UK: Oil Refinery Capacity

Baroness Smith of Basildon Excerpts

Thursday 21st June 2012 Lords Chamber

Asked by

[Baroness Smith of Basildon]

To ask Her Majesty’s Government what assessment they have made of UK oil refinery capacity in the light of the imminent closure of the Coryton oil refinery in Essex.

[Baroness Stowell of Beeston]

My Lords, the Government have assessed the impact on the security of fuel supply and energy resilience in the event that Coryton closes. London and the south-east are served by a number of supply points, and suppliers have plans in place to maintain their operations. There is a healthy global market with supplier diversity, and the UK has a further seven operational refineries. Consequently, there are no significant risks to the security of supply or energy resilience.

[Baroness Smith of Basildon]

My Lords, I really worry that the Government are being dangerously complacent on this issue. The Coryton refinery supplies 20% of the fuel to London and the south-east, and its closure will cause a £15 million hole in the local economy and the loss of hundreds of jobs. In a similar position, the French Government invested to protect its national refining capacity, but our Government refused to help and cited European state-aid rules and adequate capacity in Europe. Can the Minister explain why the French Government can support their industry but we cannot? Why are the Government relying on European and world exports at the expense of British industry and British fuel security?

[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.