Well, the Olympic Games have come and gone since the last column I wrote, and most commentators have judged them to have been a huge success. That was certainly my personal experience and it is gratifying to know that we can do things well in this country. Even the weather behaved itself for most of the time!
Continuing the weather analogy, the UK oil refining sector faces its own ’Perfect Storm’ through a combination of legislative impacts and commercial conditions that threatens its future, as highlighted in a recent short publication of the same title by UKPIA.
The refining sector works on a very narrow differential between cost of crude oil (£20-30m a day for a larger refinery) and the value of products produced typically even in favourable conditions it is equivalent to only 1.65ppl. After energy and other operating costs, this reduces to around 0.6ppl. UKPIA calculates that new legislative impacts from both the EU and the UK could add a further 0.35ppl of costs, leaving close to zero return on capital employed, which is unsustainable. Furthermore, in this environment and with the investment demands associated with new legislation, it makes it impossible to justify any sort of major investment to address imbalances in refinery output.
Restructuring of refining within Europe is inevitable but UKPIA’s objective is to try and make sure that the policy environment in the UK does not undermine the competitiveness of our remaining refineries. We are not asking for measures to protect UK oil refining from competition but seek a level playing field with competitors within the EU and elsewhere. UKPIA will continue its vigorous lobbying of the government, and politicians at Westminster, Cardiff, Edinburgh and Brussels to highlight the areas of concern.
We welcome and support the study being undertaken by DECC to examine the influences upon the competitiveness of UK refining. But it is vital that this analysis to help inform a future policy framework results in action to address many of the issues identified in the ’Perfect Storm’.
I am confident that given the right policy framework it can help to make sure we have a healthy UK refining industry in the future, well positioned to meet the country’s energy needs.