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Grangemouth and UK Refineries

23 October 2013
Fuel supplies from the Grangemouth oil refinery in Scotland, owned by Petroineos, are continuing to be delivered as usual following the regrettable news of the closure of the associated petrochemicals' plant. 
The oil refining industry in the UK remains under huge pressure from a combination of factors: commercial, legislative and structural which certainly cloud the investment prospects for UK refining generally.
An independent report by IHS Purvin & Gertz published in May, 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. 
  • 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, 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.
UKPIA commented: “The sector is in a state of transition as it makes the difficult adjustment to re-aligning output to a changing product mix and a lower overall level of demand. At the same time, commercial and legislative factors are adding to the huge pressure the industry is under”.
“Legislators must understand that time is not on our side. We look forward to the forthcoming Government’s review into the UK oil refining industry -  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 (2), established by the European Commission” 




Enquiries to: Nick Vandervell, Tel. 020 7269 7604


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.      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.

3. For more information on the Grangemouth refinery, click here.

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