Background to the fuel industry

The price motorists pay for petrol and diesel at the pumps is governed by the wholesale price, which in turn, is affected by:
  • the global price of crude oil
  • supply and demand for crude oil
  • refinery production and capacity
  • the pound to dollar exchange rate as refined fuel is sold in US dollars per metric tonne
  • distribution costs
  • the margin the major fuel retailers decide to set

The majority of crude oil used by the UK’s seven refineries comes from the North Sea, although since 1999 domestic production has fallen almost every year, creating an increasing reliance on imported crude which now accounts for 46% of total processing.

According to the UK Petroleum Industry Association (UKPIA) - the UK has the fourth largest total refining capacity in the EU. Our seven refineries, all located in coastal parts for easy tanker access, supply about 85% of the UK market demand for petroleum products.

These refineries supply around 50 oil terminals. Refined fuels are distributed from refineries to terminals by pipeline or fuel tankers where they are stored and transported to filling stations by road tankers.

Ageing refineries

However, Britain’s refineries are old and were designed for petroleum production, which means capacity and output is not in line with demand following a big shift in demand from petrol to diesel vehicles. This is confirmed by the UKPIA’s Statistical Review 2012 which showed demand in 2011 for petrol was 13.9m tonnes and for diesel 26m tonnes. Consequently, according to an Economist report in April 2013, 40% of diesel used in the UK is now imported.