dsr wrote:Straight imports/exports won't be affected, but the UK's own oil, and oil refined in the UK will be at a competitive advantage because domestic wages and overheads are (I assume) paid in Sterling. Obviously this advantage is offset to a greater or lesser degree by the tariffs. But the point is that tariffs are bad news but not entirely bad news.
The other bit these yellowhammer papers don't mention is that while UK refineries exporting to Europe are at a competitive disadvantage because of tariffs, EU refineries exporting to the UK are at a double competitive disadvantage because of tariffs and exchange rates. It works both ways. Two competing refineries, one in France and one in the UK, may experience losses of sales to each other. It won't be all one way.
Hi dsr, I agree that GBP refinery operating costs will be lower than the equivalent Euro refinery operating costs, if all other things are equal between the refiners, but, generally these costs are at the very margins. The key things with refineries are what "kit" has the refinery got, i.e. how are the different conversion units configured, what are the scale of these different units, where has the refinery got bottlenecks and where does it have flexibility. Very rarely will one refinery be identical with another. Ideally, refineries are configured to optimise their crude "diet" based on intake of "advantaged" crudes. Some are configured to best process heavy sour crudes, some are better suited to sweeter, light specifications. And, then you have the issue that with every cargo of crude oil the refinery ends up with set percentages of "light ends" - which are on processed to manufacture gasoline (petrol to you and me) - middle distillates - gasoil, diesel and jet/kero - and heavy, residual fuel oil. This co-manufacturing process can leave the refinery selling some of its production at a loss, while it seeks to maximise the value of the sale of higher value products. All the time, you are selling at the then prevailing market price - and these prices change throughout the day. You may often sell as soon as you are able to to receive whatever price the market is then offering - and storing unsold product has it's own costs, so you don't plan to hold onto oil any longer than necessary. (Of course, you may also use hedging techniques to change the timing of the economic value of the sale and the actual physical sale of the product - and, again, hedging comes with it's own costs).
So, local wages and other overheads being paid in GBP or Euros are neither here nor there for the refiners.
BTW: I do hope the guys working on yellowhammer have this, and more, knowledge and expertise about refinery economics.