Knowledge Hub

Hydraulic fracturing, or fracking, is a process that uses high-pressure fluid injections to shatter rock formations and extract natural gas. Due to the high pressures involved, fracking is also associated with increased seismic activity and as a result can highly disrupt local geological formations. In contrast, Carbon Capture and Storage (CCS) is a process whereby CO2 is “captured” from the air and then transported to a storage site where space already exists; for example a depleted oil or gas field or a deep rock reservoir, and as such, invasive and destructive processes are not required. Therefore, CCS does not destabilise geological formations in the same way that fracking does.

Geologic carbon sequestration is the process of storing carbon dioxide (CO2) in underground geologic formations. The CO2 is usually pressurised until it becomes a liquid, and then it is injected into porous rock formations in geologic basins. Storage sites must generally be located at a depth of 800m or deeper, where prevailing pressures keep CO2 in either a liquid or a supercritical state. A supercritical fluid is a substance at a temperature and pressure above its critical temperature and pressure. The critical point represents the highest temperature and pressure at which the substance can exist as a vapour and liquid in equilibrium. Therefore, the CO2 is stored in its liquid form and not in a gaseous state.

It often surprises people that the UK imports more fuel than it exports, considering our history as a North Sea oil producer. But the fact is, even in the heyday of North Sea crude oil production, the UK was still importing a great deal of oil. Historically this was because North Sea oil is of high quality and therefore commands a premium price on global markets. Therefore, producers preferred to sell their UK crude internationally (at a higher price), whilst UK refiners bought their crude from elsewhere and enjoyed lower purchase prices, as a result of buying lower quality crudes.

This practice still continues to this day, with complex UK refineries preferring to buy in lower grade, cheaper global crudes (which they can still easily process into refined products), whilst the more expensive North Sea blends go overseas to less sophisticated refineries which require high grade crude to produce high quality refined fuel such as gasoline and jet fuel.

This situation, however, has been compounded over the last 10 years with declining North Sea oil production. This has meant that the UK fundamentally uses more crude oil than we extract and so we have become ever more dependent on overseas crude for supply chain (rather than price) reasons.

A more pertinent issue today is just how reliant the UK has become on imported refined products. UK refineries are typically geared to the production of gasoline (petrol), which means that grades such as diesel and jet fuel (demand for which have grown hugely since the turn of the Millennium) have been imported in greater and greater volumes – much of it traditionally from Russia. So whilst the UK was only importing about 5% of its crude oil requirements from Russia in the run-up to the Ukrainian invasion, the equivalent figure for diesel was 25%. Obviously Russian product has now been sanctioned which is why finished products in the UK went up in price much more than crude in 2022.

Supermarket fuel is the same as branded forecourt fuel (BP, Shell, Esso et al) in that the basic product comes from the same refinery or fuel depot. This is because most fuel companies do not have their own supply-chain and instead rely on each other’s assets and / or 3rd party facilities, where they “co-mingle” their stock. So in the UK for example, the fuel at a Tesco Petrol Station in Southampton comes from the Esso Fawley refinery (nr Southampton), which also supplies the same fuel to branded Esso Petrol Stations on the South Coast.

So that’s the “no” bit, but it would be wrong to conclude that fuel in a Tesco site is exactly the same as an Esso site. This is because Esso add their own special additives to the fuel (cleaning agents, lubricity improvers, octane boosters etc), whereas the supermarkets typically just buy and sell basic / neat petrol and diesel. If the oil companies are to be believed, then you might conclude their fuel is higher quality. But in reality, the core product is the same whether you fill at a branded service station or a supermarket.

Thanks for this question Natalie– it’s one that we often get asked.

