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UK oil refining industry threatened by ‘a perfect storm’

12 October, 2012

A 'perfect storm’ that threatens the future of the UK oil refining industry, is the conclusion of a new publication of the same name by UKPIA, the trade association representing the main oil refining companies in the UK.

“With two UK refineries having closed between 2009 and 2012, the most recent being Coryton, the loss of further UK refining capability poses a serious risk to energy security of supply and resilience. It could also jeopardise other industrial sectors dependent upon feedstocks from refineries and make the UK highly dependent upon imported fuels such as diesel and aviation kerosene,” said Chris Hunt, UKPIA director general.

“The refining sector works on a very narrow differential between cost of crude oil and the value of products produced – typically in favourable conditions equivalent to only 1.65 pence per litre. After energy and other operating costs this reduces to 0.6ppl (source: Wood Mackenzie/UKPIA). We calculate that new legislative impacts could add a further 0.35ppl of costs, leaving close to zero return on capital employed which is unsustainable.”

There are areas where changes in UK legislation could help the industry; for example the CRC Energy Efficiency Scheme (CRC) and reform of the Climate Change Levy (CCL) to introduce Carbon Floor Pricing that as presently drafted hits efficient power generation plants at refineries. These changes could be made with no impact upon the Government’s main policy objectives on carbon reduction and energy efficiency. UKPIA is not asking for measures to protect UK oil refining from competition but seeks a level playing field with competitors within the EU and elsewhere.

UKPIA will be lobbying the government and politicians at Westminster, Cardiff, Edinburgh and Brussels to highlight the areas of concern, which also include the EU Emissions Trading System Phase III and the EU Industrial Emissions Directive.