Michael Demands Answers on Oil Refining

May 4th 2011

Michael Connarty: To ask the Secretary of State for Energy and Climate Change what assessment he has made of the potential effects of the Carbon Reduction Commitment Energy Efficiency scheme on the operating costs of companies in the oil refining industry. [53997]

Gregory Barker: The cost impact will vary between participants depending on their size, type and success in reducing their energy bills through energy efficiency measures. Government have not undertaken any additional assessment on the impact of the CRC Energy Efficiency scheme on competition since publication of the final impact assessment in January 2010.

The energy efficiency measures encouraged by the CRC can make organisations more competitive via the cost savings on their energy bills.

Government are currently reviewing the interaction between the EU Emissions Trading System (EU ETS), Climate Change Agreements (CCAs) and the CRC as part of the CRC simplification review. This interaction is of particular relevance to the oil refinery industry.

Michael Connarty: To ask the Secretary of State for Energy and Climate Change (1) what plans he has to reduce the UK’s reliance on imports of diesel and jet fuel; [53999]

(2) what recent assessment he has made of the international competitiveness of the UK oil refining industry in comparison to (a) other EU countries and (b) the rest of the world; [54000]

(3) what his policy is on incentives for investment in oil refining. [54003]

Charles Hendry: The UK operates within an international market for petroleum products. Levels of imports and exports have fluctuated over the past decade; a significant proportion of the products consumed in the UK are imported and a similar level of UK production is exported. We recognise that the UK’s demand for oil products has changed over the last 10 to 15 years, driven by growth in the aviation sector, the increasing numbers of diesel vehicles and a reduction in the use of oil for power generation.

Work conducted for the Department by Wood Mackenzie⁽¹⁾ concluded that the position of UK refineries is middle to low relative to their European competition. This is due to structural factors (e.g. central European markets are landlocked and hence less open to imports and competition) and the fact that UK refineries process higher quality (and hence higher cost) North sea crude feedstock than is the case in much of Europe. Further work to assess the competitiveness of the sector in more detail is currently under way.

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The Government recognise that the retention of a refining sector in the UK offers benefits in terms of security of supply (balancing the risks between crude oil and refined product markets) as well as wider socio-economic benefits. Recent investment in several UK refineries demonstrates the continuing importance of this sector the UK. It is Government’s role to create the best conditions to ensure that the UK’s demand for petroleum products continues to be met; we are seeking to do this through ensuring that the legislative and regulatory framework provides an appropriate balance between meeting wider policy objectives such as environmental protection, ensuring that the international trade in petroleum products can continue and seeking to ensure that the legislative and regulatory framework does not place undue burdens upon domestic industry.

⁽¹⁾ UK Downstream Oil Infrastructure—Final report, June 2009

Michael Connarty: To ask the Secretary of State for Energy and Climate Change what recent meetings he has had with oil refinery owners to discuss (a) future investment in the sector, (b) skills development and (c) the effects of environmental legislation on operating costs. [54004]

Charles Hendry: I have regular contact with the UK Petroleum Industry Association (UKPIA) which represents UK oil refiners including attendance at the Downstream Oil Industry Forum in January 2011 where trade associations including UKPIA represent the UK downstream oil industry sector.

I have had no recent meetings with individual oil refinery owners specifically to discuss future investment in the sector, skills development and the effects of environmental legislation on operating costs. My officials have regular contact with oil refinery owners on a range of issues, and I am always happy to meet with oil refinery owners to discuss their importance to the sector and to the economy.

Michael Connarty: To ask the Secretary of State for Energy and Climate Change what the membership of the Downstream Oil Industry Forum is; and on what occasions it has met since May 2010. [54027]

Charles Hendry: The Downstream Oil Industry Forum (DOIF) provides a forum for strategic engagement between the downstream oil sector and the Government. It meets twice a year and is chaired by DECC officials. Membership comprises representatives from: the Department of Energy and Climate Change (DECC), the UK Petroleum Industry Association (UKPIA), the Downstream Fuel Association (DFA), the Federation of Petroleum Suppliers (FPS), UKLPG (acting on behalf of liquid petroleum gas distributors), the Tank Storage Association (TSA), RMI Petrol, representatives of the devolved Administrations and the Office of Fair Trading (OFT). Representatives of other organisations can be invited as necessary. The DOIF has met three times since May 2010; in July 2010, September 2010 and January 2011.

Michael Connarty: To ask the Secretary of State for Energy and Climate Change what assessment he has made of the likely effects of the measures contained in Budget 2011 on the UK downstream oil industry, including refining. [54001]

Charles Hendry: HM Treasury is responsible for budgetary policy and has confirmed that its sectoral analysis did not suggest a significant impact. DECC has not made a separate detailed assessment but our work suggests that the economics of oil refining should not be affected by taxation changes on North sea oil production. Businesses, including the downstream oil industry, have been supported by the 2% reduction in corporation tax this April.

Michael Connarty: To ask the Secretary of State for Energy and Climate Change what assessment he has made of the potential effects of his proposed floor price for carbon on the operating costs of companies in the oil refining industry. [53998]

Justine Greening: I have been asked to reply.

An assessment of the impacts of the carbon price floor is given in HMRC's Tax Information and Impact Note published alongside the Budget. This is available online at

http://www.hmrc.gov.uk/budget2011/tiin6111.pdf

21. Michael Connarty: To ask the Secretary of State for Energy and Climate Change what steps he is taking to provide incentives for investment in oil refineries. [56273]

Charles Hendry: The Government recognise the important role of the refining sector in the UK's economy and seek to ensure that the right conditions exist to attract and retain investment. We welcome the recent

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investment announcements for Grangemouth, Pembroke and Stanlow refineries which show the long-term vitality of the sector. We work closely with the industry and its representatives to understand the impact of policy on the sector.

Michael Connarty: To ask the Chancellor of the Exchequer what assessment he has made of the likely effects on oil refining costs of the removal of tax exemption for combined heat and power. [54002]

Justine Greening: Following the Chancellor's Budget announcement, the Government continue to work with the Combined Heat and Power Association and its members, including representatives from the oil refining industry, in order to develop a simpler, direct and more effective means of support for combined heat and power stations. From 2013, the new relief from the carbon price floor will supersede the existing relief provided through levy exemption certificates, with the intention that CHP plants will continue to receive an appropriate level of support.

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