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Downstream Oil – Short Term Resilience and Longer Term Security of Supply”, As Set out in the Contract

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Downstream Oil – Short Term Resilience and Longer Term Security of Supply”, As Set out in the Contract Downstream oil - short term resilience and longer term security of supply . Final Report for DECC 1 April 2010 Private and Confidential This report has been prepared on the basis of the limitations set out in the engagement letter and the matters noted in the Important Notice From Deloitte on page 1. Deloitte LLP is authorised and regulated by the Financial Services Authority. Deloitte LLP is a limited liability partnership registered in England and Wales with registered number OC303675 and its registered office at 2 New Street Square, London, EC4A 3BZ, United Kingdom. Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu ('DTT'), a Swiss Verein whose member firms are separate and independent legal entities. Neither DTT nor any of its member firms has any liability for each other's acts or omissions. Services are provided by member firms or their subsidiaries and not by DTT. © 2010 Deloitte LLP Downstream oil resilience and security of supply 1 April 2010 Contents Important Notice from Deloitte ................................................................................ 1 Executive Summary ................................................................................................ 2 Background ................................................................................................................................... 2 Scope of this report ........................................................................................................................ 2 Our approach ................................................................................................................................. 2 Findings from our scenario analysis ............................................................................................... 6 Key conclusions ............................................................................................................................. 7 Policy recommendations .............................................................................................................. 10 1 Introduction .............................................................................................. 14 1.1 Background ................................................................................................................... 14 1.2 Scope of Report ............................................................................................................ 17 2 The UK’s supply-demand positioning for crude and oil products ............. 19 2.1 Crude supply-demand ................................................................................................... 19 2.2 Refined products supply-demand .................................................................................. 25 2.3 UK balance tables: 2008 - 2015 - 2030 ......................................................................... 33 3 The UK’s oil supply chain ......................................................................... 38 3.1 Crude supply chain ....................................................................................................... 38 3.2 Refined product supply chain ........................................................................................ 40 3.3 UK distribution channels ................................................................................................ 42 4 Key security of supply risks and scenarios............................................... 46 4.1 Overview of analytical framework .................................................................................. 46 4.2 Interruption Scenarios: definition and significance.......................................................... 51 5 Mitigating actions to limit impact of supply interruptions .......................... 68 5.1 Global crude production capacity ................................................................................... 68 5.2 Access to alternative crude supplies .............................................................................. 69 5.3 UK refinery production ................................................................................................... 71 5.4 Export diversion ............................................................................................................ 74 5.5 Global spare refining capacity ....................................................................................... 76 5.6 Access to alternative product supplies ........................................................................... 79 5.7 Shipping ........................................................................................................................ 81 5.8 UK handling capacity ..................................................................................................... 82 5.9 Utilisation of inventory and stocks .................................................................................. 82 5.10 Demand rationing .......................................................................................................... 84 6 Analysis of scenario impacts .................................................................... 87 6.1 Norwegian crude imports ............................................................................................... 88 6.2 Russian federation crude exports .................................................................................. 96 © 2010 Deloitte LLP. Private and confidential Downstream oil resilience and security of supply 1 April 2010 6.3 Asian-Pacific refined product imports ........................................................................... 104 6.4 Interruption to Saudi crude .......................................................................................... 110 6.5 Refined product exports from the Netherlands ............................................................. 114 6.6 UK refinery interruption................................................................................................ 120 6.7 UK primary distribution ................................................................................................ 126 7 UK refineries and downstream resilience ............................................... 130 7.1 Conditions where UK refineries benefit resilience and security of supply ...................... 130 7.2 Potential benefit when markets are not functioning ...................................................... 131 8 Wider cost benefit analysis .................................................................... 134 8.1 Employment benefits ................................................................................................... 134 8.2 Price impact on consumers ......................................................................................... 136 8.3 Petrochemical feedstocks ............................................................................................ 139 8.4 Storage cost ................................................................................................................ 140 8.5 Wider spillover effects ................................................................................................. 142 8.6 Summary of wider costs and benefits .......................................................................... 143 9 Policy implications .................................................................................. 145 9.1 Key Conclusions ......................................................................................................... 145 9.2 Policy implications ....................................................................................................... 148 © 2010 Deloitte LLP. Private and confidential Downstream oil resilience and security of supply 1 April 2010 Important Notice from Deloitte This report (the “Report”) has been prepared by Deloitte LLP (“Deloitte”) for the Department of Energy and Climate Change (“DECC”) in accordance with the contract with them dated 7th December 2009 (“the Contract”) and on the basis of the scope and limitations set out below. The Report has been prepared solely for the purposes of provision of consultancy services on the research project “Downstream oil – short term resilience and longer term security of supply”, as set out in the Contract. It should not be used for any other purpose or in any other context, and Deloitte accepts no responsibility for its use in either regard. The Report is provided exclusively for DECC’s use under the terms of the Contract. No party other than DECC is entitled to rely on the Report for any purpose whatsoever and Deloitte accepts no responsibility or liability to any party other than DECC in respect of the Report and/or any of its contents. As set out in the Contract, the scope of our work has been limited by the time, information and explanations made available to us. The information contained in the Report has been obtained from DECC and third party sources that are clearly referenced in the appropriate sections of the Report. Deloitte has neither sought to corroborate this information nor to review its overall reasonableness. Further, any results from the analysis contained in the Report are reliant on the information available at the time of writing the Report and should not be relied upon in subsequent periods. Accordingly, no representation or warranty, express or implied, is given and no responsibility or liability is or will be accepted by or on behalf of Deloitte or by any of its partners, employees or agents
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