The Energy and Climate Change Select Committee has published a new report which has highlighted concerns over the future of the UK’s oil refining industry. The UK refining sector plays a crucial role in maintaining the UK’s fuel supplies and employs around 26,000 jobs directly and indirectly. However, in its latest report the committee found the refining industry to be in decline and called on the Government to take action if the health of the industry is to be maintained and jobs safeguarded.
Talk of demise in the oil refining sector is nothing new, with domestic production decreasing since the middle of the last decade. The number of refineries in the UK has fallen steadily from 18 in the late 1970s to just seven today. The last two years have been particularly tough having seen the closure of two refineries, including the Coryton oil refinery in Essex with the loss of hundreds of skilled jobs. At the same time major players in the industry, like Shell, have exited the market sensing the choppy financial conditions ahead. Current problems cited include that refineries in the UK are not optimised for domestic fuel demands because since refineries opened the UK’s fuel demand has changed considerably with petrol usage decreasing at the expense of diesel. The UK’s oil refineries are petrol focused so this has led to a mis-match between supply and demand and the shortfall has needed to be met by foreign imports.
There is also concern at the legislative and regulatory burdens faced by the UK oil refining industry. It has been argued by many in the sector that operating in the UK is significantly more expensive because of the regulations imposed both in the UK and on an EU level. In fact, evidence submitted to the committee estimated that UK refineries will need to invest £5.5 billion of capital to meet the UK and EU legislative measurers in the period 2013-2020.
In response to the issues identified by the committee, MPs have called on the Government to support a package of urgent measures to boost the oil refining industry. Recommendations include reviewing the legislative and regulatory burdens on the industry and exploring ways of funding additional diesel production capacity to take advantage of the increasing use of diesel in the UK. This report comes at a topical time with the Government undertaking a cross-department review into the role of UK refining and it will be interesting to see how the Government responds to the recommendations of the committee and calls from this key sector which is clearly feeling the pressure.