Conclusions and Recommendations
Pressures on the UK refining industry
1. The
global market is changing, with a rising demand for refined oil
products, and an increasing supply from the Middle East and Asia.
There is still a place for the UK industry, but it will need to
be responsive to the implications of shifts in global, as well
as domestic, supply and demand. DECC's review should consider
the longer term trends in fuel demand in domestic and export markets.
(Paragraph 10)
2. There is a mismatch
between UK refinery supply of petroleum products and demand. The
shortfall has so far been made up by the import industry. The
trend of rising demand for diesel is likely to continue in the
short to medium term. If UK refiners are to meet that demand they
will have to invest in additional diesel production capability.
It would not be necessary for every refinery to have a hydrocracker.
DECC's review should calculate what extra capacity is required
and explore how the necessary investment could be financed.
(Paragraph 16)
3. DECC's review
and identification of necessary actions should address how Government
can facilitate optimisation of the industry and its infrastructure
to better suit UK demand and ensure a secure mix of domestic and
imported supply. DECC should also take into account the potential
implications of any rebalancing action for ancillary industries.
(Paragraph 17)
4. DECC's review
must address how the legislative burdens on the industry can be
rationalised, and should quantify the extent to which the UK refining
industry faces higher legislative and regulatory burdens than
its European and global competitors. DECC should also examine
whether the burden is evenly spread across the domestic refining
and importing parts of the industry. (Paragraph
26)
5. We support the
Minister's appeal to the Commission to ensure that the scope of
the EU Fitness Checks includes the cumulative impact of both existing
and forthcoming EU legislation. The UK Government should press
for the swiftest possible timetable for completion of the checks.
(Paragraph 27)
6. There is considerable
investment in the refining industry, although much of it is primarily
directed at compliance with legislative and regulatory requirements.
DECC should identify appropriate actions to incentivise investment.
As part of this it should look at access to finance to ensure
that the industry can also invest so that it can supply the optimal
balance of products to meet market demands. (Paragraph 31)
7. If UK refineries
are paying Duty for moving oil products around the UK, and Duty
is suspended for importers bring products into UK, there is a
clear disadvantage for UK refineries. We recommend that DECC
examine the case for rebalancing duties between refiners and importers.
The matter appears to be straightforward. Developing a wider package
of reforms through its strategy should not delay the Department
in acting on this issue straight away. (Paragraph 33)
Security of supply
8. It
would be helpful if DECC could provide further explanation of
the figures in Table 1, including their source. (Paragraph 34)
9. DECC should take
an approach to this sector that reflects the integrated nature
of domestic refiners and importers, as well associated ancillary
industries. It might not be helpful to put an exact figure on
the mix of domestic and imported products that is required to
support energy security and resilience. However, giving some indication
of the Government's long term intentions may give industry the
confidence to make the infrastructure investments necessary to
deliver a product mix to meet demand. (Paragraph 38)
10. The UK needs to maintain the health of
its refining industry. A mix of domestically refined products
and imports is an important ingredient of energy security and
the UK refining industry is a welcome provider of jobs and tax
revenue for the economy. We agree with witnesses who called for
Government to set a long term framework for the industry to help
secure its future.[87]
A clear Government message and policy can provide oil companies
with the confidence and incentive to continue operating refineries
in the UK, and to continue investing to maintain a viable UK refining
industry in the future. Over time the fuel mix supplied by UK
refineries adapt to respond to demand. This will require investment
in infrastructure, on top of the significant investment the industry
will be required to make to meet legislative and regulatory burdens.
(Paragraph 39)
11. As part of its review DECC should:
Investigate whether the industry has
sufficient access to finance to make strategic investments beyond
legislative compliance requirements;
Ensure regulations and taxes are not
more onerous in the UK than elsewhere;
Address elements of taxation and economic
policy that impact UK refiners adversely compared with importers;
and
Continue urgent requests to the European
Commission in regard to the scope and timing of EU Fitness Checks.(Paragraph
40)
12. The scale of legislative and regulatory
burdens on the industry may undermine long term sustainability.
In some cases investment motivated by compliance with such burdens
goes beyond doing the bare minimum and this may be beneficial.
But while the regulation of the industry for environmental and
health and safety reasons is clearly essential, Government has
a responsibility to ensure that it is also rational, coordinated,
and designed to minimise the cost implications for industry.(Paragraph
41)
13. DECC's strategic objective should be to
level the playing field between domestic refiners and importers,
approaching these sectors as an integrated industry of two parts.
It must also carefully consider the consequential impact of any
structural changes on ancillary industries, which make a valuable
contribution to the economy. We hope that this short report, and
the evidence we are publishing alongside it, will be useful material
for DECC in its review. We look forward to seeing the results
of this review before the end of the year.(Paragraph 42)
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