1 Introduction
Background
1. Refined oil products are a significant source
of energy in the UK. In 2012, they provided around a third of
the primary energy used.[1]
The UK is extremely reliant on many of these products such as
petrol, diesel and jet fuel - especially in the transport sector.
The International Energy Agency, for example, forecasts that oil
will be a major source of energy to 2030 and beyond, accounting
for over 80% of the EU transport fuel.[2]
Refining also provides critical by-products or feedstocks for
lubricants and for petrochemicals which are the basis for plastics,
paints, adhesives, detergents, resins, solvents, synthetic fibres
and rubber, and which support much of the UK's heavy industries.
Many of these industries are closely integrated with UK refineries.[3]
There are seven refineries in the UK (see figure 1), approximately
40 terminals and a network of pipelines for distribution. Distribution
also occurs by ship, road and rail. UK operating refinery capacity
is ~1.5 million barrels of crude oil per day (the fourth largest
in the EU).[4]
Figure 1: UK refining and product distribution
terminals
Source: UKIPA (indicative summary only - does
not show all locations)
Domestic refining versus importing
2. The majority of oil products are still refined
in the UK. However, domestic production since the middle of the
last decade has decreased while imports have increased
(see figure 2).
Figure 2: Comparison of refinery production, imports
and demand of petroleum products
Source: DECC, Call for Evidence on the role of
the UK refining and fuel import sectors in the supply of refined
oil products into the UK market, 20 May 2013, page 2
The main markets for products from refining in the
UK are:
i. Retail (forecourt service stations): ~28.5
million tonnes per year of petrol and diesel;
ii. Aviation: ~11 million tonnes per year jet
kerosene;
iii. Commercial: ~16.7 million tonnes per year
(commercial vehicles, heating fuels and marine);
iv. Speciality (bitumen, lubricants, LPG, solvents
and petroleum coke etc.): ~5 million tonnes per year; and
v. Petrochemicals: ~2 million tonnes per year.[5]
An industry in decline
3. On 10 May 2013 IHS Pervis and Gurtz published
a report that had been commissioned by the UK Petroleum Industry
Association (UKPIA): The role and future of the UK refining sector
in the supply of petroleum products and its value to the UK economy.[6]
The report concluded that the UK refining industry makes a substantial
contribution to the UK economy and plays a vital role in maintaining
the UK's fuel supplies. The industry, for example, supports a
considerable number of jobs. The Minister of State for Energy,
Rt Hon Michael Fallon, said there would be an impact if the industry
was to close:
If the whole industry was to close, it would
certainly have an impact. It is an important industry, it is a
relatively large industry. According to the UKPIA, refineries
support around 26,000 jobs directly and indirectly so if we lost
all our refineries, yes, it would certainly have an impact.[7]
4. In written evidence to our inquiry DECC stated
that, 'the Government is committed to ensuring that the UK has
a downstream oil supply chain that provides security of supply,
is resilient to short term disruptions, and supports jobs and
economic development.'[8]
But the industry is in decline. UK oil refining capacity has reduced
from 18 refineries in the late 1970s to seven today. Two refineries
have closed between 2009 and 2012, the loss of further UK refining
capability may pose a risk to security of energy supply as a result
of increasing dependence on imports. Any further refinery closures
could also have knock-on effects on ancillary industries and the
supply of other products within the UK and overseas. Unite the
Union argued that environmental policies could, potentially cost
thousands of jobs'.[9]
DECC's review and our inquiry
5. On 20 May 2013, as part of a cross-Government
review, DECC published a call for evidence on the role of the
UK refining and fuel import sectors in the supply of refined oil
products into the UK market.[10]
We decided to hold a short inquiry to gather evidence and make
recommendations relevant to DECC's review. In particular we examined
the pressures on the industry and the implications for security
of supply. DECC said that, 'it would be very helpful if the Committee
published evidence early and shared final (or at least interim)
findings with DECC in time for these to be factored into the review,
which will publish conclusions towards the end of this year.'[11]
6. We launched our inquiry on 18 April 2013 and received
15 submissions of evidence. We also held two evidence sessions.
A full list of witnesses can be found at the end of this report.
We are very grateful to all those who have contributed towards
this inquiry. In this report we focus on those areas which we
believe are most important to the future sustainability of the
industry and therefore most pertinent to DECC's call for evidence.
1 DECC, Call for evidence on the role of the UK refining
and fuel import sectors in the supply of refined oil products
into the UK market, 20 May 2013, page 2 (https://www.gov.uk/government/consultations/call-for-evidence-role-of-uk-refining-and-fuel-import-sectors) Back
2
Ev 46 Back
3
UK Petroleum Industries Association, Refining and UK refineries,
www.ukpia.com Back
4
Ev 64 Back
5
DECC, Digest of UK Energy Statistics, 2012 Back
6
IHS Purvin & Gertz, The role and future of the UK refining
sector in the supply of petroleum products and its value to the
UK economy, 10 May 2013 (http://www.ukpia.com/files/pdf/therolefutureoftheukrefiningsector.pdf) Back
7
Q 221 Back
8
Ev 39 Back
9
Ev 88 Back
10
DECC, Call for evidence on the role of the UK refining and fuel
import sectors in the supply of refined oil products into the
UK market, 20 May 2013, page 2 (https://www.gov.uk/government/consultations/call-for-evidence-role-of-uk-refining-and-fuel-import-sectors) Back
11
Ev 39 Back
| 
