Jul 4, 2025
The UK is experiencing an increase in imports due to the potential closure of a refinery.
The UK may experience an additional increase of 30,000 b/d in its diesel deficit as plans to close the troubled Lindsey oil refinery progress, according to S&P Global Commodity Insights. The Lindsey refinery, which has a capacity of 108,000 b/d and is owned by Prax Group, filed for insolvency on June 29, making it vulnerable amidst a stressed European refining sector.
While the refinery continues to operate normally, preparation for its shutdown is underway, as stated by a spokesperson from the Department for Energy Security and Net Zero on July 3. Authorities are quickly assessing all possible uses for the plant before ceasing operations, but the spokesperson noted the government has "very little time to act." Sources indicate that the refinery has already halted fuel loadings, potentially creating an immediate gap in the UK fuel market.
By the first quarter of 2025, the UK was importing 59% of its diesel and 88% of its jet fuel, while being a net exporter of gasoline. Prax did not provide comments on the situation. Commodity Insights estimates that the refinery can produce about 30,000 b/d of diesel and 50,000 b/d of gasoline, highlighting its importance despite its smaller size.
In reaction to the news, diesel traders have turned to imports to secure supplies, with a notable increase in backwardation for low sulfur gasoil futures reaching $4.50 on July 2, marking a 16-month peak. The liquidation of the Lindsey refinery also puts its long-term crude supply agreements with Glencore into uncertainty after a new deal was established in July 2024.
The potential closure represents a significant challenge for UK energy and industrial policies, as numerous domestic refiners battle for competitiveness. Should Lindsey close, the UK would be left with only four operational refineries: Fawley, Pembroke, Humber, and Stanlow. Smaller refiners like Lindsey have continuously expressed concerns about their diminishing margins due to rising environmental costs and competition from larger, low-cost importers.
In April, Scotland's Grangemouth refinery transitioned to an import terminal, increasing UK oil product imports by 4% in year-over-year comparisons for Q1 2025. The Lindsey refinery's capacity was previously halved by TotalEnergies in 2016 before it was sold to Prax in 2021. To mitigate high energy costs for industries, the UK initiated a "Supercharger" scheme in April, though lobby groups argue that most refineries, which generate their own energy, may not benefit.
Refined products are currently excluded from a Carbon Border Adjustment Mechanism aimed at balancing production costs with foreign competitors who are generally free from emissions fees. From its acquisition in 2021 to February 2024, Prax reported losses of about GBP75 million ($100 million) for the Lindsey site, while Petroineos reported losses exceeding $775 billion since 2011.
In 2014, the government provided a GBP230 million loan to Petroineos to sustain the Grangemouth refinery, but it has since refrained from expensive bailouts for the downstream sector. Government officials deemed the century-old Grangemouth refinery structurally unprofitable ahead of its closure and are focusing on clean energy alternatives instead.
Plans are in place to transform Grangemouth into a "flourishing low carbon hub," with the UK and Scottish governments allocating GBP225 million ($290 million) in joint funding, although final plans have not yet been established. Other recently closed UK refineries, including Coryton and Milford Haven, have been repurposed as storage facilities.
Government data indicates that the UK achieved its largest oil stock build in over three years in Q1 2025, but rising import demands limit the effectiveness of these stocks. As of March, the International Energy Agency reported that the UK possessed oil stocks sufficient for 127 days of net imports, a decrease from 152 days the previous year.
Both Prax's parent company, State Oil Limited, and the Lindsey refinery division have filed for insolvency, as confirmed by Teneo, a financial advisory firm involved in the liquidation process, though associated retail and logistics operations remain unaffected.
While the refinery continues to operate normally, preparation for its shutdown is underway, as stated by a spokesperson from the Department for Energy Security and Net Zero on July 3. Authorities are quickly assessing all possible uses for the plant before ceasing operations, but the spokesperson noted the government has "very little time to act." Sources indicate that the refinery has already halted fuel loadings, potentially creating an immediate gap in the UK fuel market.
By the first quarter of 2025, the UK was importing 59% of its diesel and 88% of its jet fuel, while being a net exporter of gasoline. Prax did not provide comments on the situation. Commodity Insights estimates that the refinery can produce about 30,000 b/d of diesel and 50,000 b/d of gasoline, highlighting its importance despite its smaller size.
In reaction to the news, diesel traders have turned to imports to secure supplies, with a notable increase in backwardation for low sulfur gasoil futures reaching $4.50 on July 2, marking a 16-month peak. The liquidation of the Lindsey refinery also puts its long-term crude supply agreements with Glencore into uncertainty after a new deal was established in July 2024.
The potential closure represents a significant challenge for UK energy and industrial policies, as numerous domestic refiners battle for competitiveness. Should Lindsey close, the UK would be left with only four operational refineries: Fawley, Pembroke, Humber, and Stanlow. Smaller refiners like Lindsey have continuously expressed concerns about their diminishing margins due to rising environmental costs and competition from larger, low-cost importers.
In April, Scotland's Grangemouth refinery transitioned to an import terminal, increasing UK oil product imports by 4% in year-over-year comparisons for Q1 2025. The Lindsey refinery's capacity was previously halved by TotalEnergies in 2016 before it was sold to Prax in 2021. To mitigate high energy costs for industries, the UK initiated a "Supercharger" scheme in April, though lobby groups argue that most refineries, which generate their own energy, may not benefit.
Refined products are currently excluded from a Carbon Border Adjustment Mechanism aimed at balancing production costs with foreign competitors who are generally free from emissions fees. From its acquisition in 2021 to February 2024, Prax reported losses of about GBP75 million ($100 million) for the Lindsey site, while Petroineos reported losses exceeding $775 billion since 2011.
In 2014, the government provided a GBP230 million loan to Petroineos to sustain the Grangemouth refinery, but it has since refrained from expensive bailouts for the downstream sector. Government officials deemed the century-old Grangemouth refinery structurally unprofitable ahead of its closure and are focusing on clean energy alternatives instead.
Plans are in place to transform Grangemouth into a "flourishing low carbon hub," with the UK and Scottish governments allocating GBP225 million ($290 million) in joint funding, although final plans have not yet been established. Other recently closed UK refineries, including Coryton and Milford Haven, have been repurposed as storage facilities.
Government data indicates that the UK achieved its largest oil stock build in over three years in Q1 2025, but rising import demands limit the effectiveness of these stocks. As of March, the International Energy Agency reported that the UK possessed oil stocks sufficient for 127 days of net imports, a decrease from 152 days the previous year.
Both Prax's parent company, State Oil Limited, and the Lindsey refinery division have filed for insolvency, as confirmed by Teneo, a financial advisory firm involved in the liquidation process, though associated retail and logistics operations remain unaffected.