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British refineries are feeling the squeeze

Hydrocarbon Engineering,

According to a report from GlobalData, the UK crude oil refining industry is finding it hard to adjust to the rapid changes underway in the fuel market, such as falling motor fuel demand, increasing consumer preference for diesel, and the risking tide of environmental regulation.

The report, ‘August Refined Products Forecast’ states that the rising use of diesel as the leading motor fuel throughout the UK and the rest of Europe, which has intensified in the last 10 years, has led to the UK refining industry into a difficult situation. This is because most of its refineries are geared towards maximising gasoline production in the summer months. Also, since 2008, Atlantic Basin gasoline demand has fallen to levels at or below the bottom of its fiver year averages, affecting gasoline production in the UK.

Comments on refinery trends

‘The trend over the last decade has been for traditional refinery owners in the region to sell and move on from this marketplace, with lower cost buyers stepping in with a different business model to take a chance in this rapidly changing market. Over the last 14 years, two refineries have shut down completely and have been turned into storage terminals. Moreover, the total amount of atmospheric distillation capacity in the UK has fallen by 223 000 bpd,’ said Jeffrey Kerr, GlobalData’s Managing Analyst for Downstream Oil and Gas.

Refinery reactions

The Murphy Oil plant in Milford Haven, Wales is currently facing difficulties and has se been on sale for more than two years as the company wants to move away from the downstream sector and focus upstream. Murphy Oil has said repeatedly that if it cannot find a buyer for the plant it will turn the refinery in to a terminal and shut down all processing units.

But, it is not all bad news as some British refineries have made adjustments to remain competitive. In 2011, ExxonMobil’s Fawley refinery in Southampton, England closed a crude unit as part of a reconfiguration project to favour middle distillates over gasoline production.

‘Varying the crude slate away from a predominantly North Sea centric suite to more international grades has helped ExxonMobil achieve a product mixture that has less emphasis on gasoline,’ said Kerr.

These reactions are not just a phenomenon in the UK as Phillips 66 has put its Whitegate refinery up for sale and this is the only refinery in Ireland. ExxonMobil has also announced that it is closing the Dartmouth refinery, in Nova Scotia, Canada as it is not able to find a buyer for the plant.

Kerr concluded, ‘these refineries are too costly to upgrade and not big enough to compete in the increasingly competitive Atlantic Basin market.’

Adapted from a press release by Claira Lloyd.

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