British fuel imports spike as refineries close
Britain’s net imports of petroleum products more than tripled last year after a new wave of refinery closures and capacity cuts left the country unable to meet its demand.
The cuts have been driven by rising overseas competition that put refining margins under heavy pressure. They have left Britain increasingly dependent on fuel imports, raising concerns the country will be vulnerable to supply shocks, price spikes and bottlenecks at strained import terminals.
British net imports of petroleum products amounted to more than 7.5 million tonnes in 2014 - equivalent to the annual output of a mid-size refinery, a Reuters analysis of figures from the Department of Energy and Climate Change (DECC) showed. That was up from about 2 million tonnes in 2013 - the first time Britain had been a net importer since 1984.
But demand for petroleum products increased by less than 1 percent between 2013 and 2014.
Latest figures from the UKPIA refining trade group showed Britain had a net deficit of 55 percent on jet fuel and nearly 50 percent on diesel - above the “high-risk” energy security threshold of 45 percent designated by the International Energy Agency.
“We do have serious concerns about our road fuels energy resilience,” Brian Madderson, chairman of the Petrol Retailers Association, said.
Filling stations are working with minimum forecourt stocks, he said. “If there is absolutely any kind of supply disruption then we are in a worse place today than we ever have been.”
Britain, along with much of the rest of Europe, has steadily reduced its refining capacity over the past decade.
And in the past year, Murphy Oil has announced the permanent closure of its Milford Haven refinery in Wales, Essar has mothballed a crude distillation unit at its Stanlow refinery in the northwest of England, and Total has revealed plans to cut the capacity at its Lindsey refinery in half by the end of 2016.
DISRUPTIONS
Globally, the amount of diesel and jet fuel produced has grown substantially, with Russia and the Middle East becoming increasingly larger exporters of products. But some in Britain worry about the consequences of dependence.
Andrew Gardner, commercial manager of the PetroIneos Grangemouth refinery in Scotland, told a parliamentary hearing in 2013 that relying on imports creates “resilience problems” that risk “a third-party nation at some point potentially dictating what price they are going to give the UK fuel at”.
Gardner told Reuters, via a spokesman, that his statement stands. “As indicated in 2013, as UK refinery capacity declines and imports slowly get harder to source, then the risk of UK supply disruptions will increase,” Gardner said.
While some consultants say Britain can be comfortably supplied by boosting imports from Russia, mainland Europe, the United States and the Middle East, others are concerned that import terminals will struggle to absorb these extra volumes.
“There’s certainly a perceived need to increase storage capacity and terminal capacity and there’s a general sense that the overall jet fuel delivery network is in need of investment,” said Robert Turner, a director at PWC.
Few major import hubs have been added despite the loss of nearly half a million barrels per day in domestic refining over the last six years, with fuel blender Greenergy’s North Tees import terminal refinery a notable exception.
Attempts to add storage close to the biggest demand areas has proved difficult.
‘AT THE LIMIT’
Speaking at a conference at the end of January, Greenergy Chief Executive Andrew Owens said if more refineries closed, there could be immediate problems.
“Existing terminals may not cope with the volume replacement,” he said. “Existing terminals are at the limit.”
Only the closure of refineries feeding high-demand areas would create this problem, he added.
Greenergy’s own attempts, in conjunction with Shell and storage firm Vopak, to convert the closed Coryton refinery outside London into a storage and import hub in the demand-heavy southeast has stalled as costs have spiralled.
“The biggest challenge is the value of the land,” Owens said. The waterfront areas near demand hubs have some of the most expensive real estate in the world, he added.
Madderson also noted that tighter health and safety rules following the 2005 Buncefield explosion meant that oil storage across the UK has become more expensive. “There are no refineries which are easily servicing the Thames area, which is the UK’s biggest market,” he said.
In a 2013 study for UKPIA, consultants Purvin & Gertz said that London, the southeast and the southwest of England are neither “robust nor resilient” in terms of fuel supply, with a gasoline import dependency of 60 percent and a jet fuel import dependency of 91 percent.
“The import infrastructure is running at capacity, and could not cope with additional demand,” the report said.
Follow us on social media: