France asks fuel refineries to ‘rapidly increase’ production

The French government continues to rule out a reduction in fuel tax to limit price increases - and has instead asked domestic refineries if they can “rapidly increase” fuel production by 10%. 

It says the aim is to “reduce tensions on European fuel markets” and increase domestic supply available for drivers and French businesses.

The request, made to all refineries in the country, is aimed mostly at aviation fuel and vehicle diesel, with around half of domestic supply for the fuels having to be imported into the country.

In comparison, the majority of petrol in France is refined domestically, even if raw products are imported.

The government hopes the increased production will help alleviate shortages caused by the ongoing conflict in the Middle East and closure of the Strait of Hormuz.

It said that refineries which increase production will be able to obtain work authorisations for this more easily from local authorities, and there will be an aim at improving processes to increase output via increased efficiency without needing a higher level of base oil.

It comes as both petrol and diesel costs average more than €2 per litre, nearly one month after the conflict in the Middle East began, and Tuesday (March 25) saw fuel prices reach record highs.

You can check fuel prices at service stations near you in France using the official government comparison site. 

Some refineries already at capacity

Response to the demand has been mixed, with sector leaders pointing out the difficulty in ramping up production. 

The UFIP Énergies et Mobilités petrol lobby is working "with the government [to] identify and ease certain constraints,” said president Olivier Gantois, quoted in FranceInfo.

"Some refineries are at maximum [production capacity],” already, including those run by TotalEnergies, but may be able to improve production of certain goods by switching methods,” he added.

‘“Now that it's starting to get warmer, we can switch it to summer-grade diesel… [to] free up additional production.”

Other refineries have announced they have the capacity to increase production by 10%, provided certain authorisations are given. 

It is unclear whether this will ultimately lower the cost of fuel, however. “It is very difficult to say… everything will depend on the duration of the conflict,” said Mr Gantois. 

So far, only the Port-Jérôme-Gravenchon refinery in Seine-Maritime has publicly said it will aim to increase production. 

This is France’s second largest refinery, producing around 12 million tonnes of fuel per year, and aiming to increase production by 0.1 million tonnes. 

This is “not enough to significantly influence prices, but it will help reduce the structural deficit in European capacity,” the French government said on Monday (March 23). 

Government rejects tax reductions, far-right continues to criticise

The measure has been criticised by political opponents, who argue that the government should cut fuel taxes to help reduce prices at the pumps.

The government "is behaving like a crisis profiteer [and receiving] undue revenue,” said Marine Le Pen of the far-right Rassemblement National on Tuesday (March 24). 

“As we speak, the state… is obtaining additional funding beyond that the budget allocated, precisely because the price increase leads to a corresponding increase in taxes.

“It is a fact, a simple matter of timing… there is a surge in revenue thanks to the TICPE [a domestic tax on petroleum products, but this is a fixed amount regardless of the final cost of fuel] and VAT due to the price increase.

“The state is behaving like a crisis profiteer, given the anxiety this increase is causing the French people, and that is unacceptable,” she added.

The Rassemblement National has for several years backed a reduction in VAT on all energy (electricity, fuel, etc) from 20% to 5.5%, measures supported by energy sector leaders.

However, the government has said this would lead to up to €20 billion in lost revenue that would have to be found through other means such as additional taxes.

Others have argued that the windfall from taxes during the current crisis is limited, as the TIPCE tax is fixed regardless of final fuel costs and VAT only amounts to less than €1 billion.

In neighbouring Italy, an emergency law aiming to introduce price decreases of around 25 cents per litre was passed last week. The price drop is tied directly to a reduction in fuel duties.

The French government remains adamant that it is too early to discuss alternative measures.

The main aim is “to keep the deficit at 5%. This is a target we must maintain,” said Energy Minister and government spokesperson Maud Bregeon. 

However, it has announced certain measures for companies in the transportation and fishing sectors.

This includes deferrals on social security contributions and cash flow loans for the most vulnerable companies – criticised as half-measures by sector leaders.