Coryton Oil Refinery

Debate between Charles Hendry and Frank Doran

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.

Offshore Energy Industry

Debate between Charles Hendry and Frank Doran

Tuesday 13th July 2010 Westminster Hall

[Charles Hendry]

My understanding is that that is the case that has been put to the Treasury by the Scottish Executive, and that they want access to more of that funding to facilitate such investment. Clearly, these are details that have to be sorted out, but I am very encouraged indeed that the Treasury is keen to approach that with an open mind.

[Mr Doran]

My understanding is that the money is not passed to the Scottish Executive because they have consistently failed to put forward projects on which to spend the money.

[Charles Hendry]

As I say, there is much devil in the detail in these matters and the Treasury is taking forward the discussions. I am, however, encouraged by the approach taken in general.

About 45% of all the UK’s oil and gas-related jobs are in Scotland, and many, as we have heard, are in Aberdeen. I know from my own experience how committed that work force is. I was there most recently just a few weeks ago, and went through the helicopter training exercise. They decided that they should not yet dunk me in the water, that perhaps I was too new a Minister. I am not sure that any Minister has gone through the dunking process, and I have made a rather rash commitment to be the first. It is incredibly important that as policy makers we understand how the industry addresses these issues, and, as far as we are concerned, there should be no short cuts on safety. The visit brought home the great measures that have been put in place since the helicopter tragedies, to ensure that we have the toughest safety standards in the helicopter transportation that operates there. I went out to the Beryl platform, which I was particularly keen to see because it is an old platform still operated by its original operators, but drilling again for new reserves. It is a very good example of how, after some decades of operation, there is still much life and activity.

We travelled nearly 200 miles from Aberdeen airport to the rig, passing over two structures that had human life on them, and the very often incredible isolation and the bravery of the people who work there also came home to me very clearly. I travelled out there on a nice June day, when there was a little ripple in the water, and I cannot imagine what it would be like in a cold February gale. The landing spot for the helicopter looked small enough in those conditions. The hon. Member for Aberdeen North talked about making several attempts to land when he went out there some time ago. It really brings home to us the courage, the expertise and the global skill set that we have in the North sea, something to which we should always pay tribute.

I am certainly always willing to talk to the trade unions on these matters. Safety is not an issue for industry versus workers. There is a great recognition that for the industry, it is absolutely critical for everybody, every business and every organisation working with it. I will always be keen to find reasons to talk to the people who represent that work force.

Our approach to North sea regulation is among the most robust in the world, and our record there is strong, but the tragedy in the gulf of Mexico has to give us pause for thought. As we move into deeper waters west of Scotland, there is every reason to increase our vigilance. We have announced that we will double the number of annual inspections and increase by one half the number of inspectors. There is the inevitable time span before they are recruited, but the process is already under way.

Right hon. and hon. Members should be in no doubt that, if there is evidence from the reviews of the gulf of Mexico tragedy that requires us again to improve security and health and safety measures, we will do so. We are determined that the safety regime in the North sea will be the toughest operating anywhere. I am pleased that we will do that in partnership with the industry. The Oil Spill Prevention and Response Advisory Group is an industry-led initiative that does critical work in looking at these issues, just as it looked at the measures necessary to improve safety after the tragedies involving helicopters. We are very much in debt to it for its leadership in ensuring that we introduce measures in this area. Again, I welcome the role that the trade unions play in ensuring that workers’ voices are heard and represented.

There has been discussion about other ways in which the North sea can be a global centre for international excellence in energy infrastructure. Foremost among those will be offshore wind. We recognise that the United Kingdom is now a global leader in offshore wind, but much needs to be done if we are to meet the targets that have been set. The aspirations are high, and a great deal more has to happen if we are to get the right investment and infrastructure in place to achieve them. Some £15 billion of new investment is required in transmission assets to connect offshore wind farms to the onshore grid.

I am determined that we roll out the programme in a more structured way. Again, the Government want an approach that focuses on the problems, so we will look at where there are barriers to investment. We see working constructively and jointly with the industry as the best way to get around those issues.

My right hon. Friend spoke about the need for more ships, which are critical to this work. With the number of ships available in the world at present, we simply cannot put in place the number of turbines necessary to meet the aspirations. Grid infrastructure and connectivity will be fundamental to that.

The hon. Member for Islington South and Finsbury asked why the announcement has been delayed. There was every opportunity for the previous Government to make an announcement. Not only was there a little letter in a drawer which said that there was no money left, but there was a big pile of paper labelled, “Too difficult to think about.” There is a range of complexities, and different views from different sectors of the industry. We have been actively looking at the full range of grid and transmission issues with a view to announcing a decision in the near future. We absolutely understand that these are critical issues for the industry, and we are determined to give early clarity.