9. OIL
In the fourth quarter of 2018, the household price for automotive diesel was US dollars (USD) 1.7 per litre (USD/L), the fifth highest among the IEA member countries (Figure 9.7). Petrol and diesel are charged an equal fixed duty, currently 57.95 pence per litre. Petrol and diesel are also subject to value-added tax (VAT) at a rate of 20% since March 2011. When VAT is included, tax represents 62% of the final pump price for petrol and 60% of the final pump price for diesel (as of fourth quarter 2018), which are among the highest levels in the IEA countries. The gasoline price was 1.6 USD/L, which was close to the median among IEA countries, despite the high tax level.
In heating, oil boilers for heating have a reduced VAT rate of 5%; by contrast, renewable technology installations tend to be subject to the full 20% rate. The United Kingdom maintains, and recently extended, its Rural Fuel Duty Relief scheme, which in essence reduces road fuel taxes in certain rural areas. The Rural Fuel Duty Relief provides support for motorists by compensating fuel retailers in specific rural areas with high road fuel prices. The rebate provides a 5 pence per litre reduction to fuel retailers in the specified rural areas on the standard UK rate of Excise Duty of 57.95 pence per litre for unleaded petrol and for diesel sold for use in road vehicles. As of 1 April 2015, further changes were made to extend the relief to more specified rural areas, which allowed an additional 125 000 people living in the selected areas to benefit from cheaper fuel. This followed a year-long EU approvals process – although the United Kingdom’s most rural islands already received this discount, this was the first time that the European Union approved this fuel discount anywhere in mainland Europe.
Infrastructure
Refining
Six major crude oil refineries operate in the United Kingdom and supply the bulk of the inland market for petroleum products. There are also two smaller speciality refineries that produce bitumen and other specialised products. The refineries are situated around the coast and most are connected to pipelines for product distribution. The refinery gross output in 2017 averaged 59.9 Mt (1.3 mb/d), down from 81.2 Mt (1.6 mb/d) in 2007, principally owing to production losses from the closure of the Coryton refinery in 2012 and the Milford Haven refinery in 2014 and to capacity reductions. Gas and diesel oil accounted for around 32% of the refining output in 2017, followed by gasoline at 31% (Figure 9.8).
With regard to the supply and demand imbalance of refined products, the United Kingdom imported a net 397 kb/d of middle distillates in 2017, and exported a net 174 kb/d of gasoline. As the demand for middle distillates continues to increase and with no plans to increase the domestic production, it is anticipated that the United Kingdom will rely increasingly heavily on imports to meet future supply – particularly in the case of diesel and jet fuel. Import dependency for diesel has increased from 13% in 2012 to 37% in 2017. The largest source of imported diesel was Russia at 30% of the total diesel imports in 2017, followed by the Netherlands (24%). Import dependency of jet fuel is higher (more than two-thirds of the demand must be met by imports) and has a higher security concern for its relatively long supply lines. Middle Eastern countries accounted for 60% of jet fuel imports in 2017, with the United Arab Emirates and Kuwait being the main suppliers at 22% and 21%, respectively. Another 19% was imported from Asia (8% from India, 6% from Korea, and 4% from Singapore). Significant demand for jet fuel is accounted for by activities at Heathrow, the world’s third-largest airport.
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9. OIL
Figure 9.8 UK refinery output, 2017
LPG and ethane
Naphtha
Gasolines
Jet and kerosene
Gas/diesel oil
Residual fuels
Other products
0 |
100 |
200 |
300 |
400 |
500 |
600 |
700 |
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Thousand barrels per day |
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Source: IEA (2018b) Oil Market Report 2018, www.iea.org/statistics/.
Refinery output
Demand
To help identify and address the challenges that face the UK refining sector, a Midstream Oil Sector Government and Industry Taskforce was set up in 2014. As one of its conclusions, the Taskforce identified the need for a greater understanding of the resilience of the country’s fuel supply chain and the risk that rationalisation of the infrastructure could erode the downstream oil resilience over time. Also, the need for increased collaboration between government and industry was identified. Since the end of the Taskforce, relationships have been maintained through the biannual Downstream Oil Industry Forum, which is attended by the major trade associations that represent companies in the fuel supply chain. In October 2017, the Department for Business, Energy and Industrial Strategy (BEIS) launched a consultation on possible new measures to maintain security of fuel supply to consumers. As part of this consultation, the government provided an economic impact assessment by setting out indicative examples of the costs of disruptions of different durations on two major types of infrastructure: refineries and terminals. The government’s response to this consultation was published in April 2018 and work is underway on possible legislation.
Pipelines
The major oil terminals (about 50) are supplied by pipeline (51% of the volume) and rail (15%) from UK refineries, and by sea (34%) from a mixture of domestic production and imports. The United Kingdom has a 4 800-kilometre-long domestic oil pipeline network – all of which are privately owned and operated. The pipelines are used both for shortdistance transport, e.g. from jetty or import terminal to storage terminal or refinery, and over longer distances to supply inland distribution terminals. Pipelines also connect the United Kingdom to offshore North Sea oil production platforms, both from domestic and Norwegian fields.
Around half of the UK oil pipeline network comprises assets that were part of the government Pipeline and Storage System (GPSS). In March 2015 the GPSS was sold to CLH Pipeline System (CLH-PS) Ltd, a wholly owned company of the Spanish company, Compania Logistica de Hidrocarburos. CLH-PS supplies 35% of the demand for aviation fuel in the United Kingdom. Heathrow, Gatwick, Stansted, and Manchester are among the main airports it supplies, in addition to another ten regional airports that are supplied by road tanker.
The United Kingdom has four major land-based terminals through which about two-thirds of the country’s crude oil production flows and which are an integral to parts of the pipeline systems. These are Sullom Voe on the Shetland Islands of Scotland (landing
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