The American Challenge in the UK oil refining industry: Predation or rescue?

Abstract

The American Challenge thesis asserts that US multinational corporations (MNCs) act as predators in a globalizing world to shut out indigenous firms by undercutting prices due to their inherent productivity and efficiency regimes. This process looks apparent in the UK refining (downstream) oil industry as nine US-owned refineries were constructed in a period from the late 1940s to the mid-1970s: these represent some 75% of the total number of UK refineries, and the subsequent retailing activities could be said to have restricted competition from the indigenous companies, mainly BP and Shell.

This paper analyzes this claim of an American Challenge by investigating the sequencing of so-called foreign direct investment – FDI – and discovers UK government assistance in the process, and eventually we claim that the incoming US investment and expertise averted a crisis of market failure. This FDI was in fact a kind of rescue, rather than predatory behavior. In making this claim we first analyze the growth of the sporadic and often random development of the indigenous UK industry. While overlap is inevitable in an historical; series, we attempt to divide the development into four major phases: Phase I - The Early Years 1840-1940; Phase II - Post War New Refinery Construction 1940- 1975; Phase III - Closures, Expansions and upgrades 1975-1990; and finally Phase IV - Retrenchment 1990-present. The UK as a developed economy has specific features following from political questions: the requirement to assure supplies, the development of local refining, and the lack of capital, which heralded foreign direct investment. The extant literature on this industry is scant and so this research also provides an essential guide to oil industry changes at the level of an individual country.