The UK’s diesel refining industry is in such a crisis that we are now “facing a perfect storm” according to the UKPIA (UK Petroleum Industry Association).
The industry is warning that diesel car drivers could face much higher prices or even empty pumps on garage forecourts.
But is the shortage in British diesel refining capacity that bad? After all, the world has plenty of diesel at the moment and we are able to import as much diesel as we need. Is this just a problem within the oil industry that will soon go away?
Diesel Car set out to investigate the current state of diesel supply in the UK and what it means to the ordinary derv-powered driver.
When the giant Coryton oil refinery in Essex closed last year, few diesel drivers paid much attention. It was sad that 500 workers lost their jobs, but we assumed the loss of the Petroplus site was nothing to do with the rest of us. But Coryton’s closure was a stark warning about the state of the British and European diesel supply chain that could affect us all.
At the time, Linda McCulloch, national officer of the Unite union, said it was “devastating news”. She said: “This will have huge economic consequences, not just in the region, but on the UK economy and will undermine the refining industry.” Then in October came the warnings from the UK Petrol Industry Association. The combination of conditions was “creating a ‘perfect storm’ that threatens the future of the UK oil refining industry”. The Director General of UKPIA, Chris Hunt, said: “The loss of further UK refining capability poses a serious risk to energy security of supply and resilience.”
And in December, the leaders of the Unite union were calling for urgent government action to secure the country’s refining industry. The remaining seven refineries in the UK are all now very vulnerable they claimed. Finally the AA joined the chorus, saying that “the UK’s dependence on imported diesel is a matter of grave concern.”
For the industry bosses, unions and motoring organisations to agree on anything was virtually unprecedented. Their combined message is complex but is serious enough to be worth understanding.
Refineries are vital because they convert crude oil from the ground into diesel and petrol that can be used in cars. Soaring demand for diesel has outstripped our capacity to refine it. At the same time it has become almost unprofitable to refine oil in the UK because of increasing costs caused by ‘green’ laws and taxes. Oil companies are switching refining operations to cheaper countries.
Indian refineries are springing up like daffodils, at an average size of four times our biggest refinery. Some European governments are supporting their refineries as a matter of state security, Britain’s government is not. With little investment for decades, the UK’s seven ageing refineries cannot keep up with the increasing demand for diesel. We have to import around half the diesel we use, much of it from Russia. This alone leads to higher prices. But it also means we suffer price rises and shortages if international events beyond our control interrupt diesel supply.
“Relying on imports is a risk. We can’t forecast prices any more now,” says Nick Vandervell at UKPIA. “We constantly risk a ‘disruptional hiccup’.” The AA’s Luke Bosdet says: “The Russians have shown themselves quite capable of putting their domestic needs ahead of European customers, which caused problems last year and caused the pump price of diesel to rise to within 1p of the then record.”
And it’s likely to get worse… as demand for diesel grows, so does the differential in price with petrol. At the time of writing, with petrol averaging 131.94p and diesel 139.93p, we are already at a diesel/petrol difference of 7.99p. EU officials are currently considering raising duties on diesel to help ease demand.
The UK’s refineries were designed to deal with a limited demand for diesel. To upgrade a UK refinery to produce more diesel would cost around £750 million. But rather than make these huge investments based on the tiniest profit margins, oil companies are more likely to build new modern plants in cheaper countries that are less hampered by environmental restrictions and labour costs.
Unless the government acts to safeguard our existing refineries and relax laws to make them more profitable, the UK’s oil refining days are numbered.
And for the poor hard-pressed driver at the end of the chain, this is all likely to mean higher and less predictable diesel prices.
There are now only seven major oil refineries in the UK, all on the coast for access by tankers delivering crude oil. They all date back to a time before the motoring diesel revolution. They are:
- Essar Stanlow near Ellesmere Port dates back to 1924
- ExxonMobil Fawley near Southampton, the UK’s largest refinery, was built in 1921
- Murco Milford Haven operated by Murco, is the UK’s newest from 1973
- Petroineos Grangemouth on the Firth of Forth commenced operations in 1924
- Phillips 66 Humber in North Lincolnshire, came into operation in 1969
- Total Lindsey also on the Humber Estuary in North Lincolnshire dates back to 1968
- Valero Pembroke in South Wales came on stream in 1964