The Stanlow refinery, which supplies about 15 per cent of UK’s petrol and diesel, has recorded an economic loss in the second quarter.
According to recently published results, the operational costs incurred by the Cheshire-based refinery have exceeded profit margins during the three months to the end of June.
The gross refining margins have slipped to £3.1 per barrel from £4.82 recorded a year earlier. To achieve the breakeven, the refinery needs to reach the target value of at least £3.84 per barrel.
The surplus of gasoline stocks in Europe, growing demand for cheaper diesel compared with more profitable petrol, as well as pressure on companies to cut emissions have been named as the main culprits of the situation.
The refinery, owned by Essar Energy since 2011, is not the first UK facility struggling with the shift in consumers’ demand for fuel. In 2012, the Coryton refinery in Essex was forced to shut down, resulting in hundreds of redundancies. The Teesside refinery had been closed down even earlier – in 2009.
However, Stanlow's spokesman has reassure that despite the weaker results, the refinery located near Ellesmere Port is on the right track. "Everything is on track for our major turnaround at the end of this year," he said.
Since acquiring the Stanlow plant, Essar has been investing heavily into its modernisation to reduce costs. The company has bought a 450-tonne steel regenerator head for £23m earlier this year, which was transported to the site from the Ellesmere Port Docks, forcing a temporary closure of the M53 motorway.
Additional investment was required to extend the life of Stanlow’s catalytic cracking unit – the largest in Europe – by 25 years.
Essar hopes to increase the gross margin per barrel to £3.8 by 2015 – a three-fold rise compared with the situation at the time of the acquisition.
Employing 1,000 people and producing about 75 million barrels per year, Stanlow is the second biggest UK refinery after Fawley, near Southampton. It manufactures petrol and diesel as well as fuel for jets at the Manchester airport.
Much of Stanlow's oil is supplied by Shell, but North Sea crude oils now comprise less than a quarter of its raw product, compared with more than 90 per cent in 2011. It sources cheaper fuel from around the globe including Russia, North Africa and offshore Canada.
Stanlow has also switched to using cheaper natural gas in its burners rather than fuel oil.
The disconcerting situation of UK’s refining industry has recently been discussed in a parliamentary report.