The first idea we’d like to scotch is that supermarkets sell their fuel at a loss, which is a common misconception. In realty, it rarely happens – if ever. People might perceive that the supermarkets have buying advantage over other retailers of fuel (because of their size), but in reality, they buy at best, half a penny better than the standard wholesale market price. Where they do have an advantage however is on overheads and how that filters through to the unit rate sold at the pumps. So if you take a medium sized petrol station, with an annual throughput of 3m litres, as a minimum you are going to require 5 employed staff (Manager, cashiers, cleaners, maintenance etc, etc). 5 staff at an average UK salary of £25K gives a total overhead cost of £125,000. Divide that by the volume, and you have an overhead pence per litre (ppl) rate of 4.17ppl. This has to be added to the cost of the fuel sold.
A Supermarket filling station on the other hand, probably has no less than 3 dedicated workers, as much of the maintenance, service and management are integrated into the overall store operations. Even more significant is the average throughput of a typical supermarket site, which is circa 10m litres per annum. Take £75K (3 employees) and divide that by 10m litres and you have an overhead cost of 0.75ppl – basically 3.5ppl cheaper than an independent forecourt. Add in the likely buying advantage of 0.50ppl and you have fuel that can retail at 4ppl cheaper than an independent petrol station (and still make a decent turn on selling 10m litres per annum).

The answer to this one is relatively simple Matthew; E10 is petrol with a 10% bio content.

Most European countries have a requirement to blend neat mineral oils (petrol and diesel) with a bio component, in order to reduce CO2 emissions. In the case of petrol, the bio component is ethanol, so the grade of fuel is called E(thanol) 10.

Neat (100%) petrol and E10 petrol are almost identical in terms of ignition and flammability characteristics, plus the use of E10 is allowed under engine warranties. However, E10 is what’s called hygroscopic, which means it has the capacity to hold water in suspension. Water in fuel is never a good idea, so it does mean that the storage of E10 in fuel tanks requires extensive tank maintenance and housekeeping to keep water out.

Unlike E10 petrol, you will not see B10 diesels, because engine manufacturers only allow 7% bio content (ie, B7) in diesel. Diesel bio can come from many things (Used Cooking Oil, Palm Oil, Tallow), as opposed to petrol bio, which is almost always ethanol based.

Great question Marie. I think if we’d been asked that question 10 years ago, we would have almost certainly said Peak Supply. Demand was rapidly rising and other than shale plays, there wasn’t too much conventional oil activity that looked like it could keep up with demand.

However, a lot has changed in 10 years (no sh1t Sherlock!) and that change has become turbo-charged in the last 12 months. Yes, once we start to see economic recovery on the back of the vaccine roll-out, we should see demand for oil products recovering strongly. But at the same time, the public’s perception of oil (and fossil fuels in general) has changed irrevocably. In short, consumers now want their mobility, power and heat from anything but oil and gas.

The inevitable result is that oil companies will be seriously concerned with the idea that their core product is in permanent decline. Oil has become an unpleasant necessity, rather than a reflection of positive economic growth. With that in mind, we suspect that most oil majors are now 100% focussed on the problems of “Peak Demand” and within the next 5 years we expect them to have pivoted massively away from drawing oil out of the ground, in favour of renewable and sustainable energies.

This is a question that vexes a lot of people and not for good reason. A superficial answer would be about 1-2 weeks, with for example Crude from the North Sea being landed at a UK Refinery (2 day voyage), stored in refinery tanks (1-2 days), processed (1-2 days), back into storage (1-2 days), loaded onto a truck and then delivered to a petrol station (1 day). On top of that, you would need to add another 3-4 days if the product is to be sent from the refinery by pipeline / truck / small coastal ship to a fuel depot around the country, where there is another 2-3 days of storage before loading onto a truck and delivery to a petrol station. And then you have to factor in the vastly different consumption rates – at both depot and fuel station level – which means stock turnover can be anything from 2-3 days (busy urban sites) to 2-3 weeks (remote rural sites).

All of the above sounds complicated, but is nonetheless fairly logical. It is also only half the story! Whilst it explains the logistical time-delay in the correlation of prices from crude oil. it does not explain any market values of the refined products themselves. In reality, diesel, petrol and every other refined grade have their own market value that does not necessarily follow the price of oil. So for example, if there is a large draw-down of gasoline stocks in the USA (let’s say at the beginning of the US Driving Season = May / June), then you could easily have a situation whereby the price of Gasoline goes up (increased demand), whereas the price of crude stays static or even on occasion goes down (because demand for crude oil elsewhere in the world has softened). Another good example of this, is Heating Oil in Europe (effectively diesel) which can increase in price at the beginning of the winter (around November), completely independently of movements in crude price.

So in a nutshell, there is a correlation between crude prices and refined prices and in the UK that correlation has a time lag of about 2 weeks. But the correlation is not guaranteed and can frequently disappear entirely.