UK: Oil Refinery Capacity

Lord Tomlinson Excerpts

Thursday 21st June 2012 Lords Chamber

[Baroness Stowell of Beeston]

My Lords, no one wants to see any business fail and in such circumstances our first thoughts must be with the workers—the people whose jobs are at risk, even though they have done their best to make Coryton efficient and competitive. Indeed, it is very disappointing that the administrators have not found a buyer for the refinery as a going concern. It is right for me to offer noble Lords some context to explain why that is the case.

Potential bidders are faced with high up-front investments to make the refinery viable for the long term. UK refineries are facing tough competition from others in Europe and Asia. The profit margins are low and there is overcapacity in the sector. Eight European refineries have closed in the past three years, and more are likely to do so. Also, the European refinery industry has become out of balance with changing domestic demands. Noble Lords might like to know that since 2000, petrol demand has fallen by 35% and demand for diesel has risen by 34%. We looked long and hard at whether state aid should be provided for Coryton but came to the conclusion that it would not be sustainable because of the existing overcapacity in the refining industry and declining demand for petrol. As to the long-term future, I would add that the department is working with the UK Petroleum Industry Association on a sector-wide UK refining study and intends in the autumn to set out a strategic policy framework for the UK refining sector.

[Lord Tomlinson]

Is the Minister aware that it would be folly indeed to judge our refining capacity needs on the basis of current consumption, when we are in a double-dip recession? Surely, we all expect the economy to improve and demand to increase? I was not quite sure from her reply whether she referred properly to European state aid. Can she tell us clearly whether the Government have rejected the idea of applying for it? If not, have they applied? If they did apply, what was the effect?

[Baroness Stowell of Beeston]

My Lords, on the noble Lord’s first point, I should repeat what I have just said. Over the past 10 years, the consumption of petrol has gone down by 35%, so this is not a recent phenomenon at all. More specifically on state aid, the department looked very carefully at whether state aid should be provided for Coryton but we have come to the conclusion that the existing overcapacity in the refining industry and the declining demand for petrol, as I have just made clear, mean that state aid would not be sustainable, irrespective of whether it is allowable under state-aid law.