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Independent report highlights serious threat to UK oil refining

PRESS RELEASE

10 May 2013

 

Independent report highlights the serious threat to UK oil refining with potential impacts upon energy security of supply and resilience

An independent report by IHS Purvin & Gertz published today, sponsored by UKPIA to inform the Department for Energy & Climate Change (DECC) review into the Refining Sector in the UK, highlights the serious threat to the survival of UK oil refining which has implications for the economy nationally and regionally and potential impacts upon energy security of supply.

The report was commissioned to assess the role and future of the oil refining industry and its value to the UK economy, as well as to help inform DECC’s own review of oil refining and resilience of the downstream oil sector. The key findings of the report are:

 

  • UK refining makes a substantial contribution; 8,500 jobs in refining support 54,000 jobs in the extended supply chain industries; expenditure by these employees supports a further 25,500 jobs in the wider economy, making an overall total of 88,100 jobs (Source: IHS Purvin & Gertz 2013). The monetary input of refining to the UK economy in a normal year is estimated at £2.3 billion (Source: IHS Purvin & Gertz 2013) and each large refinery is estimated to inject ~£60m+ into the local economy where it is located (UKPIA estimate).
  • UK refining plays a vital role in maintaining  the country’s fuel supplies but the UK is already at a high risk level for supply of diesel and jet fuel and close to high risk for kerosene heating oil (based on the International Energy Agency’s ‘MOSES’ methodology). Further refinery closures could increase this exposure.
  • Although long-term net refining margins are projected to average around $2.6 per barrel of oil, this masks the huge potential cash impact of additional required capital  and operating expenditure in the period 2013-2030 of £11.4 billion just to meet UK and EU legislative measures(3), most of which would generate no return and would not be recoverable from consumers. In addition there are other legislative impacts such as Fuels Quality Directive and Energy Efficiency Directive as yet not fully defined and thus uncosted.
  • To keep pace with changing product demand trends, refineries would also need to invest some £1.5 to £2.3 billion over the same time frame which is unlikely in view of the impact of legislative compliance costs. Given a legislative level playing field with other refineries across the EU and globally, UK refineries would be considered competitive.
  • The report concluded that no industry would bear such a mandatory investment burden for no return and a consequence could be the closure of more UK refineries and greater reliance upon imports for key products such as diesel and jet fuel.

 

The Director General of UKPIA, Chris Hunt, commented: “We very much welcome this detailed and valuable report from Purvin & Gertz which backs up what the industry has been saying for some years now on the impact of legislation and the ability of the UK’s oil refining industry to continue delivering security of supply and resilience in transport fuels. Our latest publication ‘A Question of Balance’ outlines the case for a more even balance between a sustainable environment policy and the need to maintain secure energy supplies, industrial competitiveness, employment and transport mobility.”

He continued: “Legislators must understand that time is not on our side. We look forward to an early response from Government to this study, which should help inform not only the development of a future policy framework for the industry but also an urgent analysis of legislative impacts in 2013 through the legislative ‘Fitness Checks’ being undertaken at the EU level via the Refining Forum(4) established by the European Commission”

 

Ends

Enquiries to: Chris Hunt, Tel. 020 7269 7601 - Nunzia Florio, Tel. 020 7269 7605

Notes to editors:

1. UKPIA represents nine oil refining and marketing companies that operate the 7 major oil refineries in the UK; the refineries processed 69 million tonnes of crude oil and produced 70.3 million tonnes of refined products in 2012 (Source: DECC- DUKES data). UKPIA members also own around 1,600 of the 8,700 filling stations in the UK.

2. This report from IHS Purvin & Gertz sponsored by UKPIA complements previous studies in 2010 and 2011 undertaken for DECC by Deloitte and Purvin & Gertz examining, respectively, energy resilience of downstream oil and developments in the oil refining industry. It is anticipated that DECC will issue a call for evidence to further inform their review into the Refining Sector in the UK.

3. The key legislation impacting upon the sector includes:

International

 

  • MARPOL Annex VI/IMO specifications for low sulphur shipping fuel
  • Compulsory oil stocking obligations (IEA)

 

EU

 

  • EU Emissions Trading System Phase III
  • Fuel Quality Directive Article 7a, plus product quality/vapour pressure specifications
  • Industrial Emissions Directive
  • Renewable Energy Directive

 

UK

 

  • COMAH containment policy
  • Carbon Floor Pricing
  • CRC Energy Efficiency Scheme

 

4. The Refining Forum was established by the European Commission under the leadership of the DG for Energy at the end of 2012. It involves Member States, the Commission, Members of the European Parliament, Industry and Trade Unions to discuss and address the competitiveness challenges faced by the industry. An objective of the forum was to examine the impact of legislation upon competitiveness through a process of ‘fitness checks’ as envisaged by the Commission’s policy on Industrial Competitiveness. At the first forum meeting in April 2013 it was indicated that the Fitness Checks would not be completed until the end of 2014 and would only include existing or planned legislation not FQD Article 7a or IED impacts.

 

 

 

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