Oil Refineries May Face Closure if U.K. Crashes Out of Europe

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)--Leaked documents from the U.K. government predict that at least two oil refineries could be forced to close, and up to 2,000 jobs lost, when the country crashes out of the European Union (EU) in October.

U.K. fuel exports from its refineries could face a 4.7% tax if the U.K. exits the EU without a deal and defaults to World Trade Organization rules. The government is also proposing a 0% tariff on many product imports, including fuel, to help alleviate possible shortages of key products including food and medicines. The leaked government document, known as Operation Yellowhammer, was revealed by the Sunday Times newspaper.

Representing the downstream oil sector, the U.K. Petroleum Industry Association (UKPIA) has warned that if tariffs are imposed on fuel exports and no tariffs are imposed on fuel imports, U.K. refineries will be non-competitive. William James, a UKPIA spokesman, told Bloomberg: "Refining is a margin-tight industry, and these tariffs would put a severe amount of pressure on the sector's competitiveness."

The U.K. has six major refineries, with a production capacity of approximately 400,000 barrels of fuel per day. The majority of oil products processed at U.K. refineries continue to be consumed in the inland market, at approximately 56% of production alongside nearly 6% used in refinery processes according to UKPIA data. The difference of 37.9% of finished products produced in the U.K. is exported to key markets, including the Netherlands (26.6% of total exports), the U.S. (16.1%) and the Republic of Ireland (14.4%).

Investment in those refineries will also be hit by a no-deal Brexit according to local politicians. Uneven tariff arrangements were the "number one issue" for Valero (NYSE:VLO)(San Antonio, Texas)--which runs the Pembrokeshire oil refinery--according to local MP Stephen Crabb. "Valero have been very clear with me. Firstly, they are here in Pembrokeshire for the long term," he told the BBC. "They've got a successful track record of investing heavily to maintain one of the U.K.'s largest and most competitive oil refineries. They've also been very clear with me and to government directly about the negative implications of a no-deal Brexit."

Ed Tomp, general manager of the Valero refinery, added that preparations are underway to cope with a no-deal Brexit scenario at the end of October. "However, we are concerned that 0% import tariffs on petrol could create an unfair advantage for importers, resulting in a negative impact on all U.K. refineries. As such, we have been working with the United Kingdom Petroleum Industry Association to ensure our concerns - and the potential impact of zero tariffs - are clearly communicated to the U.K. government."

Industrial Info is tracking a $150 million project under construction at the refinery of a new 49.9-megawatt (MW) combined heat and power plant.

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