Government neglects troubled refiners - oil body

LONDON Thu Dec 8, 2011 2:56pm GMT

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LONDON (Reuters) - A lack of clear and effective policy for UK refiners may be jeopardising their viability, and deterring buyers, the UK's oil industry body said on Thursday, threatening the sector with further closures and reduced national fuel supplies.

The number of refineries in the UK has slumped to eight from 18 in the late 1970s as refiners have seen margins tumble, due in part to regulatory requirements, and others could be at risk of closure if they do not find buyers soon.

Nick Vandervell, communications director at the UK Petroleum Industry Association, said that while most of the refining sector's woes were due to industry-wide external factors affecting the whole of Europe, some were related to UK policy.

He added that the UK government is typically slow to react to the changing landscape that the UK refinery industry faces such as how EU directives on emissions are implemented.

"The problem the downstream sector in the UK has had for years is that it takes ages to get on the Department of Energy's radar screen," he told Reuters.

"There are issues here that affect security of supply in the future. It's a slow unfolding scenario -- it's death by a thousand cuts."

Rising competition from cheaper natural gas and slow economic growth in the euro zone are among the challenges faced by the downstream sector.

One of the UK's refineries still for sale, Total's Lindsey plant, has been on the market for nearly two years and the firm has set a deadline of end-2011.

In the past, failure to sell refineries such as Petroplus' Teeside have resulted in closures.

Vandervell said that one example of the government's failure to engage with the issues faced by troubled refiners was the lack of a clear position on the next phase of the EU Emissions Trading Scheme due to come into effect in 2013.

The UK's refiners are seen as being at particular risk due to government plans for a carbon floor price at 16 pounds a tonne from April 1, 2013, rising each year to 30 pounds a tonne in 2020.

"What they should have done with EU ETS is have a five year phase-in of allowances so there's no sort of cliff-edge 'big hit' once allowances kick in 2013," he said, adding that the issue should be revisited at an EU level.

He added that more large-scale investment was also required in order to prevent further closures, although he said that these were commercial decisions.

A report published by the UKPIA earlier this month said a lack of investment could increase the country's dependence on imports and hit the UK balance of payments.

The UKPIA represents ten oil firms including U.S. oil majors ExxonMobil and ConocoPhillips as well as India's Essar Oil which agreed to buy England's Stanlow refinery in March.

(Reporting by Emma Farge and Simon Falush; editing by Keiron Henderson)

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