Oil giants warn DTI over stockpile

Britain's leading oil companies will warn the Government today that petrol prices could rise sharply unless it agrees to take charge of the country's strategic stockpile of emergency oil supplies.

The oil industry and the big supermarkets are at loggerheads with the Department of Trade and Industry over its attempts to force them to shoulder the burden of maintaining the stockpile, which requires EU member states to have 90 days' supply.

They fear this could mean more expensive petrol, diesel, aviation fuel and fuel oils used by industry.

Under present European and international treaty obligations, the UK is required to hold only 67.5 days of oil supplies at refineries to safeguard against any sudden shortage because of its supplies of North Sea oil. Non-refiners such as supermarkets are required to hold 48.5 days' supply.

But as indigenous supplies run down, the UK will lose its derogation under the EU rules and the stockpile will have to rise to 90 days' supply. The European Commission wants to increase this to 120 days' supply and although opposition from some member states has prevented this, the proposals are still on the table.

The dispute between industry and the Government will come to a head today at a meeting with senior DTI officials attended by representatives from oil majors such as Shell and BP, independent oil companies and trade associations representing tank storage operators and petrol suppliers.

The industry wants the DTI to follow the lead of the US and most other major European countries by setting up a government-regulated non-profit agency to manage the stockpile and trade the supplies held in it. The only EU member states not to operate such a system, other than the newly admitted countries of eastern Europe, are Luxembourg, Greece, Austria and Italy. The fear is that if oil companies and supermarkets are forced to increase their stocks by 50 per cent or even 100 per cent, then this will impose a huge additional cost burden which will have to be passed on at the pumps.

There is also concern that smaller independent wholesalers, who traditionally supply the supermarkets with cheap petrol, will be forced out of the market because of the cost of maintaining such big stockpiles.

Vernon Davis, the head of Sainsbury's petrol forecourts business, said: "It is for the Government to balance the risk of fuel shortages against potential cost increases. People are already paying a lot for petrol because of the horrendous tax on a litre of fuel. If the Government says we need a bigger stockpile and that adds to cost then maybe the Government should share some of the burden."

Oil industry sources warned that bigger stockpiles would not overcome the problems which erupted at the time of the fuel protests in 2000 because it was refineries which were blockaded, resulting in panic buying by motorists. It has also emerged that the UK was in breach of its EU obligations on minimum stockpiles of aviation and diesel fuel during 2003 which nearly resulted in Heathrow airport running out of jet kerosene at one point.

The DTI issued a consultative document in 2003 asking for views on how the Compulsory Stocking Obligations, as they are known, should be met in future. Although the overwhelming response was that the Government should set up a non-profit agency, ministers have turned a deaf ear.

A DTI spokesman refused to comment on today's meeting. But he said: "Our view is that the companies themselves should hold the stocks as they are better positioned to use them. The fact that things happen differently elsewhere does not necessarily mean we should adopt the same approach."