1,000 jobs at risk after Coryton refinery in Essex stops supply, threatening disruption that could raise cost of food

Motorists have been warned to expect record diesel prices after the UK's largest independent oil refinery went into administration, putting 1,000 jobs at risk.

The Coryton refinery, in Essex, stopped supplies after its parent company, the Swiss-based oil refiner Petroplus, announced it was insolvent.

Administrators who took over the plant said on Tuesday that they hoped to resume deliveries following discussions with the facility's largest customer, BP, the former owner of the site. However, the AA and petrol retailers warned that the cost of diesel could reach a new high due to disruption caused by the closure.

At 142.21p a litre, diesel is less than 1p away from the record 143.04p set in May last year. "It is fairly certain it will pass that record," said an AA spokesman, adding food prices could rise in consequence. "Diesel is the fuel that powers our road hauliers, so if the price of diesel goes up it is passed on to the customer and then the consumer."

Coryton supplies around 20% of the fuel used across the south-east of England, including London, and energy analysts fear a prolonged shutdown could hit supplies in the region.

The joint administrator of the UK operations at Petroplus Refining, Steven Pearson of PricewaterhouseCoopers, said talks with its key customer BP were going well. "We have got a good, constructive dialogue going on, and I am confident that we will get products into the market as soon as possible."

Refined products including jet fuel are still being produced at Coryton, but are not currently being shipped because customers had dealt with Petroplus rather than the UK operation. PwC is seeking new supply deals with those customers.

Petroplus has been brought to its knees by factors including high crude oil prices, which have put pressure on a sector already struggling with low margins, and a capacity glut with the emergence of super-refineries in Asia.

There are concerns for the jobs of more than 1,000 people who work at the site and a sister facility in Teesside. Pearson said no workers had been laid off and he expressed hopes that the business would be sold with the workforce intact. "It is a big site, it is important and we will look at all options for restructuring it. I am optimistic that we can save it," he said.

BP uses Coryton to supply 180 petrol stations and has secured alternative supplies, including the Essar Oil refinery in Ellesmere Port. A BP spokesman said there were "no immediate supply issues" for the group.

The Department of Energy and Climate Change also played down fears of a petrol shortage, as hauliers represented by the Unite trade union began a week long strike. "There are contingency measures in place and there are other sources of refined product that suppliers can find," it said a spokesperson.

Petroplus went into administration after failing to persuade creditors to extend deadlines for loan repayments.

Richard Howitt, MEP for East of England, said the firm's collapse could have a devastating effect on the local community and hit petrol stations in the area.

"Supplies across London and the south-east could be affected, and I have been told this could impact on the Olympics," he told BBC Radio 5 Live on Tuesday. Fuel consumption is expected to jump this summer when London hosts the Games.

News of the Coryton closure came as around 80 fuel tanker drivers at the Wincanton road haulage firm started a week-long walkout before dawn on Tuesday. The drivers, who are contracted to work for ConocoPhillips, are protesting about changes to their pay and working conditions.

Chris Kingshott, Wincanton's managing director for manufacturing, said the stoppage could affect petrol supplies.

"This strike, which we believe to be wholly unnecessary, could create significant disruption for road users and fuel retailers," he said.

Petroplus has debts of $1.75bn (£1.1bn) and was forced to seek insolvency protection after its lenders froze its credit lines, leaving it unable to access fresh borrowing. As well as Coryton, it operates refineries in Germany, France, Belgium and Switzerland.

Union leaders at the Unite union said they were hopeful that Coryton, which was sold by BP in 2007, could keep operating.

"Because of its strategic position within the UK, I am confident that the plant is going to get a buyer," said the Unite national officer, Linda McCulloch.

The Petroplus chief executive, Jean-Paul Vettier, admitted that the company's collapse would have serious repercussions for its workforce and the communities in which it operates.

"We have worked hard to avoid this outcome, but were ultimately not able to come to an agreement with our lenders to resolve these issues given the very tight and difficult European credit and refining markets," he said.

Martyn Ward, commercial director of Palmer and Harvey, which supplies wholesale goods to UK garages, warned that Petroplus's collapse would hit "already struggling" independent petrol stations.