작성일자: 2013.11.12

작성자: 암스테르담 무역관 임성아 (salim@kotra.or.kr), Peter Machielse

 

 

1. Usage and trade flow of petroleum products

 

□ Petroleum product balance sheet

 

 ○ Total Supply

 

mln kg	LPG	Naphtha	Gasoline	Kerosene	Gas /Diesel	Fuel Oil	Other Petroleum Product
2007	2,694	12,288	4,268	814	9,530	1,868	7,876
2008	2,752	11,222	4,237	510	9,603	1,771	7,438
2009	2,582	12,912	4,220	614	10,073	2,046	6,740
2010	2,552	12,096	4,214	859	9,947	3,356	7,164
2011	2,780	9,514	4,315	429	10,362	4,055	7,135
2012	2,286	13,489	4,176	540	10,385	3,957	7,477

Source: CBS

 

 ○ Total Production

 

mln kg	LPG	Naphtha	Gasoline	Kerosene	Gas /Diesel	Fuel Oil	Other Petroleum Product
2007	1,429	10,228	9,681	7,042	21,699	10,422	7,802
2008	1,377	10,530	10,053	6,518	22,307	9,628	7,495
2009	1,453	11,174	10,135	5,960	22,984	10,023	7,244
2010	1,545	8,599	11,149	6,640	23,801	12,244	7,357
2011	1,652	8,691	9,228	7,470	23,528	10,691	7,777
2012	1,675	8,299	11,892	7,156	23,296	11,555	7,816

Source: CBS

 

 ○ Imports

 

mln kg	LPG	Naphtha	Gasoline	Kerosene	Gas /Diesel	Fuel Oil	Other Petroleum Product
2007	2,294	13,704	7,460	3,217	9,361	24,570	3,900
2008	2,333	12,283	9,792	4,116	12,322	24,139	4,078
2009	2,183	13,057	10,233	4,797	16,330	26,828	3,386
2010	2,085	15,743	9,424	4,503	18,852	30,079	4,141
2011	2,619	12,951	10,425	3,044	18,330	34,232	3,777
2012	2,204	17,382	11,965	2,863	18,899	33,207	4,047

Source: CBS

 

 ○ Exports

 

mln kg	LPG	Naphtha	Gasoline	Kerosene	Gas /Diesel	Fuel Oil	Other Petroleum Product
2007	1,071	11,655	12,937	5,955	20,607	18,019	3,676
2008	957	11,413	15,564	6,383	22,800	16,801	3,943
2009	1,045	11,256	16,355	6,749	27,519	21,453	3,940
2010	1,038	12,519	16,610	7,041	31,145	27,010	4,222
2011	1,483	12,145	15,164	6,762	30,893	27,507	4,220
2012	1,575	12,165	19,494	6,558	29,878	28,191	4,376

Source: CBS

 

 ○ Total Consumption

 

mln kg	LPG	Naphtha	Gasoline	Kerosene	Gas /Diesel	Fuel Oil	Other Petroleum Product
2007	2,694	12,288	4,268	814	9,530	1,868	7,876
2008	2,752	11,222	4,237	510	9,602	1,771	7,438
2009	2,582	12,912	4,220	614	10,073	2,046	6,740
2010	2,552	12,096	4,214	859	9,947	3,356	7,164
2011	2,780	9,514	4,315	429	10,362	4,055	7,135
2012	2,286	13,489	4,176	540	10,384	3,957	7,477

Source: CBS

 

□ Crude balance sheet; supply and consumption in The Netherlands

 

Subject		2007	2008	2009	2010	2011	2012
Supply of crude	Total supply	60,488	60,418	59,170	61,507	59,382	29,097
	Indigenous production	2,576	2,163	1,704	1,414	1,464	1,467
	Production from crude oil	464	357	465	382	334	466
	Production from other sources	464	589	544	209	279	438
	Imports	105,769	106,531	101,738	105,816	98,500	104,570
	Exports	47,984	49,847	45,001	46,645	43,328	46,169
	Stock change	-473	622	-280	325	2,128	-1,674
Consumption of crude	Total consumption	60,884	60,418	59,170	61,500	59,376	59,097
	Processing	58,528	57,942	56,904	59,196	57,015	57,134
	Final consumption	2,316	2,475	2,266	2,304	2,361	1,964
Stock of crude	Opening stock	7,658	8,131	7,509	7,789	7,463	5,336
	Closing stock	8,131	7,509	7,789	7,463	5,336	7,010
	Stock change	-473	622	-280	325	2,128	-1,674

Source: ⓒ Statistics Netherlands, Den Haag/Heerlen 14-10-2013

 

