Losses highlight testing times for UK oil refineries

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The financial squeeze on the UK’s oil refineries was underlined by figures yesterday showing that the UK’s second-largest site lost money during a tough last quarter.

The Stanlow refinery in Cheshire, which supplies about 15 per cent of the UK’s petrol and diesel and also fuel for Manchester airport, has been hurt by a European glut of petrol stocks.

An excess of petrol and a shortage of diesel in the UK and Europe, as more consumers switch to driving diesel cars, impacted on Stanlow’s margins in the April to June quarter.

Essar Energy bought Stanlow from oil major Shell two years ago, and has been slashing costs and overhauling the site to boost profitability.

Europe’s refining industry has been shrinking amid lower fuel consumption and pressure on consumers, companies and producers to cut emissions.

The Coryton refinery in Essex became the UK’s highest-profile casualty when it closed last year with hundreds of redundancies after its owner, Petroplus, collapsed. Teesside refinery also ceased production in 2009.

A report by MPs recently said the UK refining industry has not managed to keep pace with global shifts in supply and demand and called for a level playing field on costs and legislation.

Stanlow, where Essar is planning a multi-million pound upgrade, is the UK’s second-biggest oil refinery behind Fawley, near Southampton.

Refining costs exceeded profit margins during the three months to the end of June at Stanlow amid high petrol stocks and weaker diesel prices relative to petrol – ensuring an unprofitable quarter for the plant.

Gross refining margins at the plant slipped to $4.86 per barrel during the first quarter from $7.53 a year earlier. The refinery typically needs to earn a gross margin of around $6 to break even.

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