| LONDON, April 9
LONDON, April 9 Britain said on Wednesday there
was scope for more UK refining capacity to close without
undermining energy security but set up a new task force to help
the struggling sector fend off overseas competition.
The government's long-awaited review of Britain's refining
and fuel imports sector comes a week after Murphy Oil
said it could be forced to close its loss-making Milford Haven
plant in Wales after talks with a potential buyer collapsed.
In a 44-page report, the Department of Energy and Climate
Change said environmental regulation along with the U.S. shale
boom and the rise of new refiners in Asia made it harder for
Britain's seven refineries to compete.
"Looking to the future, given current overcapacity in
product supply there is scope for further rationalisation in the
UK without impacting on supply security," the review said.
"Government recognises ... the benefits of ensuring that
refining and imports business sectors are able to operate
successfully in the UK, whilst also recognising that ultimately
market forces will decide what supply configuration prevails..."
It announced the creation of a new joint government and
industry Midstream Oil Task Force to look at ways of easing the
regulatory burden and market distortions to help refiners meet
global challenges that have seen their profits dwindle.
European refiners have struggled with stagnant demand and
increased overseas competition which has crushed margins and
seen several plants closed or idled in recent years.
Wednesday's review into the sector was held after the
Coryton plant in the east of England closed in 2012 following
the collapse of its owner Petroplus.
That followed the shuttering of the Teesside refinery in
2009, while last year, Grangemouth refinery in Scotland was
brought to the brink of closure during a bitter industrial
dispute between workers and its owner PetroIneos.
Another 2 million barrels per day of capacity, more than 10
percent of Europe's total, is expected to shut over the next
five years, analysts at Vienna-based JBC Energy have said.
The review said some of that capacity could be British.
"Within the EU itself the UK refineries face particular
challenges," it said. "Some indications to government from
industry are that UK refiners can face higher operating costs
than equivalent refineries elsewhere in the EU, which has the
potential to impact on competitiveness."
A MIX OF REFINING AND IMPORTS
The challenges facing British refining are structural.
Older refineries were originally geared to meet gasoline
demand. As motorists have shifted to more efficient diesel in
recent decades, the sector has been left with a surplus of
gasoline and shortage of diesel made up by imports.
The review found this trend was likely to continue, while
overall demand for fuel products would fall as Britain moves
towards lower carbon sources. Britain's domestic refineries met
61 percent of overall demand for fuel products in 2012, it said.
That level is healthy by the standards of the International
Energy Agency (EIA) whose model for short term energy security,
sees domestic cover of less than 55 percent as higher risk.
Broken down into individual products, however, Britain
imported a much higher 64 percent of its jet fuel in 2012.
"A mix of domestic and global suppliers, brought about by
having domestic refining capacity and a strong import
infrastructure helps diversify risk and source of supply,
helping ensure resilience to supply disruptions and maintaining
security of supply," the review said.
The government will also establish an industry-owned and
operated entity to manage Britain's emergency oil stocks as it
seeks to ensure the UK approach was "efficient and fair for
obligated companies in the UK downstream sector".
(Reporting by Lin Noueihed, editing by David Evans)