There is increasing pressure on the Scottish government to save its only oil refinery
Owners of Scotland’s only remaining oil refinery Grangemouth have lost more than £1bn over the past 12 years. The looming shutdown, combined with mounting problems in technical terms could lead to further financial hardship.
Analysts claim that the “hydrocracker”, which generates cash by producing diesel, was taken offline in April. It hasn’t worked since.
The cost of repairing this unit is believed to have contributed to the anticipated closure of Grangemouth.
In spring 2025 the 100-year old refinery will cease operations, becoming a fuel import terminal . Several hundred jobs are expected to be lost, and possibly thousands more in suppliers and contractors.
Unions claim that some roles may be cut as soon as next year. The refinery owner Petroineos informed workers of the reduction in maintenance operations.
Franck Demay is the chief executive of Petroineos Refining and he said that nothing was certain.
He said last week: “This doesn’t change anything in our operations today. It is business as usual at the Grangemouth Refinery.” This is an important step to adapt our business in order to reflect the declining demand for fuels that we produce as the energy transition gains momentum.
As a prudent operator we must plan accordingly. However, the exact timeline for implementing any changes has not yet been determined.
Grangemouth’s economic future is in doubt after losing £1bn between 2011 and 2015.
The loss of this refinery will have a major impact on nearby towns such as Grangemouth. However, the effects will be felt across Scotland.
Grangemouth provides almost all of the fuel and diesel required to keep Scotland’s motorists moving, as well the oil needed to heat hundreds of thousands homes without gas. It is also used by many other industries.
The Scottish government has therefore organised talks with Petroineos – a joint venture of Sir Jim Ratcliffe’s Ineos and PetroChina – a Chinese state owned oil company – in order to discuss the potential closure of Grangemouth.
Neil Gray, Scotland’s Energy Secretary said that he would explore all opportunities to extend the lifetime of the refinery. He has written to UK Secretary for Energy Security Claire Coutinho to request a meeting “in very short order”.
He said: “I am looking forward to working with my colleagues in the UK Parliament and the UK Government to ensure that we look at all possible opportunities to extend the life of Grangemouth Refinery. We also want to continue industrial operations at the Grangemouth site.”
Mr Gray has already been under pressure by his SNP colleagues and Scottish conservatives.
Michelle Thomson, Scottish Parliament member for Falkirk, East, which includes Grangemouth, has said that the closure of the town would be a disaster. She has asked an urgent question to the Scottish Parliament and is speaking with local unions.
She stated: “The Scottish Government must support individuals and families who are facing immediate threats to their livelihoods.” Governments must undertake an urgent, thorough assessment of the wider impacts. This includes both upstream and downstream supply chains.
Grangemouth is responsible for 4pc of the Scottish GDP. It employs about 2,000 workers directly in three businesses plus 7,000 contractors.
Analysts, however, say that Grangemouth’s refinery is unlikely to remain in operation due to the high costs, especially since its most profitable unit, the hydrocracker, has been shut down.
Alan Gelder, Wood Mackenzie’s vice-president, and lead analyst of refined products, says that production has been hampered by breakdowns.
He says that at the beginning of the year, he did his “regular” analysis of closure risk and found no high-risk closures in the near future. “In April, however, the hydrocracker which produces diesel was taken offline. It has not been returned since.
This is a serious blow to the profitability of refineries. The global refining profit margins will be lower next year, so it is possible that they may have concerns about the amount of money they should spend and its effectiveness. All those factors have combined to make them say “let’s stop processing crude oil and turn it into an imported terminal.”
Oil traders claim that Grangemouth’s fate was uncertain long before the technical problems.
Greg Newman is the chief executive officer of Onyx, which trades over 25 billion barrels per year. He said that Grangemouth was a small refinery and old by international standards. All refineries in the UK and Europe are affected by this problem, and more will likely close over the next few years.
The UK only has five remaining refineries, which will make it very vulnerable to global shortages in the future.
The fate of other Grangemouth companies is a greater concern for Scottish and UK politicians. A petrochemical and polymer plant is located on the site, run by Ineos Olefins and Polymers, another Ratcliffe-owned subsidiary.
High energy costs are causin company to lose nearly £300m by 2022.
Ineos’ spokesperson stated that European petrochemical companies are currently facing challenges due to high energy prices compared to their international competitors.
The UK gas and electricity price is around five times higher than the US.
Ineos FPS, Sir Jim’s third Grangemouth-based subsidiary, is also plagued by political uncertainty. It manages the Forties pipeline network in the UK. The network transports oil and natural gas from 80 offshore fields.The majority of these fields are declining and would be replaced with new wells.
Plans by Labour to stop all new drilling if it wins power could mean that the Forties Pipeline becomes unviable in a decade.
The unions are strongly opposed to Labour’s ban proposal. Derek Thomson, Scottish secretary of the Unite Union, which has exclusive rights to represent refinery workers, said that Sir Keir Starmer had announced that a Labour government in Scotland would create more than 50,000 direct and indirect new jobs.
We need to make sure that the oil and gas workers onshore and offshore can transition to new jobs in energy that are real and that we create for our members. This transition is going to take decades.
The Scottish government, formed by a coalition of the SNP, the Scottish Greens, and Labour, is said to be divided regarding fossil fuels. This division hampers their ability to effectively address oil and gas crises, despite the significance of these resources for the nation.
Humza Yousaf said that Scotland is “collectively responsible for catastrophic negligence” because it continues to be a major oil-producing country.
He said that their plan is to shift from being Europe’s primary source of oil and gas to harnessing their renewable energy potential. They aim to become the world’s leading city in achieving net-zero emissions.
Stephen Kerr, a Conservative Member of Scottish Parliament for Central Scotland, including Grangemouth, stated that these opinions have caused the refinery to lack significant political backinet-zeros, becoming clear that serious questions are being asked about the viability of the entire Grangemouth site.” The remaining components will become less viable as you remove each one.
“We need strong political leadership, and we need a quick response. But this government is wagging its green tail at the SNP dog. So we are likely to get neither.”