As I write this column the focus of our attention has been on the uncertainty about the future of the Grangemouth oil refinery in Scotland.
Fortunately this has been resolved, as the loss of Grangemouth would have posed significant consequences for fuel supply in Scotland. The agreement should open up a brighter future with the owner Ineos being prepared to invest £300m in the petrochemical plant to finance a terminal to handle shale gas ethane from the USA.
Despite this more encouraging news, the oil refining industry in Europe remains under huge pressure from a combination of factors commercial, legislative and structural that threatens its future. The sector is in a state of transition as it makes the difficult adjustment to re-aligning output to a changing product mix and a lower overall level of demand. This transition is taking place against the background of an exceptionally challenging commercial climate with energy analysts forecasting continuing poor margins for refining in Europe. The situation is made more difficult by the huge cumulative impact of both EU and UK legislation estimated by analysts Purvin & Gertz as likely to cost the industry £11.4bn by 2030.
Of course the climate for refining is not one which has deteriorated suddenly governments both here and in Brussels have been slow to pick up on the warning signs and at least try to address the legislative factors highlighted by Purvin & Gertz. UK refiners are not seeking subsidies or special treatment or indeed the rolling back of environmental or safety legislation, merely a level playing field with competitors.
We need refineries because petroleum-derived products will remain a vital part of the energy mix, for transport fuels and other products used by industry, to 2030 and beyond. We need them too because although imported fuel will form an important part of supply, the UK risks becoming heavily reliant on imported diesel and jet fuel.
This ’wake-up’ call over Grangemouth makes it all the more important that DECC’s policy framework review for the downstream sector, taking into account among other things security of supply and resilience comes up with some positive actions, when it is released in December.