Coryton Oil Refinery

Charles Hendry Excerpts

Wednesday 27th June 2012 Commons Chamber

[The Minister of State, Department of Energy and Climate Change (Charles Hendry)]

I thank my hon. Friend the Member for South Basildon and East Thurrock (Stephen Metcalfe) for securing the debate and for the way in which he has introduced it. Throughout these months, he has been assiduous in raising concerns with me and my fellow Ministers about the situation. He has pursued every opportunity to engage and to advocate the outcome that he and I would have wished, and he could not have been more diligent in representing his constituents. I also thank him for the way in which he has done that. There are some who believe that the best way of doing such things is in a blaze of media attention, but although that might sometimes secure a short-term political benefit it makes complex legal and economic discussions much more complicated. I absolutely welcome his approach, which has been quiet, persistent, focused and diligent, even if it has not delivered the outcome that he and I would have wished.

I am grateful, too, to my right hon. Friends the Members for Rayleigh and Wickford (Mr Francois), for Southend West (Mr Amess), for Rochford and Southend East (James Duddridge), for Basildon and Billericay (Mr Baron), for Castle Point (Rebecca Harris) and for Thurrock (Jackie Doyle-Price), as well as to my hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb), who takes a great interest in such matters. Although his constituency is on the other side of the country, he has a significant refinery of his own in his constituency to look after.

This has been an extremely difficult period and we are all profoundly disappointed, especially for those who have been working so diligently at the refinery, that the administrator has not been able to find somebody who would continue refining at Coryton. The inevitable job losses were something that we all hoped could be avoided, but this has been an extraordinary example of a community pulling together. It is a tribute to the management of the plant, the trade unions and the local community, as led by the local councillors and Members of Parliament. They could not have presented a more seamless and supportive case to the administrator in their work.

I want to reassure my hon. Friend the Member for South Basildon and East Thurrock that the Government are doing everything we can to ensure that the skilled people who have been working at Coryton find jobs and new posts. We are working with the Thurrock council taskforce, local agencies and Jobcentre Plus to ensure that they get the support they need at this difficult time.

We must consider some of the background. Petroplus went into administration in January and since then the administrators have been working tirelessly to find a buyer for the refinery. They put in place an innovative tolling agreement with Morgan Stanley, who agreed to supply crude oil to the refinery so that it could continue operating while a buyer was found. That was a similar arrangement to the one the French Government and Shell put in place at the Petit Couronne refinery in France.

The tolling agreement was extended until the end of May but ended on 28 May. At that point, as no similar arrangement could be negotiated to take it forward, the administrators had to take the difficult decision to start shutting down the refinery. Coryton has now ceased commercial refining and is in the process of being shut down. The first wave of redundancies is happening this week and our thoughts are with those people who are affected. The administrators have offered explicit guarantees that all workers made redundant will receive their statutory redundancy entitlements and we will do all we can to ensure that they are processed as quickly as possible.

Over the past five months, the administrators have worked exceptionally hard to find a buyer. We in Government have done everything we could to support them in this task. We worked with the administrators early on to look at options for the refinery’s future, we convened a number of stakeholder meetings to ensure that everyone involved was aware of what was happening and UK Trade and Investment was involved in looking for potential investors. My hon. Friend raised particular issues about engagement with Fund Energy. I have been reassured today by the administrators and by representatives of Fund Energy that they have met on a continual basis throughout this process. They said that they continued to do so right up until the final decision was made. I believe, from the assurances I have had from the administrators, that they have complied with their statutory duties.

[Mr Frank Doran (Aberdeen North) (Lab)]

Clearly, I share the concerns of all those affected by these matters, but the Minister is well aware that Coryton is not unique. In fact, I think it is a microcosm of the UK refining industry at the moment. There is not a single refinery in the country that is making money, and many are losing large sums. That is bound to get worse when EU emission requirements come into play later. The future of Coryton seems to be as a storage facility probably from a subsea pipeline bringing petrol in from Rotterdam. Are the Minister and the Government worried about what that implies for the security of our supplies in future?

[Charles Hendry]

I will respond specifically to the hon. Gentleman’s point, which goes to the heart of the situation we face.

