The one thing we all know about the oil industry is that it’s awash with money. Except that if you look at the refining business in the UK, it’s not.
Refineries in the UK work on a margin of around 1.65 pence per litre. (Compare that with the £1.40 you pay at the pump). Taking out operating costs, energy, salaries etc, that comes down to a net figure of 0.6p/litre. New costs imposed by UK legislation take out around 0.1p. And the industry is now facing new EU legislation, including the Emissions Trading Scheme Phase III, the Industrial Emissions Directive, and the Fuel Quality Directive (FQD). That last by itself will cost 1p/l. Taking all the regulatory costs together, that will see the industry making a loss of around 0.75p/l.
Can’t they just put the prices up? No they can’t. It is becoming cheaper to import refined oil products from other countriess than to refine under EU rules in the UK. They tell me that India has some excellent, very large, modern, state-of-the-art refineries, which deliver lower costs without the burden of EU rules. No one looking to invest in refining capacity will do it in the EU, faced with massive regulatory uncertainty and massive regulatory costs. And we’ve already seen one major UK refinery, Petroplus’s Coryton, close with the loss of 850 jobs.
Yet again, we see EU regulation driving business, jobs and investment out of the EU altogether, and usually to jurisdictions with lower environmental standards. So our “Green” policies undermine European economies while actually increasing CO2 emissions. It’s sheer lunacy.
The FQD is a particular problem, not only for its cost but for its distorting effect on the market. The first objective was to ban imports of Canadian oil sand products (which in any case go mostly to the USA, not Europe). But they’ve made a real dog’s breakfast of it. In effect, they’ve rated oil from all sources for “Green-ness”. And they’ve ignored the market impact. This will limit EU refineries to a fraction of the global market — and will therefore drive up prices in that sector, creating a unique penalty for EU refiners — and for EU businesses and motorists. It’s a spectacular own goal.
Sometimes I despair over the folly of the EU. And I am more than ever convinced that we should be Better Off Out.