Drop in oil product demand highlighted in industry review

UKPIA has today published its annual review of the UK downstream industry. It provides a collection of recent information on the sector from government departments, UKPIA members, and a range of other sources. The Statistical Review, which UKPIA has published since 2003, is an accessible compendium of UK downstream industry statistics and provides a comprehensive and quick reference point for those working in industry, policy makers, and all who wish to gain a quantitative understanding of the UK industry.

With its release, UKPIA’s director-general, Stephen Marcos Jones, commented: “We’ve continued to improve the UKPIA Statistical Review, and several new statistical analyses have been included in this year’s publication, most notably on GHG savings from biofuels and the impact of COVID-19 on the sector.

The impact of the pandemic

The impact of Covid-19 on supply and demand in the sector has been significant, with the demand for oil products falling by 23.4% in 2020, whilst UK GDP as a whole fell by 9.8% – both historically large declines. UK refineries are still recovering from the effects which saw utilisation rates falling by 20%, ending nearly a decade of high utilisation, and reversing an overall upwards trend of usage rates. With European refining marker margins falling over the same period by 66.4% on average the challenge to operating profitably at the supply end are clear. However, due to efficient capital deployment, the downstream sector contributes to stable annual net profits despite fluctuating product prices and net profits for UKPIA members have remained relatively steady, at just over £1 billion.

Although demand fell across all products, it did not fall equally and, therefore, neither did production. Unsurprisingly, jet fuel production fell the furthest – by 62% – and heating oil production fell the least – by 6%. The only increase seen was in fuel oil production which rose by 5%. Despite the effects of the pandemic, the 10-year average proportion of refined product production has not been affected and heating oil remains 3% of the overall production.

Taking environmental impacts seriously

As has been covered in detail in Fuel Oil News, biofuels are an important way to reduce carbon emissions especially those produced by the current vehicle fleet. Two years of large annual increases to the RTFO target have resulted in corresponding large increases in biofuel deliveries and 2019 saw greenhouse gas savings of 5.4 million tonnes of CO2e achieved from biofuels replacing fossil fuels. A high proportion – 69% – of UK biofuels are waste derived, largely, used cooking oil, due to the ability to ‘double count’ these but, with limited domestic biofuel capacity, as the mandate rises more biofuel will be sourced from abroad. In 2019 only 11% of biofuels delivered to UK markets were sourced domestically. With the introduction of the development fuel obligation and the ability to double count these development biofuels, we see the introduction of wind power and geothermal as feedstocks become more diverse.

Emissions reductions have been achieved across all sectors, demonstrating the seriousness with which the downstream industry takes climate and air pollution. With significant emissions reductions in energy and other sectors, transport has become the largest source of GHG emissions.

The changing face of transport

A wide range of vehicles are supplied by products from the downstream sector. As a result of the pandemic in 2020, road traffic as well as new registrations decreased for most vehicle types. The significant increase in newly registered low-emissions vehicles, however, did not slow in 2020.

While the overall car parc decreased in size by less than 1% in 2020 to 31.7 million, the decrease in the number of diesel-only cars was over 4x greater than that of petrol-only cars. This decrease in the overall car parc is due to the large decrease in the number of new registrations in 2020 which fell by 24% and, for the first time since 2012, fewer than a million new petrol-only cars were registered. Similarly, while new diesel-only registrations have been decreasing since 2016, the 51% year on-year decrease in 2020 is remarkable. 2020 was only the second year in which the number of diesel-only cars decreased since 2000. Although petrol-and diesel-only cars continue to dominate, making up 97% of the car parc, their share is down by nearly 1%, year-on-year.

During economically challenging periods it is common for car registrations to fall. The dramatic decrease in registrations seen in 2020 is in line with the dramatic decrease in GDP. However, although new registrations of ICE-only propulsion cars have decreased, registrations of “other” propulsion cars have not, continuing a trajectory of significant increase and exceeding 1 million for the first time. The greatest of these increases was in the number of battery-only cars, with the number of plug-in hybrid and hybrid electric cars also increasing.

A sector in transition

A further indication of the increasing pace of the switch to electrification of transport is that, despite challenging circumstances in 2020, over 36,000 public EV charging connectors were available in the UK, an increase of 24% compared to 2019.