First, the UK faces extremely tough competition from other refineries in Europe and, increasingly, Asia. It is well known that there is overcapacity in the refinery sector in the UK and right across Europe. Eight European refineries have closed since 2009 and more closures are likely to happen in future. The International Energy Agency has reported that since 2008-09, more than 3 million barrels of oil per day of crude distillation capacity has closed and more is at risk. At the same time, significant refinery expansions are taking place in Asia in particular, outpacing expected demand growth. All this means that, as the hon. Gentleman said, profit margins are low for refineries in the UK.

Secondly, the UK’s refineries produce broadly the right amount of fuel to meet demand in the UK but not the right type. Put simply, we produce more petrol than we consume and we use much more diesel than we produce. Since 2000, demand for petrol in the UK has decreased by 35%—more than a third—while demand for diesel has increased by 34%. These are evidently sustained trends and not a short-term blip. Overall, there has been a 9% decrease in the demand for fuel in the last decade due to economic conditions and better fuel economy from new cars. We have now put in place work to develop a refining strategy. That should have happened long ago, right the way back in the previous Administration when there was a 34% drop in demand for petrol. This was an entirely evident trend and it is a great shame that that work was not started before now so that we could have had a more structured approach.

Thirdly, significant levels of capital investment were needed in the Coryton refinery to maintain refinery operations. These included the cost of the three-yearly turnaround—about £150 million—and any expenditure on adaptation to rebalance output between petrol and diesel products, which would have cost in the order of hundreds of millions of pounds. These evidently posed a massive barrier to potential new owners. In addition, the Coryton site is of exceptional value as an import terminal because of its location and amenities, with one of the biggest jetties anywhere, so it is not surprising that it has a higher sale value as an import terminal, which does not require the extra investment a refinery would need. It is clear that the market is very tough, and these conditions made the sale of Coryton as a refinery challenging.

I want to reassure the House, and particularly my hon. Friend the Member for South Basildon and East Thurrock, that the Government considered very carefully whether financial assistance could be provided. There were extensive discussions between my Department, the Department for Business, Innovation and Skills and the Treasury. Right across Government, all Departments that it was appropriate to involve were involved. Like my hon. Friend, the Government would have wished for a different outcome, but we did not believe it was right to put public money into a refinery.

[Ian Lavery]

Will the Minister give way?

[Charles Hendry]

Forgive me; this is a half-hour debate and there is not time to take further interventions.

As I mentioned, there is existing overcapacity in the refining industry in the UK and Europe, and the declining demand for petrol means that it would not have been sustainable to put public money into the refinery. It would not have been a long-term solution, as simply funding the gap between a bid for an import terminal and a bid for the refinery would not have guaranteed the refinery’s long-term commercial success. It was clear that significant investment would have been needed over time to keep the refinery open. I was reassured by the Government’s work with fuel suppliers that Coryton’s closure would not have an impact on the security of supply of fuel to London and the south-east, because many other supply points and operational refineries could be used.

To respond to the specific question asked by my hon. Friend the Member for South Basildon and East Thurrock, the administrators made a formal request on 15 May for the provision of Government assistance for one option of a number that they were considering. Such negotiations are inevitably controversial, but only one option on the table at the time required such assistance. The consideration of the case for financial assistance involved a range of issues, including the impact on security of supply, on energy resilience and on jobs in the local community. On each of those grounds, we concluded that there was not a sufficiently compelling case to intervene. Given that that was so clear, there was no case for seeking approval from the Commission, because that simply would not have been considered. While we accept that it is extremely sad that the refinery will close, I hope that there is some comfort from the investment for the new facility as an import terminal.

My hon. Friend asked whether there should be a parliamentary inquiry, but that is a matter for the relevant Select Committee. Given the work that we are doing on developing a long-term strategic approach, I would welcome an investigation that would take that approach into account, and we would work closely with the Committee. However, it would be unlikely that such an inquiry would be completed in a time scale that would mean that it would make any difference to the situation at Coryton.

In view of my hon. Friend’s comments, I shall write to PricewaterhouseCoopers in the morning to ask it to respond formally to each and every point that he made, and to seek the assurances that it should give him about the process. We have found it to be professional and thorough, and it is only right that he and his constituents have answers to every question.

We are now moving forward with Thurrock and taking a lead on the taskforce. Through the Department for Business, Innovation and Skills, we will do everything possible to bring new jobs and prosperity to the area. My hon. Friend has fought a diligent battle, and I am profoundly saddened—