So where does our oil & fuel come from? Should security of supply consern us? #diesel #petrol #oil

The 35 million drivers in the UK are increasingly at the mercy of international traders and global events as North Sea oil reserves shrink.

In 2001 the UK’s high oil production meant we could export 40% of it. This compares to a decade later, where 32% had to be imported.

Our ageing oil refineries are also struggling to meet the demand for diesel caused by the growing number of diesel cars on the road. While the UK is a net exporter of petrol, we are a net importer of diesel, having to bring in as much as an estimated two weeks’ worth of our annual usage.

Currently our biggest sources of imported diesel are other European countries – predominantly the Netherlands, Sweden, Russia and Belgium – and the US.

The changing face of oil and fuel production is revealed in research on the UK oil and fuel markets produced for the RAC Foundation by Deloitte, the business advisory firm.

The work by Deloitte shows that:

• In the past decade the number of UK oil refineries has fallen from nine to seven and of those which remain, all but one has been up for sale within the past three years
• As North Sea oil reserves decline, international treaties will obligate the UK to hold much greater reserves of both oil and refined products and will require significant investment in storage facilities
• In the UK, 75% of all petroleum products are consumed by the transport sector.

The recent debates on security of supply have centred on our gas and food needs, but our inability to meet our oil and roadfuel requirements is a potential time bomb. We are becoming more dependent on international markets and foreign suppliers to keep the nation moving.

Not only are our North Sea oil reserves being depleted, our ageing refineries are not configured to produce the quantity of diesel we use. Retro-fitting these plants would cost many hundreds of millions of pounds; money the industry is unwilling to spend. As the closure of the Coryton refinery in Essex demonstrates, the big players are seriously considering selling up or closing down.

As the global economies recover we will be competing with emerging nations like India and China for scarce resources. Even if we can secure the fuel we need from abroad, unforeseen events – war, politics, weather – all threaten the stability of the supply chain and will have an impact on price.

According to the Society of Motor Manufacturers and Traders just over two million new cars were bought in the UK in 2012. Of these, 51% were diesel powered and just about 100% of lorries run on diesel, while figures from the DVLA show that of the 28.5 million cars registered in Britain, 19.5 million use petrol and 8.7 million use diesel. The consequences of a major disruption to supply will be enormous.

A decade ago the UK had nine refineries. Since then both Teesside and Coryton have closed. Of the remaining seven refineries, six – Grangemouth, Humber, Lindsey, Pembroke, Milford Haven and Stanlow – have been up for sale in the past three years, Fawley being the exception.

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A reminder to the Chancellor. Why George Osborne is likely to freeze #fuelduty in #Budget2013 tomorrow.

If the Chancellor was looking for reasons to freeze or cut fuel duty he need only look at two sets of data:

1) The work on motoring poverty recently carried out by the RAC Foundation.

2) The current pump prices which are nearing record highs despite a supermarket price war.

The latest fuel prices are as follows:

	Current price (18th March 2013)	Record high
Unleaded	137.6p	142.17p (16th April 2012)
Diesel	144.8p	148.04p (16th April 2012)
Oil (Brent crude per barrel)	$109	$148 (11th July 2008)

The current rate of duty is 57.95p per litre of petrol and diesel. It has been at this level since March 2011.

As a proportion of the price of unleaded fuel, tax (fuel duty + VAT) makes up 59% of the total.

A proposed 3.02p per litre increase in the level of fuel duty was scheduled to take place on 1^st January 2013. In the Autumn Statement 2012 the Chancellor cancelled this increase.

The next fuel duty increase was scheduled for 1^st April 2013 but that was postponed (also in the Autumn Statement 2012) to 1^st September 2013. It has not been formally announced what the level of this increase will be.

Two weeks ago the RAC Foundation published analysis on the impact of high motoring costs on the poorest ten percent of car-owning households, showing just how deeply they are mired in motoring poverty.

Our work showed that roughly 800,000 car-owning households are spending at least 27% of their disposable income on buying and running a car.

Of a total maximum weekly expenditure of £167, these households saw £44 go on vehicle related purchasing and operating costs, including:

£16 on petrol and diesel.

£8.30 on insurance.

The complete breakdown of these figures, plus figures for other income groups is available here.

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The extent of #transportpoverty. Figures show cost of motoring is more nightmare than headache for least well off.

At first glance the numbers seem incredible, but there they are in black and white, courtesy of the Office for National Statistics. The poorest car-owning households in the UK spend at least 27% of their weekly disposable income on buying and running a vehicle.

