No easy decisions at Whitegate

Oil remains the most dominant source of primary energy supply in Ireland, accounting for around 60% of overall energy consumption; double that of economies such as Germany, France and the UK.

With oil playing such a key role in Ireland’s economy, security of supply is imperative for the country’s economic and social well-being. An important element in the infrastructure to support the country’s oil needs is Whitegate.

Oil refining on the island of Ireland
Originally commissioned in 1959, Whitegate has a distillation capacity of 71,000 bpd. One third of output is exported with the balance of circa two million tonnes of petrol/middle distillates supplying just under 30% of the Republic’s requirements. Ireland’s remaining requirements are satisfied by imports with 85% from west coast UK refineries; imports into the four Dublin based storage facilities supply half the requirements.

Whitegate has undergone several changes of ownership: Having been mothballed by its original owners, BP, Esso, Shell and Texaco, processing resumed in the early 80s when acquired by the Government. In 2001, it was sold to the US Tosco Corporation, which was then acquired by Phillips Petroleum. With the merger of Conoco and Phillips in 2002, Whitegate became a ConocoPhillips refinery. In May 2012 Phillips 66 took over ownership.

Refining post 2016?
When the government sold Whitegate to Tosco, the transaction came with the stipulation that crude oil processing would be maintained until at least 2016. There have been two attempts to sell the facility – in 2007 by ConocoPhillips and Phillips 66 in 2013.

Mindful of the obligation’s expiry in 2016, the government commissioned a study of the strategic case for oil refining requirements on the island of Ireland by Purvin & Gertz and Byrne O’Cleirigh. Published in July 2013, its three main conclusions are as follows:
1) Provides an alternative source of product supply versus complete reliance on imports providing flexibility in security of supply.
2) Adds value to the benefit of the island’s economy and provides employment.
3) There is no imperative to have refining assets and the current infrastructure would be capable of supplying the required product imports.

The report gauged the benefits of continued refinery operation to be in the range €21-€29 million per year, assessed as the proportion of the added value generated that would be expected to pass directly to the Irish economy. This is defined as the gross margin generated between product revenues and feedstock costs. A proportion of this added value is used to cover local taxation and operating costs that flow direct to the Irish economy.

Three key recommendations
1) As soon as practicable, government should engage with Phillips 66 at an appropriate level in order to inform itself of the company’s intentions post 2016. If this indicated likelihood that Whitegate would cease refining operations post 2016, assurances should be sought that there would be no precipitous loss of supply of refined product to the Irish market and that the use of the site for a product import terminal would be seriously considered. In such an event, Phillips 66 should be encouraged to sell the assets if they were not interested in converting it to a terminal themselves.
2) The oil supply infrastructure should be kept under regular review. Any development or change in any region that could impact significantly on its adequacy or robustness, should be examined and assessed to ensure that the infrastructure remains appropriate and fit for purpose.
3) In collaboration with Northern Ireland, the government should develop a set of contingency measures to ensure that risks to oil supplies at any one node in the oil supply system can be mitigated by utilising the substantial margin in capacity that is available across all six major commercial oil ports.

In March 2014, a short overview Government Policy on Oil Refining in Ireland was published by the Department of Communications, Energy and Natural Resources. This set out the government’s position on the future of refining operations at Whitegate.

  • Continued operation is highly desirable from a security of supply perspective
  • Facilitative policy measures will be considered to support continued operation of the refinery
  • The Department, liaising with other appropriate public bodies, Phillips 66 and the oil industry, should determine available policy options and revert to the government with a progress report

Possible outcomes and implications
There are few signs of relief on the horizon for European refining. With excess capacity, poor profitability, EU directives for fuel quality, renewable energy and emissions control, as well as challenges from the new, efficient export refineries in the Middle East and Asia and rising levels of US oil products’ exports , further rationalisation in the European refining sector is inevitable. Being a fairly small and low complexity refinery, with a Nelson Index of only 3.8, Whitegate is not well equipped to operate on a sustainable and profitable basis in this environment.

If the government’s resolve to support Whitegate’s continued refining is of sufficient power to persuade Phillips 66, then this begs questions around what ‘facilitative measures’ it is willing, and permitted, to entertain to achieve the desired outcome. Presumably, funding the requisite support for the refinery’s continued operation, would inevitably fall to Irish oil users….

Closure would have a substantially damaging impact on the local community with the loss of direct and contractor employment having knock-on effects on local businesses. Loss of key skills, knowledge and expertise required to run a petroleum processing plant, , is not to be under estimated.

Should both processing and storage operations be discontinued, there would be implications for the National Oil Reserves Agency (NORA). The site’s existing facilities provide access to capacity for the country’s mandatory stocking obligations in physical form. Phillips 66 has recently abandoned its attempts to sell the refinery, while still continuing to seek a buyer for the Whiddy Island storage complex. There are certainly no easy decisions on this one.