Cautious industry response to fuel resilience bill

A bill aimed at maintaining fuel supply to customers in the event of disruption has been published. The draft Downstream Oil Resilience Bill, which was introduced last month by energy minister Anne-Marie Trevelyan, sets out how the Government intends to address threats to the security of fuel supply by providing powers to ensure resilience in the downstream oil sector, including companies involved in the refining, importing distribution and marketing of oil products.

The draft bill intends to help protect fuel supply resilience when required and prevent supply disruptions from occurring in the first place.

A UKPIA spokesperson commented: “Governments must ensure UK companies can remain competitive on the global market, especially as climate change policies change and we must compete against nations without carbon pricing. History shows that UK companies, when able to compete globally, have been able to offer fuels supplies in the UK that are highly resilient in the face of global or domestic risks.

Risks to supply

Plans for a Resilience Bill for the sector first emerged in 2017, in the wake of the 2012 Coryton refinery insolvency and the 2005 Buncefield oil storage depot explosion, with the then Government concerned that existing laws were insufficient to allow action to be taken to prevent a supply crisis. In a rapidly changing supply scenario, the government is now keen to be in a position to prevent any threats to fuel supplies.

Trevelyan commented: “This draft bill follows a public consultation in 2017, where government explored options to address sector resilience and concluded that due to high levels of global competition, the sector has gone through a process of restructuring to remain internationally competitive which has reduced their spare capacity. This means that there is an increased risk of market disruption in the downstream oil sector, given the lower capacity to react to sudden supply and demand shocks.

“The fuel supply system faces a number of inherent risks, including accidents, severe weather, malicious threats, industrial action, and financial failure. The government works with fuel suppliers to mitigate such risks and, while individual companies have a good record of managing their own risks, they do not see a commercial return in managing low probability, higher impact risks.”

Under the provisions of the bill the industry would be required to notify government of any actual or threatened disruption to fuel supplies and take any measures needed to “keep critical infrastructure operating.”
The draft legislation states that the new powers would be used only as a “back-stop” to protect fuel supply resilience “when required.” No new requirements are sought to control operator crude or fuel inventory levels.

A strong industry response

The original consultation received responses from 28 stakeholders including refiners, wholesalers, terminal and storage owners, hauliers, retailers, end users, consumer representatives and the devolved administrations. Overall, there were varying levels of support for the measures proposed in the consultation. Some stakeholders felt that the sector’s track record of maintaining supply argued against any new measures, whereas others maintained that improved resilience was necessary to reduce risk for consumers.
Reacting to the response, the Government confirmed that the measures would only apply to companies operating or owning facilities in the downstream oil sector and be limited to the purpose of ensuring fuel supply resilience. They include:

  • directions – power to direct Downstream Operators to take action that may be necessary to ensure resilience and continuity of supply
  • information – to enable collection of information to better understand the impact of potential disruptive events, and to use the information to support industry in improving fuel resilience
  • restriction on acquisitions – to ensure that new owners of critical fuel infrastructure are financially sound and operationally capable
  • financial assistance – to enable government to support supply resilience improvements

A spokesperson confirmed that Essar, operator of Stanlow refinery and a leading UK downstream company, is: “Carefully considering the contents of the draft bill”, while the PRA welcomed the draft legislation, saying the planned new powers are “necessary irrespective of the emergency powers that may be granted under the Energy Act 1976 and the Civil Contingencies Act 2004.”

Suggesting a level of caution, the UKPIA spokesperson concluded: “The Downstream Oil Resilience Bill is being assessed closely by UKPIA to ensure protection for the consumer whilst continuing to encourage the strong competitive forces that have ensured supply to date.”