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What are the risks to Heating Oil Supply in the UK?

 

However, we all, and I mean home owners and suppliers alike, have short memories.

The winters of 2009, and especially 2010 saw colder than average winters. Pipes started to freeze up and heating systems all over the country flicked from “twice a day” to just “On”. In 2010, the cold snap started in early December and lasted around 6 weeks causing havoc to fuel supplies as the industry simply could not keep up with demand. Lead times went out to several weeks, prices rocketed up for the whole winter and many people (me included, as it happens) found themselves without fuel over Christmas. Indeed it was this single event that originally spurred me to launch my own oil company in late 2011, which I accept may have been a slightly extreme reaction, but it really was an unpleasant experience to be without heating during that cold spell.

So could that situation happen again?

Of course the answer is yes – and there are a bunch of reasons why.

Firstly, whatever happens in relation to climate change, the weather we have experienced over the past 5 years has broken records in every direction – Hottest, coldest, wettest (very relevant to us locally), windiest, driest – records falling in every measure – I see no reason that we won’t fall victim to a prolonged cold winter in the near future.

This is the main trigger point for the potential for shortages, and most people buying heating oil would probably realise that a longer spell of colder weather is going to cause some level of problems. What makes it worse are a bunch of other factors that anyone outside of the fuel industry may not be aware of.

Firstly we have just seven refineries in the UK, all dotted around the coasts. Whilst we can, and do, ship in refined product via sea, most of the UK Heating Oil is refined here in the UK. The problem is that the refineries are rather old, most built in the 1950’s and 60’s and need constant maintenance and repair to keep the products flowing. There are many planned outages to let this work be done, but there are a rather worrying number of failures that are not planned and can take the whole refinery off line instantly.

The second problem relating to the refineries is that it can only produce fuel at a set rate, most Kerosene, the fuel used in Heating Systems, is also the fuel used in Aviation Fuel which is in constant demand from the airlines. A spike in demand due to cold weather is very difficult for the refineries to respond to – they hold tiny stocks of refined fuel, indeed generally it gets pumped onto our trucks still warm from the refining process.

So when demand spikes, the only spare capacity is in the distribution network at local suppliers, like Craggs Energy. Which is fine for a couple of days, but hardly any UK distribution company can afford to hold more than a few day’s worth of stock when the price of fuel is so volatile and the costs of holding stock are so high.

The final issue is the local logistics to getting the fuel from distributor to the home – When it is very cold, it has a habit of snowing and that can decimate the ability every fuel distributor has to ship fuel. With the majority of Heating Oil users being rurally based, this only make the issue worse. On top of that is the fact that the fleet of delivery trucks will never be big enough across the UK at peak demand – it can’t be or all of the distributers would go bust every summer with a fleet of unused trucks standing idle. In the same way that we always run out of grit in the worst winters, we will always run out of capacity to delivery oil quickly.

The main issue, however, based upon what I can see across both the industry and customers is the very human trait of complacency. 2010 seems a long time ago, memories are short and not only have customers got used to free availability of heating oil, so have the distributers. In the aftermath of 2010, product supply and availability were high on the agenda. Lots of guaranteed supply contracts were entered into, even though they are more expensive than just buying “spot” on the day. Stock holding was increased as everyone wanted to ensure that the problems of 2010 would not be repeated….then 6 years of pretty mild winters. We have had a few cold snaps, even the odd week, but with the lack of cold, everyone has started to revert to assuming that fuel will always be there on tap.

I read recently that there are concerns in the City that more than 75% of traders working in London have joined since the financial crash of 2008, and they can’t remember how painful it was and hence there is a higher risk of repeating the mistakes that were made in the run up to the collapse of the markets. Whilst the impact of running out of heating oil in the UK might not have the same levels of general carnage as a financial crash, but from personal experience, I can tell you it is pretty unpleasant!

What should we do to mitigate the risks?

Well you could start your own oil company, but I’m not sure that is the most sensible response. Far better are to take some simple precautions to ensure that you don’t get caught out.

Firstly either check your tank regularly for both fuel level and any potential damage to the tank. There are plenty of remote monitors available on the market or from your local distributor, but running out in the winter months is just asking for trouble. The other thing to do is keep general fuel levels higher than you might in the summer months. The risk period is probably October to April, outside of that the chances of major disruption are really minimal, but during this period, keeping the tank nice and full is a very sensible precaution. It might cost a bit more to take a smaller delivery (500 litres is the smallest you will get bulk delivered), but it is a very small price to pay to know that you are unlikely to run out if the supply of fuel is constrained for any period of time.

Picture shows the extreme snow in April 2013. Picture shows the extreme snow in April 2013.
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The Industry

2017 Show Dates!!

 

 

Halifax Agricultural Show – Saturday 12th August

Pendleside Tractor Rally - Saturday 19th August

Kilnsey Show – Tuesday 29th August

Westmorland County Show – Thursday 14th September

Penistone Show – Saturday 9th September

Make sure you call over to our stand where we will have complimentary drinks, competitions for all the family and a special show-only price! Alongside this, members of our team will be on hand to discuss your Heating Oil, Red Diesel or Lubricant requirements.