all decisions. (2) The successful refineries focus on the needs of the customer, and this is primarily product cost. Failing refineries tend to be focused on personal desires of individuals in management and the workforce, reflecting a bureaucratic mentality in management and a large component of "artificial" constraints in work practices and union contracts. (3) Successful plants have the discipline to monitor performance daily or monthly in each function of the plant. (4) Successful companies realize that people make change happen, and that improvements only occur when people are accountable for their actions. (5) Successful companies promote values, work standards, and ethics in the workforce and management. (6) Successful refineries accept deregulation as a fact of life. Source: Extracted from Thomas Anderson: The race to survive in refining (Solomon Associates, Inc., 1996). |
Given the increasing openness of markets to competition from imports, and the considerable disparities that exist in manning levels, it may be wondered what role labour costs play in determining refinery competitivity. In the public domain reliable and comparable information on this subject is difficult to find. The following somewhat fragmentary information may help to frame the debate.
A high proportion, in the order of 80 per cent or more, of the total expenses of a refinery is the cost of its raw material -- the crude oil feedstock. The difference between this raw material cost and the value realized from the sale of the refined products is the gross margin of the refinery. For the refinery to be profitable, the gross margin must cover the operating costs (including a depreciation charge on the initial investment), plus a return to the investor. The search for competitiveness may focus on increasing the margin: (a) by making more judicious decisions regarding the raw materials that are acquired (the crude slate) and the selection of equipment and processes, with a view to optimizing the value of the resulting product mix; (b) and/or by compressing operating expenses as far as possible. The former approach is the more highly leveraged; the values involved are substantially larger, so that marginal improvements have a magnified impact on overall results. But some of the factors involved are not subject to the short-term influence of the refinery management. Selection of equipment and processes is largely a function of long-term investments; for various reasons crude slates can be changed only to a limited extent in the short term; and the prices to be obtained for the various products is determined by the market and is not easy to predict. Therefore, in a highly competitive market, refiners are under pressure also to look closely at operating costs.
Operating costs are mainly composed of labour, investment, maintenance, fuel and power and chemicals. The weighting of these various components in the operating costs of United States refineries has been tracked since 1956 in an index compiled by the Oil and Gas Journal. When this series started, labour represented 38 per cent of operating costs and investment and maintenance 44 per cent; fuel and power accounted for 9 per cent; and chemicals 9 per cent. Over the years wage rates have increased almost by a factor of ten, but labour productivity has more than tripled. Resulting unit labour costs