Scaling up the figures, this suggests that some 800,000 of the least-wealthy homes in the country are mired in transport poverty. If we are concerned, rightly, about fuel poverty, then we should be extremely worried about this.

The previously unpublished data, collected as part of the Family Spending survey, show that of a maximum total weekly expenditure of £167, these households spend £44 on purchasing and operating costs related to a vehicle.

£16 of this is used to buy petrol and diesel, another £8.30 goes on insurance.

For those families who regard it so important to run a car that they are willing to make an outlay of such staggering proportions – and we have always argued that for most of us car use is an absolute necessity – it is clear that every rise in costs merely adds to an already mammoth burden.

Yet for many, what choice is there? In metropolitan London people might be well served with buses, tubes, railways and taxis – but out of the capital, for most people, most of the time, the car is public transport. It is what most of us, rich and poor alike, rely on to access vital services. The difference between groups is that while owning and running a car is merely a financial headache for most, for a significant minority it is an economic nightmare, the proportions of which this data reveals.

Surely if there was a viable alternative (convenient and reasonably priced) then people would take it. To suggest that people happily pay 27% of their income to have a car because they are in any way addicted seems farfetched. They must do it because there is no option.

It is true to say that in real terms buying a vehicle has fallen slightly over the past decade, yet replacing a car is often a discretionary spend, running it is not. People have to buy fuel. They have to insure their vehicle. They have to tax and MOT it. And all these costs have risen far above the rate of inflation.

When the Chancellor makes his Budget statement on March 20^th he would be well served by looking at this official data. In a way it doesn’t matter whether the figures are completely accurate or not; whether it is 27% of income that goes on car ownership, or 37% or 17%. All are of such large proportions as to be of concern.

Fuel costs are clearly only part of the equation, but it is a significant part. We would hope George Osborne remembers this when he makes his next pronouncement on the level of duty.

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So now we know who is really to blame for high fuel prices: the Chancellor. #OFT pinpoints tax as price driver

So there we have it. The UK fuel market is a healthy beast, at least according to the OFT report just published following last year’s call for evidence.

To be fair researchers were unlikely ever to have reached any other conclusion.

The big problem is not what is happening in the fuel market, but what is perceived to be going on. It is a sign of the opaque nature of the whole market that the OFT had to delve into it in the first place. Its murky nature has long meant that drivers have been distrustful of it. But today the OFT has identified the real causes of motorists’ misery at the pumps: the chancellor and oil prices, not the machinations of the wholesale market for refined products.

While all the attention has been on the profits being made after petrol and diesel leave the refinery gates, this report reminds us that the biggest price drivers are taxation and the cost of oil. As it stands George Osborne is currently taking 60% of the pump price in fuel duty and VAT, and a barrel of Brent crude retails at the stubbornly high level of $114.

The Foundation would urge garages to provide a breakdown on their till receipts which reveals to drivers exactly how much the Treasury is taking.

The OFT report found “very little evidence” to support the idea of so-called rocket and feather pricing where pump prices rise quickly in line with wholesale price increases but significantly lag any decline in wholesale prices.

The watchdog does however make reference to the high prices charged at motorway service stations. While accepting that these prices might be associated with the higher costs involved in these sorts of operations it wants drivers to be forewarned of the prices before they actually pull off the motorway, possibly by new signs erected by the DfT.

The OFT has also found no evidence that the increasing dominance of supermarket forecourts has been detrimental to drivers. While there have been closures of independent retailers this has not had a negative impact on motorists, in fact the UK has – pre-tax – some of the cheapest road fuel prices in Europe. Research submitted to the OFT by the RAC Foundation showed that 97 per cent of car-owning households were within ten miles of a supermarket forecourt.

None of this will necessarily come as much relief to hard-pressed drivers who are still paying near-record prices for petrol and diesel, but at least it shines a light on where the ‘blame’ for high prices really lies: not, as many of us might have suspected, at the door of the retailers and wholesalers.

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T-90 minutes to #OFT fuel review publication. Here’s some of the context… @fairfueluk

Diesel price – 140.77p (record high 142.17p April 2012)

Petrol price – 132.95 (record high 148.04p April 2012)

Fuel duty and VAT account for about 60% of the pump price of both petrol and diesel.

There are 35 million drivers and 28 million cars in Great Britain. Of the cars, 19 million are petrol and 9 million diesel.

There were 37,000 petrol stations in 1970 but less than 9,000 today.

RAC Foundation work shows that 87% of UK car-owning households are within 5 miles of a supermarket petrol station. 97% of UK car-owning households are within 10 miles of a supermarket petrol station.

