28^th August 2008

UK downstream oil industry profitability

Against a background of high crude oil prices, UKPIA, the trade association representing the main oil refining and marketing companies in the UK, today published its briefing paper on the profitability of the industry. The main points of the paper are:

• The main driver for higher pump prices in the UK and globally has been the higher price of crude oil and the impact this has had on the price of refined products such as petrol, diesel and jet fuel.
• Supplying companies are not profiting at the expense of consumers. A combination of good supply infrastructure, open markets and strong competition in the UK has kept pre-tax prices of petrol and diesel amongst the lowest in the EU for over a decade.
• Refining/marketing companies that are UKPIA members have below average return on capital employed. Their aggregated average return for the last five years to end 2006 was 8%, well below the average return for the manufacturing and service sectors.
• NW Europe refining margins have recovered from very low levels to an average of US $5 per barrel over the last four years but remain highly volatile, ranging during 2007 between $3-7 per barrel.

• UK refineries will require further substantial investment in the future to meet changing crude oil availability and consumer demand patterns, the need for cleaner fuels and tighter environmental standards. A stable fiscal and investment climate will be crucial to attracting this investment to the UK.

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