LUKoil vice president: EU taxes are killing the refinery business

Leonid Fedun [Georgi Gotev]

LUKoil would be delighted to sell the EU gas, but it cannot, as Gazprom has a monopoly on Russia’s gas exports. However, the gas LUKoil discovered on the Romanian shelf will directly supply the EU, Leonid Fedun told euractiv.com.

Leonid Fedun is a billionaire and Vice President for Strategic Development of LUKoil, a privately owned oil and gas company known in the EU for its filling stations and refineries.

He spoke to EURACTIV’s Senior Editor, Georgi Gotev.

You spoke today (8 November) to a Brussels audience and said that the EU should make sure the refinery business doesn’t disappear from our continent in the next few years. Can you explain why you think the business environment created by the EU institutions is not good for the refinery business?

The energy and refinery sector in Europe finds itself in some sort of standstill. The model that existed in the 2000s is over. This model was based on subsidies for fuels considered ecological, and diesel was considered as such at that time. Also, let me point out that the road transport industry in the EU is based on diesel. In Belgium, 80% of vehicles run on diesel.

In the US it’s different. There, even heavy trucks run on petrol.

Exactly. The refinery business in Europe was based on refining crude oil from the Middle East or Russia, keeping the diesel fuel for the continent and exporting part of the petrol to the US. At that time, the US needed to import petrol. But in the meantime, the shale boom took place in the US, and now it not only doesn’t need to import petrol, but it needs to export diesel. We are talking about 20 million tons of diesel fuel that the US exports to Europe annually. This has put our refinery plants, like those in Sicily, in a difficult situation. It appeared that 30-40% of their production became redundant. The tax system of the US, the tax system in the Middle East, are more favourable than the EU’s. And it makes importing diesel fuel cheaper than producing it locally.

If we imagine that refineries in the EU would need to close, doesn’t it mean that the EU would be dependent not only on crude oil imports but fuel imports?

Obviously. Especially the plants on the periphery. I mentioned Sicily, but also the plants in northern Germany, the refinery in Bulgaria – they would be under great pressure from imported fuels. And the whole business will concentrate in Arab countries. They will export petrol to China and diesel to Europe, and there will be no more diesel produced in the EU. You probably remember that the manufacturing of electronic consumer products disappeared from Europe, it went to China, and so did the shipbuilding. And we ask the Commission – how about the ecology? Will the Commission be able to control the quality of imported fuels?

We find ourselves in Belgium, where LUKoil is a household name because of the more than 100 filling stations of this brand on its territory. And LUKoil has a refinery in the Netherlands. Do EU decision-makers realise the consequences if the EU loses this business?

There are some 1.5 million families depending from the LUKoil business, and €18 billion of gross value added to the EU GDP. But there is another issue. The EU used to be the world leader on ecology, on climate change. You remember the euro 4 standard [emission standard for any vehicle introduced in 2005], the euro 5 standard [for light passenger and commercial vehicles, introduced in 2009]. They have put pressure, globally, to modernise the technology. But where are the standards 6, 7, 8? There are no such standards. Adopting new standards, just as recently the maritime industry decided to shift to low sulfur fuels, is of extreme importance for the environment.

The name LUKoil is usually understood to pertain to the oil business. But your company also produces gas. Why don’t you sell gas to the EU?

Because in Russia, there is a monopoly, and only Gazprom can export gas.

So you sell your gas to Gazprom, but at a low price? If you could sell it to us, it would be different?

Then we could make a better deal. But we cannot do it, and that’s why we don’t invest much in developing gas projects on the territory of Russia. Our main gas project is in Uzbekistan, and it is aimed at selling gas to China. We have also discovered gas on the Romanian shelf, and if the expectations are confirmed, we will start directly supplying Europe, including Bulgaria.

How is this possible?

It’s because the Russian jurisdiction [which grants Gazprom the gas export monopoly] applies only to the territory of the Russian Federation.

In your presentation, you mentioned that the low price of crude oil has led to the cancelling of several oil and gas projects in the Northern Sea. What does it mean?

It means that the oil and gas dependence of Europe will only increase.

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