□ Motor fuels for transport; deliveries by petajoule, weight and volume

 

 

□ Fuel prices

 

            (Unit: Euro/Liter)

Periods	Benzine Euro 95	Diesel	LPG
2007.1.1	1.318	0.992	0.506
2008.1.1	1.480	1.165	0.629
2009.1.1	1.161	0.935	0.440
2010.1.1	1.431	1.091	0.586
2011.1.1	1.583	1.268	0.775
2012.1.1	1.651	1.386	0.704
2013.1.1	1.724	1.441	0.812
2013.7.1	1.728	1.397	0.685

 

 

2. Trade balance with other countries

 

□ Trade Balance between the Netherlands and trade agreement countries

 

 

□ Origin of crude oil in Rotterdam

 

Origin, share and tariffs of the crude imports in the Port of Rotterdam

Country	Market share (%)	Import tariff (%)
Russia	31	0
Saudi Arabia	19	0
United Kingdom	14	0 (EU)
Norway	13	0
Iran	4	0
Angola	3	0
Algeria	3	0
Others	14	-

Source: Port of Rotterdam

 

3. From crude oil to products: How it is taxed and the influence of FTA’s and tax policies.

 

□ The Background of oil companies

 

 ○ The petrochemical industry in the Netherlands

  - The petrochemical industry in the Netherlands can be considered as relatively big. The five refineries located in the port of Rotterdam area are used by Shell(Shell, Statoil), BP, Exxon Mobil Lubricants, Koch HC Partnership, Esso Nederland(Exxon Mobil), and Q8-KPE take a substantial share in the European refining market. The capability exceeds the domestic demand and 65% of the refined products are exported.

  - With a total capacity of 5 refineries producing 1.2 Mbbl/d, the Dutch refinery industry has a 1.4% share of the worldwide capacity and has the 5th largest installed capacity in Europe, where a total of 15.5 Mbbl/d is produced by 104 refineries. In the Netherlands more than 98% of the crude oil is imported and some 40~45% is directly exported.

  - Reasons for the large refining capacities in Rotterdam can be found in the well established infrastructure of deep sea ports and a pipeline network serving the rest of North Western Europe. These characteristics provide the Dutch refining industry with a competitive advantage over other European refineries which can be a decisive factor in order to survive.

  - The European refining industry is in decline. The 106 refineries active in 2005 will decline to 75 in 2020. More and more ‘old’ European refineries cannot compete with the newly established ones in the Middle East and Asia. The fierce competition puts margins under pressure so only the new state of the art refineries are able to survive. Also European oil demand is decreasing due to saturation and the movement towards fuel saving cars. Finally, Asian and Middle East refineries increasingly refine their own crude oil in order to obtain more margins.

 

 ○ Dutch Oil Companies

  - Dutch oil companies are Argos Energies (net turnover euro 16 billion), Dyas and Royal Dutch Shell (with the last booking a 467 billion dollar revenue over 2012 and it is the most valuable company on the London Stock Exchange). Therefore the ‘Dutch’ oil sector is dominated by this giant, but can we call Royal Dutch Shell a typical Dutch company?

  - The company has a big refinery in Rotterdam, but not even 10% of the people in Royal Dutch Shell work in the Netherlands, so do the other oil giants. The fact that the company conducts activities in more than 70 countries(Chevron in 130) also indicates that we hardly can talk about a typical ‘Dutch’ oil company. The HQ is still located in The Hague, but in today’s world with a growing liberalization in trade and a further increasing globalization companies are operating more and more globally. The petrochemical industry is one on the most striking examples of a globalized world in which global competitiveness and small margins force the companies to act globally and got driven away from their domestic soil. The so called International Oil Companies(IOC’s) ‘supermajors’ like: Royal Dutch Shell, BP, Chevron, Total, Exxon Mobil and Conoco Phillips are operating on every corner of the globe. With an average of 4 transactions a day the oil and gas industry is also among the most active resilient M &A markets.

 

 ○ International competition in the refining industry

  - The cost of refining crude oil into products is determined by many variables like: size and complexity of the refinery, utilization rate, composition of the crude and the desired end product, local wage expectations for refinery workers and employment and environment regulations. Refineries are often reluctant to release information about their refinery costs. Particular is Asia where refineries are either state owned or belong to great energy companies, detailed information about operating refinery costs is hard to obtain. Among the Asian refineries it is believed that labor costs are the single most important variable influencing the oil price. The cost of labor is in Asia lies in a range of $ 1~3 a barrel depending on the size and age of the refinery and the development of the economy. When energy costs are included refinery costs in Asia seems to vary from $ 3~7 a barrel($ 2.5~5 when excluding energy costs). Due to the large scale and integrated character of the refineries the ones in Singapore seems to be the most cost efficient in the Asia-Pacific region with a $ 3 dollar cost. In North America this price is calculated at $ 3.30 and in Europe at $ 4.

