9. OIL

Light-handed measures include: communication strategies to disseminate the relevant information quickly and to reassure the public to limit panic buying; demand-reducing measures, such as speed limit reductions and voluntary demand reduction campaigns; and the relaxation of regulations that affect the supply or use of petroleum products (e.g. gasoline, diesel, heating oil, and LPG) – such as those relating to drivers’ hours.

In the event of industrial action that affects fuel deliveries, this may include the provision of military fuel tanker drivers to industry to maintain civilian fuel supplies as a last resort. BEIS works with the downstream oil industry, which includes haulage companies, to maintain a capability within the armed forces to make fuel deliveries in the event of a serious disruption to normal deliveries. It is likely that situations prompting the deployment would be both urgent, and so require an immediate response, and regionally or nationally significant.

BEIS has also worked with the downstream oil sector to develop an operational process for the deployment and use of the reserve tanker fleet of 80 road tankers available at 2472 hours’ notice to replace any shortfall in logistics. The fleet will operate on a rental basis to industry, with the additional supply chain capacity only being available in disruption events.

The Federation of Petroleum Suppliers launched the Cold Weather Priority Initiative in October 2017 to identify those most at risk of loss of heating oil, so these customers can be prioritised during periods of extreme cold or fuel shortages.

The use of more heavy-handed demand restraint and allocation measures by central government is unlikely but, in the event of a crisis, can be introduced as necessary.

Assessment

Oil upstream

The United Kingdom has been a relatively large oil and gas producer since the 1980s. UK oil production peaked in 1999 at 137 Mt (2.9 mb/d), after which it fell by 71% to 40 Mt (0.9 mb/d) in 2014. Thanks to government interventions and higher oil prices, production increased slightly to 47 Mt (1 mb/d) in 2017, but in the longer run further decline is inevitable. Carbon capture, usage, and storage (CCUS) for EOR is not practised in the United Kingdom.

In 2013-14, Sir Ian Wood conducted a review that looked at how the economic recovery of oil and gas production in the UKCS could be maximised (Wood, 2014). Based on his review, the government took a number of measures. In 2015, it established the OGA as an independent regulator to regulate, influence, and promote the UK oil and gas industry, as part of its mandate to implement the binding Maximising Economic Recovery UK Strategy to secure maximum value from the remaining hydrocarbon resources. Among other things, the OGA with Treasury funding has commissioned programmes to improve seismic data availability to the industry, which helped to attract a higher interest from industry in licensing rounds. Commendably, the government also attracted investments with packages of fiscal measures, and thereby reduced the government take in upstream profits to 40%, which is still high compared with other private business activities. Finally, the UK and Scottish governments established the Oil and Gas Technology Centre in Aberdeen to boost research in upstream activities.

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9. OIL

Although the government rightly promotes upstream activities in many ways, it should also prepare for the decommissioning of depleted fields. The government established a regulatory framework, and it has some experience as around 10% of the offshore oil and gas infrastructure has already been decommissioned. Decommissioning comes with large costs for companies, and the government should ensure that the companies make financial provisions for it. Some of the fiscal measures recently taken aim to decrease the financial burden of decommissioning on industry, but the government should still ensure companies are up to fulfilling their decommissioning commitments.

With the measures described, the government was able to reverse a trend of reduced interest in its continental shelf and attract new companies and investments. Other countries in the region face similar challenges and are taking comparable measures. Therefore, the government should continue to monitor developments closely in other countries to ensure that its regulatory framework remains competitive.

Oil downstream

With the falling domestic crude oil production, the United Kingdom is also producing fewer oil products in domestic refineries. After the closures of two refineries in 2017, the gross refinery output was 60 Mt (1.3 mb/d), down from 81 Mt (1.6 mb/d) in 2007. Since 2013, the United Kingdom has been a net importer of oil products, with 10 Mt (210 kb/d) of net imports in 2017.

In 2016, total oil consumption was 70.3 Mt (1.4 mb/d), 13% down from 2006, but a 4% increase from 2013. The transport sector, mainly road transport, accounted for 72% of total oil consumption and the industry sector for another 15%. In the past decade, oil consumption in industry decreased by 30% in line with an overall decline in industrial energy consumption, whereas oil consumption in the transport sector only fell by 6%.

The government committed in the Clean Growth Strategy to the phase out of high-carbon fossil fuel heating in buildings not connected to the gas grid, starting with new build during the 2020s. The government should examine current taxation and subsidies, which include the Rural Fuel Duty Relief scheme, and set out actions and legislation to implement the commitment.

The government has announced that as of 2040 no new conventional petrol and diesel cars and vans can be sold in the country. This timely announcement should trigger a wide range of actions by businesses, for instance by the car industry, electricity sector, charging stations, etc. Also, the oil industry should prepare itself for declining demand, notably of petrol, which might have implications for security of supply during a transition period. The government and industry should carefully review the implications for the whole supply chain.

As a maritime nation, the United Kingdom will be confronted with upcoming IMO regulations to reduce significantly the sulphur content in bunker fuels. As in many other countries, the oil industry in the United Kingdom does not seem well prepared to accommodate such a major shift in demand. The government could do more to support both the oil and maritime industries by promoting and facilitating the switch towards cleaner alternative fuels in shipping.

The United Kingdom’s oil stocking regime has not changed greatly since the previous IEA in-depth review, although the implementation of the new EU Directive at the end of 2012 represented a major undertaking. The idea of creating a stockholding agency was investigated, but not implemented. To comply with European Union and IEA regulations,

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