UK oil refining - Energy and Climate Change Contents


5  Annex

Letter to Commissioner Tanjani, Vice-President of the European Commission

June 2013

PLANNED FITNESS CHECK OF THE PETROLEUM REFINING SECTOR

The UK refining sector faces significant challenges, in common with other European refineries, with increased international competition from the Middle East and Asia and, increasingly, the growth of the US Shale Oil and Gas sectors, which can provide structural advantages. Like European counterparts, most of the UK refineries were built in the 1960s and 1970s and so configured to meet high market demand for gasoline. As a consequence of shifting demand, the UK refinery output is out of balance with market demand, and the UK is increasingly reliant on imports of refined product to meet demand. Whilst investments are being made, these are largely aimed at tightening environmental, health and safety standards and product specifications.

In the last three years, two UK refineries have closed (Petroplus Teeside, and Petroplus Coryton) and over the same period all but one of the remaining seven have been either sold or put on the market. There is an on-going risk of further refinery closures in the UK, and a combination of factors can conspire to mean that even those considered to have clear competitive advantages in the market (such as the former Coryton refinery) are also at risk.

It is in this context therefore that the UK strongly welcomes the Commission's decision to convene Member States, Industry and Union representatives through the EU Refining Forum, and proposals for a Fitness Check with the objective of "maintaining an EU presence in domestic refining though one that is able to adapt capacity levels to the economic realities of a mature market". This is also a welcome opportunity to put into practice the recommendations of the Commission's recently adopted Regulatory Fitness and Performance ('REFIT') programme. As REFIT makes clear, fitness checks need "to show how they fit into the overall objective of ensuring smart regulation and eliminating burdens, to involve all relevant levels of government and to facilitate wide stakeholder participation".

I was disappointed to hear, however, that the Commission's proposed approach and timetable for the petroleum refining fitness check means that decisions will be taken on implementing legislation before the fitness checks are completed. As a result, there is a risk that additional burden will be added to the sector without understanding the cumulative impact. I am therefore seeking your assurance that the Fitness Check will fulfil the following:

a)  That these will take into account the cumulative impact of both existing and forthcoming EU legislation which affects the Refining Industry and consider mitigations

b)  That before finalising new legislation such as the Fuel Quality Directive Article 7A and the IED Refining BREF, the Commission will use the Fitness Check to help inform decision making by Member States

c)  That the methodology is clear, concise and publically available and that there are appropriate opportunities for the industry and Member States to comment on the outputs of the Fitness Checks in a meaningful way.

As you may be aware, the UK has recently launched a Call for Evidence to inform a review into the role of UK Refining and Import sectors in the supply of refined products into the UK market. The review will assess the contribution that both these sectors make to the economy, jobs and skills development and environmental protection, and the impact of policy and regulatory framework on competitiveness. Finally, it will identify action deemed as appropriate to incentivise investment and improve competitiveness to improve UK supply resilience.

I intend to use the outputs of this exercise to contribute to the Commission's Fitness Checks. In the interim period, an independent report has recently been commissioned and published by the UK Petroleum Industry Association. This finds that the capital expenditure required over 2015 to 2020 to comply with EU, UK and global legislation is estimated at £5.5billion. This does not include estimates for the Fuel Quality Directive and Energy Efficiency Directive. The full report can be found at (http://www.ukpia.com/files/pdf/therolefutureoftheukrefiningsector.pdf).

I look forward to hearing from you with further detail on the Commission's intended approach.

I am copying this letter to Commissioner Oettinger, Commissioner Potoènik, and Commissioner Kallas.


The Rt Hon Michael Fallon MP


 
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Prepared 26 July 2013