 

□ Practical Implications concerning Utilizing Free Trade Agreements

 

 ○ Oil Hub Terminals and custom and tax regulations

  - In order to reduce costs refining at so called ‘oil hubs’ are increasingly used. Oil hubs are characterized by a good infrastructure, geographical strategic position and they should enjoy a friendly tax and custom climate. Places like Rotterdam and Singapore can be regarded as such oil hubs. In the refining business (especially Europe) refining is taking increasingly place at one single oil hub with the best conditions. In these places large amount of oil can be imported and exported but also used for storage and further blending.

  - Tax regulations are a decisive factor in oil hubs. Local policies encourage the usage of oil hubs by the provision of tax friendly policies. There are two tax friendly warehouses, the bonded warehouse and the excise warehouse.

   · In a bonded warehouse oil can be stored and no duties come into effect if the oil is still in the terminal. In case of importing to the EU, custom duties and Value added Tax come into effect only after officially imported.

   · In excise warehouses the products is stored and suspended from tax rules temporarily. Until definitive import or further export no excise duties and VAT are paid.

  - Besides tax benefits the oil hubs can provide oil companies with blending facilities in which they can add value to their products. Logistic facilities for vessels are also important.

  - In the (for companies) ideal situation, refineries can blend what they want to produce new products. Therefore companies put pressure on the legislation body to obtain more freedom. In the case of Korea, the Korean government recently allowed Korean and non Korean blends, but with the restriction that the HS Codes do not change. This is already a burden for refiners and companies should ask for tax refund after exporting their refined products instead of not paying it at all. In a capital intensive market with low margins this can be a decisive factor. Ideal oil hubs therefore put little restrictions on companies and offer a friendly tax and custom climate.

 

 ○ Petroleum products and the certificate of origin in the Korea – EU FTA

  - The Korea – EU FTA was an important step for both entities which took effect at the first of July 2011.In this FTA both Korea and the EU are regarded as a single trading block. Therefore the import duties levied by the EU are the same in every EU country for every product. Ones products entered the EU, the products (just as services, people and capital) can be moved freely under the rules of the European internal market. Note that excises and VAT dependent on national policies.

  - The rule of origin can have a great impact on the prices of petroleum refined products. Like Korea the Dutch do not either have vast oil resources in their soil, so refining crude oil and exporting refined products out of crude oil means that the crude commodity originates from a third country. The FTA provides in a framework for a (almost 100%) mutual free trade between the two involved parties. In order to utilize this agreement, products must have its origin in the legislative areas applicable to the agreement.

  - This framework in some cases rather raises more questions than providing companies with a useful applicable framework. Is a Korean car with Chinese auto-parts still a Korean car? Is the purpose of a Smartphone still communication or is it a camera or is its main task a device for music? All these classifications can have an impact on the way products are taxed when importing or exporting them.For oil products however, the rule of origin is not very hard to explain.

  - In short products must be totally obtained in one of the countries participating in the agreement or undergo a modification or treatment. Concerning oil products, the rules applicable to them must be found in the modification of the crude oil, because the product is in many cases obviously obtained in a third country outside the mutual agreement (in the case of the Korea – EU FTA). The agreement indicates that the following modifications or treatments do not change the origin of the imported product:

   · Treatments to serve products during transportation

   · Sorting and treatment regarding packing

   · Adding stickers or logos on the packages or products itself

   · The ‘simply’ blending of different kinds of products

   · The ‘simply’ blending of articles or the separation

   · Testing or calibrating

  - The above mentioned rules are not sufficient to change the origin of the product, but in all other cases it does. Oil refineries cannot be called ‘simply’, because refining oil requires high tech machinery. Therefore the products made from crude oil fit into the FTA between Korea and the EU after they are refined.

  - In practice this means that Royal Dutch Shell can transport its crude oil from e.g. Nigeria into the Rotterdam Europoort refinery. In Rotterdam Shell’s refineries make diesel, kerosene, naphtha or gasoline and after refining the product obtain the ‘protocol of origin’ from the EU and can be exported to Korea using the FTA. This protocol can be hard to apply for other products, but in the case of oil and oil products it is not. Note that this protocol in many cases is used in agreements with other countries with which the EU has FTA’s or similar trade agreements.