According to work done for the RAC Foundation by the consultancy Deloitte, the UK is now a net importer of crude oil and refined diesel. The reasons are two-fold:

1)     The UK’s North Sea oil reserves have shrunk steadily.

2)     Overall, UK refineries are configured to produce more petrol than diesel, however the demand for diesel has grown over time and the cost of ‘retro-fitting’ our refineries would be prohibitively expensive. Therefore we need to import some diesel to meet our needs.

The Deloitte work shows that ten years ago there were nine UK refineries. Today there are seven. Of these seven, all but one have been up for sale in the past three years.

In 2011 the average household expenditure was £484 per week. £65.70 of this was on transport, 14% of the total.

OFT terms of reference:

• whether reductions in the price of crude oil are being reflected in falling pump prices
• whether supermarkets’ and major oil companies’ practices may be making it more difficult for independent retailers to compete with them
• whether there is a lack of competition between fuel retailers in some remote communities in the UK, and
• whether concerns about price co-ordination and the structure of road fuels markets identified by other national competition authorities are relevant in the UK.

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Drivers saved from January fuel duty rise – next one due in September

This is what the Autumn Statement document statement says about changes in fuel duty:

“The Government will provide further support to businesses and motorists by cancelling the
3.02 pence per litre fuel duty increase that was planned for 1 January 2013. The
2013-14 increase will be deferred to 1 September 2013. This will mean that fuel duty
will have been frozen for nearly two and a half years. For the remainder of the Parliament,
subsequent increases will take effect on 1 September each year, instead of 1 April.”

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EU calls for duty rates to be set above those for petrol

Even as the government comes under pressure to abandon the planned August rise in fuel duty, the European Commission is looking at how it might raise it on diesel (at least relative to petrol).

According to reports in the European Voice, EU member states are expected to reject a Commission proposal to tax all fuels based on their energy and CO₂ content. When it comes to road fuels this would mean that diesel – which has a higher energy content than petrol, and hence higher CO₂ emissions per litre burnt than petrol – could no longer be taxed at the preferential rate currently seen in all member states except the UK where the same duty rate is applied to both petrol and diesel (and even in the UK, despite the existing parity, there would be a rise in the diesel rate of duty).

Many member states are rejecting this plan as it relates to road transport, while Germany, Poland and the UK appear to be opposing the entire idea. They fear the move would hurt their economies, particularly the diesel market and the commercial sector which relies heavily on high-mileage diesel vehicles. In the UK, for example, more than 50% of new cars sold are now fuelled by diesel.

As a recent Institute for Fiscal Studies report for the RAC Foundation – Fuel for Thought: The what, why and how of motoring taxation – showed, however, levying a higher tax on diesel would make sense from an economic theory perspective, as it would ‘internalise’ the greater costs to society of burning diesel as compared to the same amount of petrol.

So which should take precedence? Economic theory or the real-world needs of ‘the economy’? Compromise options include an EU-wide minimum tax rate (but no maximum) or to exempt commercial vehicles.

If nothing else this issue shows that fuel taxation is a major concern across the entire continent, not just on these islands.

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A sustainable road? #SMMTCO2 report shows #greencar fleet is within our grasp.

Another year passes and with it comes another significant annual drop in the CO₂ emissions of the new cars sold in the UK.

According to the 2012 Society of Motor Manufacturers and Traders’ New Car CO₂ Report, “emissions fell to a new low of 138.1 g/km in 2011, down 4.2% on 2010.”

The SMMT study shows emissions are down 27% on 2000 levels. 70% of that progress has come in the past four years.

The key point is that this improvement is not the result of alternative-powered vehicles swamping the roads – sales of new cars powered by electricity and hybrid technology are still only a tiny fraction of the total – but because of huge strides in the refinement of internal combustion engines.

The real debate is about where we should be going next. According to the SMMT chief executive Paul Everitt, “Considerable progress has to be made to deliver the challenging 2020 pan-EU CO₂ target of 95g/km.”

Yet others think this obstacle is too easily hurdled and the eco-performance of the new car fleet should be rather better. In a letter last month to EU Commission President José-Manuel Barroso, Greenpeace and the Transport and Environment Group pleaded for any assistance to the European car makers to be linked to “a tightening of legislative standards for fleet average emissions to 80 gCO₂/km by 2020 and the inclusion of a new target of 60 gCO₂/km by 2025.”

The technical evidence suggests these alternative goals could be achieved. The questions are whether it is imperative they are met and if so how?

