Many households across the UK without access to the natural gas grid rely on deliveries of heating oil to heat their homes. Heating oil is also used by smaller commercial customers, notably with demand focused in the agricultural sector.[I've bolded the juicy parts. Text extracted from Lords Hansard text for 20 Dec 2010]
Overall, UK heating oil demand is around 3.7 million tonnes per year with domestic demand accounting for some 60 per cent. Demand is seasonal, with around two-thirds of heating oil consumed between October and March.
The recent severe weather has significantly disrupted the distribution of heating oil to customers across the UK, particularly, but not only, in Scotland. The severe weather, notably low temperatures and heavy snow, has caused considerable disruption to road networks, which has affected suppliers' ability to make deliveries particularly to more remote areas away from the strategic road network. This has resulted in delivery backlogs, which suppliers have been working hard, in difficult circumstances, to reduce.
There are around 200 fuel distributors in the UK, which work hard throughout the year to supply their customers. Many of these companies are small businesses, some with perhaps only two or three delivery vehicles. A tanker will make an average of 16 domestic deliveries per day covering some 180 miles to make these deliveries. The bulk of the time in making a delivery is taken up by the travel between the vehicle's base and the customer and between customers. Some larger suppliers hold their own stocks at smaller depots but others pick up from fuel terminals "off rack", purchasing product on the spot market. Modern road tankers deliver fuel to the customer's storage tank via a dedicated fuel delivery system.
Tackling this backlog is challenging for the industry at a time when, due to the cold weather, it has been facing significantly higher demand than is usual at this time of year. This challenge has been exacerbated by delays to deliveries due to the state of the road network in parts of the UK and customers bringing forward deliveries that would usually have been made in the new year. However, prompt action to relax regulations on drivers' hours has enabled drivers to work for longer each day making more deliveries and helping to manage the backlog.
Distributors are doing all that they can to prioritise deliveries to vulnerable customers and those running short on fuel. Working with DECC, the Federation of Petroleum Suppliers has issued a voluntary code of practice to its members to help them to prioritise orders to those most in need. We are also putting in place arrangements with distributors, through the relevant trade associations, the Federation of Petroleum Suppliers and UK Liquid Petroleum Gas, for distributors to alert local authorities when they are aware of a risk that potentially vulnerable households will run short of heating oil. Similarly, we have asked local authorities and other local responders to be aware of these risks and, taking account of local circumstances, to consider what assistance they can provide to potentially vulnerable households who may need support over the Christmas and new year period.
It sounds like the minister has been told what to say by the Federation of Petroleum Suppliers, in an effort to allay people's suspicions of exploitation by the oil supply industry. Conditions are difficult, but surely not enough to justify the crazy sorts of prices doing the rounds in the run-up to Christmas.
Other parliamentarians are not so diplomatic. On Tuesday 21 December, Neil Parish and Craig Whittaker were allowed a minute or two to vent their anger at some 'unscrupulous' oil companies. Craig Whittaker mentioned that he has constituents "who have contacted me in the past couple of days to express the real suspicion that the supply of oil is being held back to inflate prices artificially, with the companies knowing full well that the average UK home that uses oil can store only up to 60 days' worth" He concludes that in effect, those homes have to buy oil when winter is at its worst.
I rise to speak about heating oil, another matter very important to rural constituencies. My constituency is 40 miles long; it starts on Exmoor and ends up in the sea at Seaton. There is a huge rural area within those boundaries, and many of the villages and hamlets there have no mains gas supply. Their only alternative to electricity for heating is oil. That is why the postcode lottery on what people pay for heating oil must stop.[I've bolded the juicy parts. Text extracted from House of Commons Hansard Debates for 21 Dec 2010]
During business questions last week, I made the point that during November and early December, crude oil prices went up by 17% and that the price of heating oil went up by 70%. There is no justification for that. Within rural areas, there are many old properties - some are farm houses, some are small cottages - and they are difficult to insulate with modern insulation and expensive to heat. People need more fuel to heat them, and if we lump on to that the huge increase in price, a lot of the heating allowances for poorer people just do not go very far at all.
About 2 million properties rely on heating oil; they are mostly in rural areas - 828,000 of them are in England. Recently, as I said, there has been a spike in oil prices that could add as much as £540 a year to the average family's heating bill. The price of heating oil tends to rise gradually in the winter months, when demand is at its highest. A home owner might use anything between 2,500 to 4,000 litres of oil. Price rises during winter are unavoidable, but the price rises that we have seen cannot be justified simply by supply and demand.
Furthermore, some oil companies unscrupulously deliver oil at a very high price and hold back on deliveries under contracts that are sold at a lower price. The issue really needs to be sorted out.
That brings me neatly to my next point. Crude oil accounts for 48% of the cost of heating oil. The largest next component, accounting for 45%, includes the cost of distribution and marketing. The refining process accounts for only 7%. The average price of a litre of heating oil in Northern Ireland, which has had some of the worst of the recent weather, is 48p per litre, or 52p in Belfast - and given that weather, the cost of delivery and getting the tankers to the houses would be among the greatest. The average price in the south of England at the moment is 80p per litre, while in the middle of England it is 68p, in Wales it is 67p and in Scotland it is 64p per litre. What justification is there for someone in the south of England having to pay nearly twice as much as people in Northern Ireland? During the same period, the price of petrol at the pumps has gone up by only 10p per litre.
I say clearly to the Business Secretary that it is time that we did something about the situation. At the moment, he is considering establishing the position of an ombudsman to consider food prices and whether supermarkets' buying power is too great. I urge him to get on with that as quickly as he can. I do not know whether he wants to go down this route, but I suggest that having an adjudicator or ombudsman for heating oil might provide some sort of solution to the problem that I have outlined. I am not thinking of a huge bureaucracy but of somebody people could contact to ask why their heating oil is so expensive in their parts of the country. Those companies would have to justify what they are actually charging. At the moment, there is misery being made out of cold weather and some people have no source of heating other than oil fires, Agas and boilers.
As I said, many houses are difficult to heat and insulate, and people are having to pay an extra price before Christmas. The Government cannot just stand by on this matter. All hon. Members probably believe in some form of market forces, but in this case those forces are being used to drive up the cost of fuel unjustifiably. As I have said, weather conditions alone cannot justify what is happening because Northern Ireland has had some of the worst weather in this period, yet it has some of the cheapest fuel. We must ensure that constituents who use oil to heat their houses, wherever they live, pay a fair price for that fuel and are not held to ransom by either the oil companies or those who deliver the oil to houses.
The Irish comparison is an interesting one. Why has Ireland, with its terrible recent weather, had only small price increases compared with England and Scotland? He is right to call for some sort of adjudication where consumers think that they're being exploited, but maybe the current situation is too widespread for individual case studies.
The official response from the Federation of Petroleum Suppliers is available as a PDF: Supply and Pricing of Heating Oil - December 2010.