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Francis

Duseux – President, UFIP – France

24.03.2015 / Energyboardroom

The new president of the French Union of Petroleum Industries (UFIP) talks about upstream opportunities in France and the tremendous assets the country boasts, as well as discussing refining and marketing today in the country.

 

What is the role of the UFIP within the French environment?

Our prime objective is to explain the role of the oil industry in our country. In order to meet the energy needs of French people, the oil industry today represents some 45 percent of the energy mix, which is extremely significant. But when you read the news or when you listen to the politicians, they rarely talk about the oil industry. The perception of the oil industry by the French people is therefore relatively negative. I think we need to explain what our added value is and how we contribute to the energy mix. This is our primary priority.

Our secondary priority is that we are trying to establish what our share in the energy mix will be in 2030, which we believe will be around 30 percent. Here in France, we do recognize that we need to consume less, better, as well as we need to protect our environment, diversify and use the best technologies available. In that regard, we need to follow a pragmatic approach in order to maintain this energy mix and ensure a safe supply as far as 2030.

The energy transition process going on in France is currently an accumulation of quite a few aggressive measures. My concern is that there has been no clear and complete analysis of the impact of such measures. It is quite a preoccupying situation we are facing at the moment. Let’s make it clear: we are not asking for any subsidies but we advocate the conditions of a fair competition.

It has been established there was a big surplus of refining capacity in Europe in general and specifically in France. The trend of demand in Europe is indeed declining—due in part to political reasons, to efficiency reasons, and to the change in the consumers’ habits. Hence a restructuring of the industry needs to take place. With the recent closure of four refineries and/or capacity reductions, we can see the restructuring in France has already begun. Because of this restructuring, we all need to adjust to the new market. This cannot be done without an understanding and a better perception from the media and the government.

The development of shale oil and gas in the US has represented a major change in the energy scene. What we see now are more and more finished products coming their way to Europe, especially distillates. Parallel to the shale oil and gas from the US, we are now facing strong competition coming from the modern, high-capacity and high-technology refineries in the Middle East. For Europe, competition is fierce between the US, the Middle East and even India. It’s a tough game now. Therefore, in order to ensure that major companies remain in France, we need to have the right conditions and support.

How do you explain the decrease in profitability, and what are the necessary measures to be taken if France wants to remain a refining power?

First and foremost, we need to stop the excess of regulations, which is very penalizing, and stick only to European rules. Secondly, a very specific issue in France is the fiscal aspect on business in general. We need to stop adding new taxes continuously and unnecessarily such as the recent tax on inventory, which amounted to 300 million dollars for the sole oil industry! We also need to regain confidence of investors by demonstrating that France is not changing its taxation system continuously. It would also be important to reduce the gap between the taxation of gasoil and gasoline, which is of 20 cents in favour of gasoil. In the past, the lobbying of the car industry has contributed to this gap. It is therefore impossible to sell all the surplus of gasoline on the French market. We ask for a fair taxation knowing that the general trend tends towards a decrease of consumption, the emergence of new cars, hybrid cars and smaller engines.

Although France remains one of Europe’s most important refining countries, over the past few years there have been announcements of refinery closures, due to the new taxation and fiscal regimes being introduced, which has made them less profitable. What are the other challenges this sector faces today? 

The distribution sector is extremely competitive in France. Hypermarkets, which represent more than 60 percent of the total distribution system, decided 20 years ago to sell gasoline at a very low price in order to attract the consumers in their stores. This has altered the game. Besides, there has been a move towards automation in order to avoid paying salaries but it is quite difficult to implement. The main concern we are currently facing is the decline of the demand trend. Like in any sector, when demand is declining, you have to adjust your industry tools to the new level of demand.

Another factor is that there is still some restructuring happening within the industry. When you lose more than EUR 100 million in one year in a given refinery, you cannot sustain this after a few years so you have to restructure or close. Of course, refining is complex so you really need the knowledge and tools to run a refinery successfully.

Having said this, if fair conditions are met, we will keep a strong refining presence in France. The refining industry is quite vital, for strategic reasons, and should remain so for at least the next 30 years. You need the knowledge to succeed and in France, we have technology and sound engineers. This is why I am quite confident for the future.

Looking at the import of fuel and oil to France, which countries are today the main sources of supply, and how do you see this evolving in the future?

For many years, Russia had been our main supplier of gasoil. This is now changing however, with more products coming from the Middle East and the US. We currently receive a mix of imports from Russia, the US and the Middle East. In the future, we see the imports from the US and the Middle East increasing. Talking about exports, France has been exporting a significant amount of gasoline mainly to the US and a little bit to Africa.

A little more than a year ago, the production from the Lacq gas field stopped. It is very little known that this field supplied 30 percent of the domestic gas needs of France at a point in time, and, more importantly, marked the beginning of an exceptional industrial adventure that led to the creation in France of a real petroleum services industry – despite the fact we do not have a tradition or history in the oil industry, or even an oil culture like there is in the UK, Norway or the Netherlands. I don’t think such an adventure would be possible today because of the French “principle of precaution.”

France suffers indeed from too much ideology and not enough pragmatism. We should learn from what has happened in the USA, the UK and even Germany.

A change will also come from the outside – if the big European economies like Germany start to produce shale gas, there will be a very significant impact on the industry. The bottom line is France should have no other choice but to adapt. The last geological studies have showed significant energetic assets we just need to fructify.

Furthermore, 2010 could have been a turning point in France with the discovery of petroleum in French Guyana. Shell, the company in charge, has unfortunately stopped its exploration. But we may find oil elsewhere in the territory.

What are the prospects of UFIP in the near future?

Our priority is to come back to upstream in France. We have a long tradition of oil and gas production in this country with very knowledgeable and strong companies. We are ready to invest, but politicians are blocking the way. We have currently 150 permits being blocked at the moment because of ideology and elections. Let’s not forget France has tremendous assets. We have the right practices and knowhow. This is why I’m rather optimistic about our future development here in France. We just need to change the perception of the sector.

 

To read more interviews on the French oil and gas sector, click here.

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