When Murphy Oil recently announced plans to sell off its Milford Haven refinery in Wales along with the entire Murco

network in the UK it caused more than a few ripples of concern in the industry, as yet another oil company was opting out of refining to concentrate on its upstream business.


According to UKPIA, the latest announcement means four out of the eight oil refineries in the UK are now up for sale.


Brian Madderson, chairman of RMI Petrol, said the refining landscape looks set to go through a major change, which could have significant consequences for retailers. "This is symptomatic of what the major oil companies are trying to do," said Madderson. "They’re trying to build up an investment plot or put funds into upstream operations.


"I think some of the major oil brands will remain in the UK even if they sell off their refineries. The oil company brand could well remain although it could be franchised or sold to a third party. Where this leaves the independent, however, is a good question. And we haven’t really got an answer to that going forward. It’s certainly a concern to see quite so much potential disruption."


The news about the Milford Haven refinery was part of a bigger announcement by Murphy Oil which included putting its refineries at Superior, Wisconsin and Meraux, Louisiana in the US up for sale.


At the time, Murphy Oil president and chief executive officer, David Wood, commented: "Murphy’s upstream and US retail businesses have demonstrated marked growth and financial performance over the last several years. By exiting the refining business, we can fully focus our attention and resources on continuing that growth, developing a premier international upstream business and a top quartile US retail franchise."


The US company joined some of the biggest names in the business looking for a buyer for their refining plants in this country Total with its Lindsey Oil Refinery in North Lincolnshire; Chevron’s Pembroke refinery in west Wales the oil giant’s only refinery in Europe; and the Shell Stanlow operation at Ellesmere Port. Shell was last month reported to be in non-exclusive talks with Indian company Essar. In addition, last year Petroplus announced that it had decided to convert its refinery in Teesside to a marketing and storage facility due to the unfavourable market environment and capital expenditures required to maintain refinery operations.


This has left four refineries that are not currently looking for a buyer: the INEOS facility in Grangemouth, Scotland; the Coryton refinery in Essex, owned by Swiss-based Petroplus Holdings; Exxonmobil’s Esso refinery in Fawley, near Southampton; and the ConocoPhillips Humber refinery in North Lincolnshire.


And it’s a similar story when you look at the rest of Europe. According to a recent Bloomberg report, 12 oil refineries in Europe are currently up for sale or conversion or have been ’idled’.


Among the companies involved in the mass exodus are ConocoPhillips, which recently put its Wilhelmshaven refinery in Germany up for sale; Shell, which has it Hamburg site in Germany on the market; and Total, which has revealed plans to turn its Dunkirk refinery in France into a terminal.


According to Bloomberg, the 12 refineries have a total capacity of 1.85 million barrels of oil a day.


UKPIA’s Nick Vandervell said: "Essentially this movement is because it’s such a tough environment in the UK and Europe for refining. There’s big pressure from the weight of legislation in Europe and a lot of refineries in Europe face bigger bills than refineries outside Europe. And all this is combined with a weak commercial environment." Vandervell said the legislation included the Emissions Trading Scheme and the Renewable Energy Directive.


According to UKPIA, the refineries are very important for the local economies where they operate as well as for ensuring the UK’s fuel supply. Vandervell added: "None of the refineries that are up for sale have actually attracted a buyer yet. We’re trying to put the case for a robust and viable refining situation in the UK for the future."


Madderson said the situation could provide a breakthrough for smaller oil company competitors, adding that the UK might see a change to the way fuel is supplied to retailers. "I think it makes companies like Harvest Energy much more interesting," he said. "Companies like Harvest will see their brand become more prominent. The major oil company brands could disappear into being company-owned only, so there will be fewer of them.


"If independents were unable to access the premium brand players Shell, BP and Esso at an affordable price, then they would have to look at the alternatives."When it comes to alternatives, Madderson suggested Jet or Gulf as well as Harvest Energy, meaning the UK would move towards a system of distributors rather than companies supplying fuel from their own refineries.


Shell recently announced its withdrawal from 35% of its fuel retail operations worldwide. Madderson said: "Shell is selling its Stanlow refinery in the UK. Say it decided not to stay in UK retail, then that would leave two possibilities. It could sell the company-owned sites with a licence to the Shell brand for a certain period of time this has been done in countries such as Greece and France by Shell and BP. If it doesn’t do that then it’s not going to be trading fuels. Therefore dealers wouldn’t have access to the Shell brand there would be no source for them. Or Shell could just sell off the refinery and still continue its branded supply to the dealer market, buying fuel from the new owner of the refinery."


On Murco selling off its retail network, Madderson said the company-owned sites could go as one big package while the dealers were likely to go to brands such as Jet, Gulf or Harvest Energy.


Madderson added a note of caution on the way the market was going, saying that some dealers could end up out of pocket. "Generally dealers have found strength in premium brands in their competition against the supermarkets," he said. "For some people, buying petrol is quite a significant purchase decision and therefore they fear going to the supermarket, and buy from Shell, BP or Esso because they feel good about it. There’s quite a lot of anecdotal evidence from dealers that when they move from a first division to a second division brand, sales of fuel drop by 10-20%."




UK refineries


Murphy OilMilford Haven, WalesFor sale: Announced July 2010

TotalLindsey, North LinconshireFor sale: Announced April 2010

ChevronPembroke, WalesFor sale: Announced March 2010

ShellStanlow, CheshireFor sale: Announced August 2009

INEOSGrangemouth, Scotland

Petroplus HoldingsCoryton Refinery, Essex

ExxonmobilEsso refinery, Fawley, near Southampton

ConocoPhillipsHumber Refinery, North Lincolnshire