 

□ The various FTA’s and the effect on the Petrol Industry

 

 ○ The Korea – EU FTA

  - The Korea – EU went into effect on the first of July 2011 and removed almost completely all import duties on oil and oil products. Only a few exceptions were made, but import tariffs on these products will be lifted after six years, making the petroleum sector between the EU and the Republic of Korea totally free of import tariffs. In the table below some products are highlighted.

 

Changing import tariffs after the Korea – EU FTA (1st July 2011)

Product	HS Code	Import Tariff before FTA	Import Tarrif after FTA
Crude Oil	2709001 / 2709002	3%	0%
Motor Spirit	2710111000	5%	0%
Aviation Spirit	2710112000	5%	0%
Propylene tetramer	2710113000	5%	0%
Naphtha	2710114000	0%	0%
Jet Fuel	2710192020	5%	0%
N-Paraffine	2710192030	5%	0%
Kerosene	2710192010	5%	0%
Automatic transmission fluid	2710197330	7%	Removal in 6 annual equal terms
Anti corrosive oil	2710197410	7%	Removal in 6 annual equal terms
Cutting Oil	2710197420	7%	Removal in 6 annual equal terms
Engine Oil for automotive	2710197120	7%	Removal in 6 annual equal terms
Enigine oil for marine use	2710197130	7%	Removal in 6 annual equal terms

 

  - The import of crude oil from the North Sea to South Korea increased dramatically since the implication of the EU - Korea FTA.Questions occurred in which the European commission was asked whether the FTA caused the increase of Korean crude imports and if the effect on the European refining industry and oil prices was calculated before. The commission was also asked about the current effects of the FTA on the oil sector, if the energy supply is monitored and if there is any possibility to revise the agreement.

  - The answer was given by Euro commissioner of trade Mr. De Gucht stating that the increase in imports from the North Sea to Korea is rather caused by the geopolitical developments in the Middle East like sanctions on Iran and Korea is therefore looking for other sources to ensure their oil supplies. Prior to the free trade agreement no studies were conducted to foresee the impact of the FTA on crude oil prices and the refining industry. There is also no space for revising the FTA document afterwards.

  - The above mentioned geopolitical reasons can have an influence and similar strategies are always present in a highly globalized industry like the petrochemical industry. However in this case other explanations turned out to be a much more evident reason for the Korean petrochemical industry to utilize the Korea – EU FTA while importing crude oil.

  - Another reason (and probably a more valid one) for the instant increase in North Sea crude imports can be found in a 3% tax rebate that Korean refiners obtained when they exported refined products made from FTA country’s crude imports. Korean refiners were able to get the 3% crude import tariff refunded while exporting the refined products. When the KOREU FTA came in to effect the import tariff on crude oil disappeared, but the 3% rebate was still in effect. Therefore Korea refiners were able to receive a 3% import tariff debate over product they had never paid import tariffs over. This so called ‘loophole’ therefore changed into a 3% grant on crude imports. In an industry with extreme small margins, this 3% rebate triggered the Korea refineries to import the FTA oil (in this case mainly the U.K.) rather than the geopolitical arguments proclaimed by Euro Commissioner of Trade Mr. de Gucht.

  - This loophole was removed from the system by the Korean government from the first of July 2013.A 3% discount already makes crude import from Norway and the UK competitive compared to Middle East oil. The new change in tax policy makes it less attractive to import from FTA countries because a rebate will only be refunded according to the portion of imported non FTA crude and a rebate is only possible for crude over which tax has been paid.Korean refiners thus, were able to import crude oil without paying import duties, but got a 3% rebate for all of that crude oil used for producing the exported products.To compensate this, the minimum amount per shipper import of crude oil from not-middle east countries has been lowered from 7 million to 2 million in order to be not to dependent on the unstable Middle East. However the elimination of tax rebates will make it harder for Korean refined products from FTA sourced oil.

 

Source: CBS

(Dutch Trade balance with the Republic of Korea concerning crude petroleum and refined products)

 

 ○ The Singapore - EU FTA

  - Up till today the Singapore – EU FTA does not seem to affect the oil markets like it did in the Korea – EU FTA. Although the Singapore – EU FTA did not take effect yet (expected for 2015) the oil markets do not seem to move much. After the Korea – EU took effect the Korean import of crude North Sea oil increased steadily, but this could be largely assigned to the loophole described above which was solved later. The tax in the oil hub of Singapore however, is already 0% (like it is for Rotterdam) so no large impacts on trade are expected. For Koreans it makes a difference, because importing from the EU means circumventing a 3% tax on crude oil which they have to pay for Middle East oil. Another reason is that oil refiners rather refine near the upstream source in order to reduce shipping costs. Therefore importing from oil from Asia is more likely than Norway and the U.K.

