THE massive Grangemouth petrochemical plant is “unlikely” to have a long-term future if Scotland turns its back on fracking, its owner Ineos has warned.
The Scottish Government announced a moratorium on onshore fracking for shale gas last month amid concerns over its health and environmental impacts.
But Gary Haywood, chief executive of Ineos Upstream, warned that Scotland’s biggest industrial site will need a UK shale revolution to survive.
He also hit out at the “scaremongering” he said surrounded the debate on the subject, as he addressed a Scotsman conference in Edinburgh on Tuesday.
Union chiefs said Ineos pledged the long-term future of Grangemouth was secure after a bitter industrial dispute was settled 15 months ago. Earlier today, they called for Mr Haywood to “clarify” his comments.
Grangemouth petrochemical plant – with its giant oven “cracker” to break down gas – is to start shipping in cheap shale gas next year from the US. But Mr Haywood warned this will not last.
He said: “When you’re shipping in material, you’re always at a disadvantage. It’s a special situation with the ethane being available in the US at very low prices because of the rapid increase in production in the US and the lack of demand.”
But he added: “You can’t see that going on. So it’s unlikely – unless we can develop an indigenous source – it’s unlikely that cracker has a long-term future.”
Hydraulic fracturing – or fracking – sees high-pressure water pumped into rocks more than a mile below the ground to release oil and gas locked inside.
Former World Bank adviser Gordon Hughes, a professor of energy economics at the University of Edinburgh, said Scotland was facing stark choices about its future energy supply.
He told Tuesday’s event at the National Galleries: “I don’t mind if you decide there should be no unconventional gas production in Scotland – but please recognise what that choice is.
“It means you close down Grangemouth sooner or later. It’s inevitable. There’s no alternative to that.”
This would also mean multi-million pound “industrial spin-offs” would also be lost.
The Ineos facility at Grangemouth, consisting of the oil refinery and petrochemical plant, is Scotland’s biggest industrial site. It employs about 1,300 staff and thousands more contract workers and came close to closure during a damaging industrial dispute in 2013.
The petrochemicals facility makes more than two million tonnes of plastics every year. But as North Sea gas supplies run down, it has had to look elsewhere for gas supplies.
The oil refinery, which has an annual capacity of ten million tonnes, provides most of the fuel in Scotland, northern England and Northern Ireland.
The moratorium was announced by energy minister Fergus Ewing last month.
Ineos has already acquired more than 700 square miles of fracking exploration licences in central Scotland which have now been halted.
Mr Haywood said it was feasible to get a shale industry up and running in the UK “within three to five years”.
“If you look forward five years, it is possible we could be producing gas from that point onwards,” he said. “That would mean that we have some time to develop the resource and replace what we get from the US.
“Can we do that efficiently enough to make Grangemouth make sense in the future? That is a real challenge.”
The UK now imports half the gas it needs from countries with which relations are turning increasingly volatile, such as Russia and Middle Eastern nations.
“It really is a concern and I don’t think it’s overblowing the concern to say that our energy security is in danger and it’s something we need to address,” Mr Haywood said.
A report by the British Geological Survey (BGS) last year indicated that Scotland’s midland valley is sitting on 80 billion cubic feet of shale gas – enough to meet the country’s demands for the next half century. “It’s a lot of resource, to cover us for decades,” the Ineos chief added.
Previous estimates suggested shale gas extraction across the UK could mean a 2 to 3 per cent increase in GDP, worth up to £33 billion.
“Having such a resource there, I don’t think the UK can afford to let this opportunity go past,” Mr Haywood said.
But the public debate has been hijacked by “misleading” information, he added.
“Some of it is getting at absolutely valid concerns – some of it is, I would go as far as, scaremongering.”
Union leaders insisted that Mr Haywood’s comments were “completely contrary” to the demands of a survival plan imposed by the company just over a year ago.
Staff were assured this would secure the “future of Grangemouth”, according to Unite Scottish secretary Pat Rafferty.
“Hundreds of millions of pounds in public subsidies, not to mention the financial sacrifice of the workers, was given up to ensure that objective but at no point did Ineos say this was dependent on developing indigenous fracking sources,” he said. “I think everyone would be staggered if Ineos are now threatening the future of the plant to get their way on indigenous fracking. Mr Haywood should clarify his comments immediately.”
A Scottish Government spokeswoman said the situation on fracking changed after a recent agreement on handing Holyrood new powers after the referendum made it clear this would include licensing powers for onshore oil and gas.
SCOTSMAN TABLET AND MOBILE APPS
The spokeswoman said: “As such, the Scottish Government has an opportunity to consider the challenges, concerns and opportunities around unconventional oil and gas in Scotland afresh.
“It is a logical next step in the careful and evidence-based approach we have demonstrated to date, and is an example of our commitment to the community engagement which this government believes in.”
The government also says that industry bodies – including Ineos and the UK Onshore Operators Group – welcomed the chance to take part in the consultation at the time.
Dr Richard Dixon, of Friends of the Earth Scotland, said Ineos’ current deal to import US shale gas should last for the next 13 to 14 years.
“The future of the plant is very secure for that period,” he said. “What they’re talking about is what comes next.
“To us it seems shale gas is a big mistake because the geology of Scotland is very different from that of the US. We have BGS [British Geological Survey] analysis which says there isn’t very much there and of that we may only get 1 per cent out. And it’s going to be quite expensive to get out.
“So any claim they have made about lots of shale gas, and it being cheap, which they have said, just doesn’t stand up to scrutiny.”
Scottish Conservative energy spokesman Murdo Fraser said the warning shows how important it was for Scotland “not to be left behind on fracking”.
“It has revolutionised the US energy economy,” Mr Fraser said. “It makes absolutely no sense for Grangemouth to be refining shale from across the Atlantic, while the SNP and Labour here either want to ignore fracking or ban it altogether.”
Fracking explained: the modern controversy which goes back decades
Hydraulic fracturing, or fracking, is a means of extracting gas and oil from shale rock. It is used both onshore and, increasingly, in the North Sea oil and gas industry.
Despite public concerns having intensified in recent years, it has actually been happening in Scotland and across the UK for decades.
The process sees a high-pressure water mixture pumped into shale rocks more than a mile below the ground. Tiny fractures are initially created in the rocks, which are then held apart with grains of sand, allowing the gas or oil to escape and flow up to well heads.
It has prompted environmental concerns for a number of reasons.
It uses significant amounts of water that must be transported to the fracking site.
It is feared that potentially toxic chemicals used may escape and contaminate the water supply around the fracking site. The industry suggests that pollution incidents are the results of bad practice rather than any fault with the technique.
There are also worries that the fracking process can result in minor earthquakes. Two small earthquakes of 1.5 and 2.2 magnitude hit the Blackpool area in 2011 following fracking.
Supporters of exploiting the unconventional gas claim that
it could be a “transition” fuel, helping move the UK away from the most polluting fossil fuel, coal, towards a cleaner energy supply.
One of the earliest schemes involving what is now widely thought of as fracking happened in the mid-1960s when BP and British Gas had limited success in drilling in Salsburgh in North Lanarkshire.
The area has a long history of oil and gas production. Three gas wells have been drilled near Salsburgh. The first, drilled in 1945, produced gas from the West Lothian Oil Shale Formation.
One of the most successful fracking schemes in Scotland in recent decades was not in a rural backwater, but in the country’s biggest city.
A well was drilled in 1989 in front of Bargeddie Church, Easterhouse. At its height, it was producing 2.2 million cubic feet of gas a day.
And despite concerns about onshore fracking, the process is now a pivotal part of the way oil and gas are extracted in the North Sea industry.