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More UK refinery closures threatened as costs rise-UKPIA

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LONDON, Oct 12 (Reuters) - UK refiners face a furthersqueeze on their profitability if a raft of newenvironmentally-friendly legislation is applied from 2013,threatening more plant closures, an industry lobby group said.

The UK Petroleum Industry Association (UKPIA) said theimpact of upcoming UK and European Union legislation associatedwith carbon reduction and air quality will add substantially tothe industry's costs.

"The refining sector works on a very narrow differentialbetween cost of crude oil and the value of products produced,"said Chris Hunt, director general of UKPIA.

In favourable conditions this is equivalent to about 1.65pence per litre, which after energy and other operating costsfalls to 0.6 pence per litre, according to calculations byconsultants Wood Mackenzie and the UKPIA.

Hunt said legislative impacts could add a further 0.35 penceper litre of costs, leaving a return on capital employed of"close to zero".

The squeeze on the industry has already been highlighted bythe closure this summer of the Coryton refinery in Essex,eastern England, after its owner Petroplus went bankrupt.

The UKPIA warned that the loss of further UK refiningcapacity posed a serious risk to the UK's security of energysupply.

"It could also jeopardise other industrial sectors dependentupon feedstocks (such as naptha which supplies the petrochemicalindustry) From refineries and make the UK highly dependent uponimported fuels such as diesel and aviation kerosene," Hunt said.

European refineries have been enjoying strong marginsthrough the second and third quarters of this year, but theindustry is not convinced those margins will last, and not allhave been able to take full advantage of them.

(Reporting by Claire Milhench; Editing by David Holmes)

((claire.milhench@thomsonreuters.com)(+44)(0)(207 5423571)(Reuters Messaging:claire.milhench.thomsonreuters.com@reuters.net))

Keywords: BRITAIN REFINING/UKPIA