UK must maintain health of oil refining industry

26 July 2013

The oil refining industry is an important component of the UK energy mix, particularly in the transport sector, and sustains an estimated 26,000 indirect and direct jobs.

At a time of increased global demand, UK domestic production is in decline, leading to an increased reliance on imports. Regulatory and legislative burdens have added to industry costs, and UK industry has not managed to keep pace with the global shifts in supply and demand.

Sir Robert Smith, acting Chair of the Energy and Climate Change Committee, commented: 

"The aim of our inquiry was to gather evidence and make recommendations ahead of DECC’s review of UK oil refining which is expected to be published toward the end of this year. In particular, we examined the pressures on industry and the implications for security of supply. 

Since 2009, two refineries have closed and the UK currently has seven refineries in total. Domestic production cannot keep pace with rising demand, especially for diesel products. We heard that the UK is reliant on imports for 56% of its jet kerosene. Such reliance on imports could have significant implications for energy security and resilience. It is also worrying for the estimated 26,000 jobs connected to the oil refining industry in the UK."

He continued

"We heard that UK industry was struggling to compete under the burden of UK and EU regulations and legislative requirements. Some of the evidence we received painted a picture of an industry in decline, struggling with a burden of regulation which was felt to disadvantage UK refineries against their European and global competitors. Some suggested that capital expenditure and costs relating to legislation threatened to eliminate profit margins. 

It is clear that a level playing field must be established for all operators if UK oil refining industry is to continue growing. Witnesses highlighted that the transportation duty regime could disadvantage UK refiners. Such disparities should be remedied wherever possible. The proposed EU "fitness checks" should help determine the suitability of current regulations and introduce mitigation measures where necessary."

Sir Robert Smith added:

"The UK needs to maintain the health of its refining industry. A mix of domestically refined products and imports is an important ingredient of energy security and the UK refining industry is a welcome provider of jobs and tax revenue for the economy. We agree with witnesses who called for Government to set a long term framework for the industry to help secure its future. 

A clear Government message and policy can provide oil companies with the confidence and incentive to continue operating refineries in the UK, and to continue investing to maintain a viable UK refining industry in the future. While the regulation of the industry for environmental and health and safety reasons is clearly essential, Government has a responsibility to ensure that it is also rational, coordinated, and designed to minimise the cost implications for industry."

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