Queen's Speech 2021 - Draft Downstream Oil Resilience Bill

The purpose of the draft Bill is to:

● Address threats to security of fuel supply by providing the Government with to build resilience in the downstream oil sector, including companies

● Help protect fuel supply resilience when required and prevent supply disruptions from occurring in the first place.

The main benefits of the draft Bill would be:

• ● Identifying risks of disruption to the UK fuel supply market and ensuring that Government and industry can implement effective and proportionate contingency plans as early as possible.

• ● Ensuring that if a key asset is sold, the new owners are financially and operationally capable of keeping fuel supplies flowing.

• ● Helping to ensure a consistent resilience standard across critical national infrastructure sectors; delivering commitments set out in ‘Global Britain in a competitive age: The Integrated Review of Security, Defence, Development and Foreign Policy’.

  The main elements of the draft Bill are:

• ● Enabling the Government to direct companies to take necessary action to ensure resilience and security of fuel supply, if necessary.

• ● Allowing the Government to collect information from the sector to understand the impact of potential or active disruptive events.

• ● Ensuring that new owners of critical fuel infrastructure are both financially sound and operationally capable.

• ● Enabling the Government to provide financial assistance to build resilience and ensure security of supply if necessary.

• ● Creating a number of new civil and criminal penalties under which a company and its officers may be liable for failing to comply with a direction, making false statements and failing to provide required information.

Territorial extent and application

● The provisions in the Bill will extend and apply to the whole of the UK.

Key facts

• ● In 2019, 44 per cent of the UK’s energy consumption was from crude oil or oil products, and petroleum-based fuels provided 96 per cent of the energy for the transport sector, with very limited opportunity for substitution. The importance of oil products makes it paramount to achieve an optimal level of supply security. Despite the reduction in demand for oil products during the COVID-19 pandemic, they remain essential to UK economic activity.

• ● The downstream oil sector comprises over 200 companies involved in the refining, importing, distribution and marketing of oil products (particularly transport fuels), with many more involved in retail.

• ● There is a risk of disruption to the UK fuel supply market from the sudden loss of any critical supply infrastructure site. In recent years there have been operational and financial events leading to sudden closures or disruptions at UK oil refineries, terminals, and pipelines.

• ● In 2020, the sector was significantly impacted by the COVID-19 pandemic putting operational and economic strain on all downstream oil operators who contribute, either directly or indirectly, to the supply of crude oil-based fuels to consumers or businesses in the UK. Market failures in the sector prevent consumers from fully insuring themselves against fuel supply disruptions and limit the incentives on suppliers to mitigate these risks.

• ● Oil-based fuels will continue to be important to the UK economy and quality of life for many years to come, especially for hard to decarbonise sectors such as aviation, road freight and marine. However, looking to the long term, the UK’s net zero targets will ultimately increase the pressure on the sector as it adjusts to the impact of low and zero carbon vehicles on fuel demand. However, it is estimated that, by 2035, demand for oil-based road transport fuel will still be over 50 per cent of the current volume.