  - Removing the EU import tariffs on jet fuel(4.7%) and diesel(3.5%) seems to be a great incentive to import more refined products from Singapore, but in many cases these duties are not levied anyway, because the fuel is meant for planes and those tariffs are zero. In the case of Diesel, most of the imports will be also 0% (if it has a sulphur rate of less than 2,000 ppm) and the European demand is 10 ppm so this standard is sufficient for the 0% rule. Without meeting the standard it could have been traded as ‘Refining Feedstock’.,

 

 ○ The U.S. - EU FTA

  - An FTA between the U.S. and the EU is expected to not only affect the trade between the two blocs, but an EU-US FTA will also affect third party countries. First it will be easier for U.S. FTA partners to obtain certain products which the U.S. is not eager to export(LNG).Due to the ban on exports of crude oil from the U.S. to the EU and no substantial changes in the EU oil supply can be expected.The overall exports from Korea to the EU is expected to fall USD 217 million when a U.S. – EU FTA goes into effect with the petroleum exports taking a USD 13 million share in this. An FTA can ignite a fiercer competition between U.S. and Korean petroleum products and therefore put pressure on the margins. The export from Korean petroleum products to the U.S. is expected to fall by USD 30 million.

 

 ○ Jet fuel and the generalized scheme of preference(GSP)

  - The EU’s GSP(Generalized Scheme of Preferences) is a measure to remove the import tariffs on goods from developing economies to help them enter the European market and give a boost to their economic growth. The Gulf cooperation countries (known as the GCC) increased their economies which mean that from 2014, the EU is treating them as an ‘upper-middle income’ economy and will remove the discount in import tariffs. Recently the EU decided to lift the import tariff on jet fuel for all countries regardless the origin.

  - In order to dodge the new 4.7% import tariff on jet fuel from the GCC to the EU, companies try to be creative in using the so called ‘airworthiness certificates’ or ‘EASA form 1’, but failed, because the rule only applies to aircraft parts. This certificate indicates that the product is used for aircrafts. The two companies being able to generate these forms are the so called POA’s and MOA’s(Production Organization Approval and Maintenance Organization Approval). However the new GSP rules included not only the GCC, but also India, Venezuela and Libya under the ‘upper middle class economies’. This measure put 80% of the EU’s jet fuel supplies under a 4.7% import tariff’(complete list of countries under the GSP). Import tariffs are also levied while importing tax fuel from Mexico(with an older less elaborating FTA), but also when buying jet fuel from Korea.

 

 

4. Conclusion

 

 ○ The petroleum industry is an industry that is one of the largest in the world, one of the most globalized in the world one of the most competitive in the world and one that is integrated into almost every product. While the public opinion is not in favor of the crude oil, the world is demand is higher than ever before and a world without oil will be unthinkable at least for the forthcoming decades.

 

 ○ The competitive and global character of the petroleum industry is applicable to more and more industries and legislation is following this trend bit by bit. In the believe that globalization and free trade is a next engine for further economical growth, the last decades gave birth to an increasing amount of free trade agreements.

 

 ○ However it seems that the influence on FTA’s and the trade of crude oil and refined products is limited. The main reasons for this are the fact that many trade barriers for oil products are already low so signing an FTA will not change much. This is seen in the EU – Singapore situation in which the markets do not seems to move by the signing of a FTA.

 

 ○ A trend of M&A’s that formed the six biggest IOC’s is likely to be followed by a same movement in refining capacities where crude oil will be refined more and more at the so called oil hubs. The demand for oil products in Asia is rising and in Europe it is not. Also facilities in Europe cannot compete with the refining costs margins in Asia. Also countries in the Middle East (with their strong NOCs will refine more domestically near to the Asian grow markets). Besides the calculation of only costs, many other variables like environmental legislation and local wages have an effect on the competitive advantage of refineries. When this is combined by with a tax and custom friendly legislative framework, the ideal situation is born. Therefore in Europe refineries the amount of refineries is decreasing while the capacity of a oil hub like Rotterdam is growing.

 

 ○ Another variable that can affect future trade is the composition of crude oil and the technical developments. Among the different continents the demand for oil products is different. Some crude oils can be better utilized for a desired end product than others, giving incentives to transport crude oil in the future is the refining margins is high enough. This can be used by an FTA.

 

 ○ In individual cases an FTA can have a large impact and change markets. This was the case in with the Korea – EU FTA in which the import of North Sea Crude increased by 100% due to a loophole in the Korean tax rebate system, but after revision is expected to return to its former levels.