An early Christmas present from UKPIA was the publication of our study ’Fuelling the UK’s future the role of our refining and downstream oil industry’. Amid the gloom, there are some positive messages about the future but trying to make an investment case for major investment in UK refining, in the current weak commercial climate, is difficult. The medium-term impact upon energy security and supply resilience is potentially serious, as evidenced by the rapid and well publicised crisis that has engulfed Europe’s leading independent refiner since Christmas.

The UKPIA study highlighted the fact that the International Energy Agency’s ’New Policies Scenario’ in the World Economic Outlook 2010 envisages that in 2035, even with a range of measures to improve efficiency and reduce carbon emissions, oil will still be meeting over 80% of the EU’s transport fuel requirements.

Energy demand globally is growing and will continue to do so, especially in non-OECD countries, but UK energy demand is likely to show little growth or even decline in some sectors. Meeting rapidly growing global energy demand poses considerable challenges requiring significant investment. A whole range of fuels and technologies will be required as part of the future energy mix but moving to alternatives takes time and needs a consistent, clear policy framework based on sound science and cost-effectiveness.

Since technology alone cannot deliver all the carbon savings required under legislative and other frameworks, major changes in consumer behaviour and lifestyle will be required to meet emissions’ reductions. Government should strive for open debate of the costs to industry and consumers associated with meeting these targets, alongside the expected benefits.

The UK oil refining industry is a valuable asset making a significant contribution to the UK’s economy. But the industry is facing major challenges. Refining output needs to adapt to changing demand patterns and legislation, but uncertainties about the impact combined with a tough commercial climate make the investment case difficult. The government has to consider the UK’s requirements for a robust and resilient energy sector and formulate policy that will help deliver this objective.