Posts Tagged ‘Fuel’

It is encouraging to hear that the Prime Minister, Chancellor and Chief Secretary to the Treasury are all so keen to see drivers benefit from lower pump prices.

So keen are they that falling oil prices are reflected on the forecourts that they have said to petrol and diesel distributors that they are watching them “very carefully”.

But whatever the imperfections of the commercial fuel market – and the OFT decided in January 2013 that they were not enough to result in a referral to the Competition Commission – would our political leaders not be better off spending as much time scrutinising their own actions as those of private companies?

The fact remains that well over 60% of the price of fuel at the pumps is down to taxation. Actually, because fuel duty is levied at a fixed amount, the proportion of tax increases as oil prices fall.

Drivers will be grateful that the Chancellor has frozen fuel duty over a number of years but that does not mean there is no more he could do. When compared to other EU countries UK pre tax fuel prices are amongst the cheapest. After tax they are amongst the most expensive.

In the UK, tax – levied for a reason that is not clear: is it an environmental tax, general revenue raiser, or designed to cover all the external costs of driving including congestion and road safety? – remains the biggest driver of fuel prices. This explains why significant drops in the oil price are not going to be similarly mirrored at petrol stations.

What’s more, the Chancellor said in the 2011 budget that if oil prices fall below $75 a barrel, then he will reintroduce a fuel duty escalator:

“The Government will abolish the fuel duty escalator and replace it with a fair fuel stabiliser. When oil prices are high, as now, fuel duty will increase by inflation only. UK oil and gas production is more profitable at such times, so it is fair that companies should contribute more. The Supplementary Charge on oil and gas production will therefore increase to 32 per cent from midnight tonight.

“In future years, if the oil price falls below a set trigger price on a sustained basis, the Government will reduce the Supplementary Charge back towards 20 per cent on a staged and affordable basis while prices remain low. Fuel duty will increase by RPI plus 1 penny per litre in each such year. The Government believes that a trigger price of $75 per barrel would be appropriate, and will set a final level and mechanism after seeking the views of oil and gas companies, and motoring groups.

“As the increased rate of Supplementary Charge will only apply when prices are high, the Government will restrict tax relief for decommissioning expenditure to the 20 per cent rate to avoid incentivising accelerated decommissioning. There will be no restrictions to decommissioning relief below this level over the course of this Parliament, and the Government will work with the industry with the aim of announcing further, longer-term certainty on decommissioning at Budget 2012. Recognising the importance of continued investment in the North Sea, including in marginal gas fields, the Government will also consider with the industry the case for introducing a new category of field that would qualify for field allowance.”

Not surprisingly the Chancellor has not been reminding people of these comments recently.

Yet, ironically, what drivers gain from falling oil prices, they are set to lose in above inflation rises in fuel duty. If the cost of oil drops just a few more dollars and the Chancellor sticks to those 2011 proposals then fuel duty could well rise by about 2p a litre.

The problem for Mr Osborne is that he is sending our mixed messages. At the Conservative party conference in 2013 he pledged that providing he could find the savings to pay for it he would freeze fuel duty until the election, but as we have seen he has also committed to hikes in duty above the rate of inflation if the oil price tumbles. Which is it to be?

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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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The family of Mr Richard Cooper, who was killed last year after skidding on a diesel spill, have been awarded £110,000 in compensation by the Motor Insurance Bureau. While no amount of money can make up for the loss of a loved one, this decision is hugely significant for the ongoing fight against diesel spills.   The MIB provides compensation for injuries and deaths caused by negligent, uninsured drivers.  Mr Cooper died in a wholly preventable crash caused by someone else’s carelessness.  Spilling diesel on the roads makes the road surface as slippery as ice. It can be caused by deliberate over-filling, failure to replace the fuel cap, or by continuing to use damaged tanks. It kills motorcyclists and other road users, and there is no excuse for it.

To find out more about the problems of diesel and what fleets and drivers can do to avoid spills, visit: www.killspills.org.uk  or watch our video

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