Branson plans £1bn refinery to combat cost of jet fuel

Sir Richard Branson is considering pitting Virgin against some of the world's biggest and most powerful companies, with a move into the oil sector.

The billionaire businessman has set up a team of Virgin executives, along with external oil industry consultants, to examine the case for building a refinery. They are expected to report back to Sir Richard in the autumn.

If built, the refinery would cost up to £1bn and produce fuel for the aviation industry, which is struggling to absorb the rising cost of kerosene.

Will Whitehorn, Virgin's corporate affairs and brand development director, said: "It is early days. A small team have been doing research on this for the last three months. They are looking at the structural issues in the oil industry, because there is more than just an imbalance between oil supply and demand." He refused to name the consultants Virgin had hired to help with the study.

The world's airlines are this year expected to spend nearly £50bn on fuel, compared with £35bn in 2004. The carriers are going to extraordinary lengths to cut fuel consumption, such as reducing the number of maga- zines they carry and washing the planes more regularly to reduce drag.

Fuel accounts for 22 per cent of airlines' costs and many carriers, including Virgin Atlantic and British Airways, have introduced a surcharge on tickets to recoup some of the expense.

Last week's collapse of budget airline EUjet was blamed partly on the rising cost of jet fuel.

Mr Whitehorn said that if Virgin built a refinery, it would supply fuel to Virgin Atlantic, with excess production then sold into the wholesale market. But he said Virgin was also examining whether other airlines may want to invest in the project.

"Through our investment in [National Air Traffic Services] we are getting used to working with other airlines," said Mr Whitehorn. He refused to say where the refinery might be sited. But experts said the UK would be the obvious choice.

A spokesman for the UK Petroleum Industry Association said: "You need to locate the refineries close to the demand for the fuel. There is high demand in the UK for jet fuel because of Heathrow's status as an international hub."

A report produced by the association in June argued that there was a requirement for more investment in the UK's refineries. "The continued drive for cleaner air and reduced emissions will require further heavy investment," it said.

Gaining planning permission for a refinery may be tricky, given the environmental issues. But planners could give the green light if it was situated on one of Britain's nine existing refinery sites owned by oil majors such as BP, Shell and ExxonMobil.