MD assures Ineos are in it for the long haul

John McNally with a bust of pioneer James 'Paraffin' Young at Grangemouth. Picture: Ian Rutherford
John McNally with a bust of pioneer James 'Paraffin' Young at Grangemouth. Picture: Ian Rutherford
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AS John McNally surveyed the foundations for Europe’s biggest ethane terminal being laid at Grangemouth last week, the new Ineos UK managing director had a few reasons to feel nervous.

For a start, the £200 million plan to transform the plant is one of the most ambitious ever undertaken in the petrochemical industry. Work is ongoing not just at the Scottish site, but also in the United States and China, where pipelines are being laid and a fleet of giant ships are being built.

What’s more, this global project needs to be finished within three years, as McNally has a limited budget to keep Grangemouth going until then.

Despite this, the chemist and former technology chief is as cool as a ­cucumber.

When he took on the top job at the firm’s Olefins & Polymers arm in August, most people still associated Grangemouth with the industrial dispute that had taken it to the brink of closure last autumn, but McNally says his main feeling is one of optimism.

“What we are doing here is establishing the bedrock of a chemical business that’s going to be around for decades to come,” he says. “I came here after all of that [the disputes] and all I see is investment opportunities. We need to survive the next two years and that’s going to be difficult, but we are moving ahead.”

It is 12 months since the petrochemicals plant re-opened following the highly-publicised dispute, which ended when unions agreed to a number of concessions in order for Ineos to invest £300 million in modernising the facilities to ensure future profitability. That figure has now risen to £400m, with half of that dedicated to keeping the loss-making site going until the transformative plan comes to fruition.

McNally says the cracker – the distillation plant – at the core of the factory has long been working at half capacity, as appropriate feedstocks from the North Sea are running low.

Ineos says bringing in cheap shale gas from the US “in vast quantities” will mark the “rebirth” of its Grangemouth petrochemicals business, and potentially have a significant knock-on effect on the wider chemicals sector in Scotland by providing a steady source of the key “building blocks” the sector needs.

“When you see us cranking our cracker up here, this could be the renaissance of the industry here in Scotland and the rest of the UK,” he says.

The project has meant constructing hundreds of miles of pipeline in the US to move the gas from the Marcellus shale field, which covers several eastern states, including Pennsylvania and New York, to the coast. There has also been the commissioning of eight huge “Dragon” ships in China that can chill the gas down to -100C, and the building of Europe’s biggest ethane import terminal at Grangemouth.

“This is one of the most exciting moments in the plant’s history,” McNally says. “In 2016, we will be the first company in the UK to use US shale gas ethane. It will transform our business.

“This project will not just be transformational for Grangemouth but potentially for the whole of Scottish manufacturing. It’s a game-changer and both the company and the workforce are proud of what they have achieved in just 12 months.”

Work on the massive project has helped improve the mood of the workers, McNally says, although there is still more to be done in patching up relations.

He says: “It [the dispute] was quite a traumatic period of time, there was a lot of emotion, but my co-workers here agreed to a three-year survival plan. During that time we all have to tighten our belts to try to make ends meet. We’ve got a pot of £200m to sustain the business for these three years and another £200m for the infrastructure.

“One of the first things I’ve done here is talk to the broader leadership of the team and it’s been difficult. Tightening belts is difficult, dealing with a company losing money is difficult.

“I wouldn’t want to say everyone is euphoric, we’ve had to go into this hardship routine, but I think the difference now it that people see the light at the end of the tunnel. We are putting our money where our mouth is.”

It is partly his faith in the workforce that underpins his belief that the project can be delivered on time and on budget. That and his confidence in ­science, where his background lies.

A doctor of chemistry, he worked for BP for 16 years in numerous technology management and business development roles in the UK, France and US. Nevertheless, he acknowledges the Grangemouth plan is an ambitious one.

“I don’t think there are many companies in the world who could do this kind of thing,” he says. “Co-ordination of the whole thing, doing it on time and in cost is what we’ve got to achieve and we’ve got the skillset to achieve that.”

Since Ineos announced its plans for Grangemouth, some of its competitors have followed suit with their own projects to import US feedstocks.

At the same time, the price of conventional oil has fallen in recent weeks, but McNally does not believe that will derail the economics of Ineos’s plans. He admits there have been discussions at Ineos, but says the economics are different to that of gas – though a consistently low price would squeeze profits.

“We’ve taken as much risk out as possible, and we’re pretty confident we’ve made the right bet,” he says. “Sometimes being first is dangerous if you are out on a technical limb, but we think the technology is all doable and we expect there to be a market leader advantage and we are going to make the most of that.”

In fact, Ineos is already preparing to get in on early attempts to exploit shale gases in the UK. The process is regarded as controversial by some.

“Longer term the idea we have access to indigenous feedstocks in the UK makes a lot of sense,” he says. “It’s quite clear to us as a technical company that this is all doable and should all be safe so we are very keen to explore that.”