If the answer to the first question is yes, then in theory you could simply legislate to reach the required goal. If targets became legal requirements and manufacturers were punitively sanctioned for breaching CO₂ levels then the chances are things would change despite the grumbling. Equally, if consumers were nudged – indeed shoved – towards buying low carbon cars through mouth-watering incentives then change would also result.

At the moment the subsidies available from government are all focused on ultra-low carbon cars, but what if buyers of the best-performing vehicles in their class all got a nice round £1,000 from ministers? The 2007 King Review of low-carbon cars concluded this measure alone could “reduce emissions by 10-25% over time.”

These matters of policy are all up for debate, but today’s report should offer us some reassurance. For all the negative environmental impacts associated with road transport, it is perhaps the one sector which is best placed to respond to the challenge. Indeed, it is already doing so.

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Government puts risk posed by tanker drivers dispute up there with #floods, #pandemics and #terrorist attacks

It might have escaped your attention but the Government has just published the 2012 version of the National Risk Register of Civil Emergencies, listing catastrophic events that threaten our wellbeing on a major scale.

Tucked in amongst mention of floods, terrorist attacks, serious accidents, and pandemics, is “disruptive industrial action”. It is appropriate that it gets a mention for there is nothing with much greater potential to affect our day to day lives than a tanker drivers’ strike.

The oil supply chain is vulnerable to interruption at almost every level. Witness the handwringing that went on earlier this year when the owners of the Coryton refinery went bust. But while the Essex plant is only one of eight UK refineries supplying the nation with petrol and diesel, the impact of concerted disruption at all these sites, not to mention oil terminals, is what really brings ministers out in a cold sweat.

Remember the 2000 fuel protest. In London the situation became critical with the UK capital getting to within a few hours of serious food shortages.

If widespread disruption occurs again, the Government does have a strategy. If the Army fails to adequately distribute fuel to where it is needed then a pecking order is introduced. The National Emergency Plan for Fuel “includes the possibility of rationing supply to retail customers, and prioritising emergency responders and essential service providers.”After this, any surplus will go to “truck shops and HGV motorway filling stations to help to keep supply chains operational.” Ironically, one school of thought says a little bit of nervous buying by motorists need not be a bad thing. If worried drivers fill up their tanks before they would normally do so, and at the same time perhaps buy more than normal – but while supplies are still being delivered to the UK’s 8,700 forecourts – they are effectively creating a reserve of fuel beyond the point of disruption. Or so the theory goes. Clearly timing is everything and cautious action can soon turn into panic purchases straining the system to breaking and draining garages dry.

It is not something the Prime Minister will want to see tested. He will be hoping the Unite Union can reach an agreement with employers. He will also be praying that the current record prices of petrol and diesel do not extend upwards too far or too soon. A 2000-style protest by motorists themselves would be incendiary, making something like a tanker drivers’ dispute seem small beer.

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#Transport biggest single area of household expenditure, bar none. 21 million homes in ‘transport #poverty’

Whichever way you cut it, UK citizens are paying a fortune to travel.

RAC Foundation analysis shows that of the nation’s 26 million households, a staggering 21 million are estimated to be in ‘transport poverty’ – that is, more than 10% of their incomes goes on getting about. When you consider only those homes that run a car (and the estimate is that 75% of households have a vehicle) then an astonishing 100% of households are in transport poverty. By way of comparison, and using the same monetary measure, the Department of Energy and Climate Change calculates that a ‘mere’ four million households are struggling to keep warm and so are in fuel poverty.

On the face of it, the poorest fifth of all households seem to spend the least amount on transport as a percentage of income. But this is a product of only around half of these families owning a car whereas in the highest earning fifth (quintile) of homes around 95% have a car. When you strip out the non-car owning households at the bottom end of the income spectrum then the least well off are paying more than 17% just on their vehicles, leaving aside anything that might go on public transport.

Looking at the figures another way reveals that out of an average household weekly income of £473.60, £64.90 goes on transport, making it the single biggest area of expenditure bar none.

While there has been much in the news about the price of fuel, this is only one component of the costly business of keeping mobile. Insurance costs have also soared. So too have maintenance costs. It is true that the price of both new and second hand cars has come down over recent years but while people can usually delay splashing out on still on these still very expensive items, they rarely have any option other than to travel: to work, to the shops, to take the children to school, to get to the doctors.

Transport has never been a sexy subject but it is fundamental to modern living; it is at the core of everything we do, and drives social and commercial life. When the Chancellor makes his decision on where fuel duty rates might go next, he would do well to remember that.

 

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