Alf Young: Slow burn fuels critical shutdown

Unless there is an astute piece of political negotiation the game could be up for the Scottish workforce, some Scottish politicians and the proposed Scottish policy on energy. Picture: Scott Taylor

BACK in 1998, the chemical engineer behind Ineos was looking for a name for what he once called his “completely opportunistic” petrochemical venture. It was a Friday. His lawyers were pressing for a name by Monday. The next day Jim Ratcliffe bought Latin and Greek dictionaries and, together with his 10 and 12 year old sons, set about a rapid identity search.

They found the Latin word ineo, meaning a new beginning, and two Greek words, Eos, the goddess of the dawn, and neos, meaning new or innovative. So Ineos, representing what the group, now one of the biggest of its kind in the world with 51 plants spanning 11 countries, calls “the dawn of something new and innovative”, was born.

These words could also describe the constitutional ambitions of the SNP, meeting in Perth this weekend, less than a year before Scots are asked to vote Yes or No to the proposition that Scotland should be an independent country. At the heart of the SNP’s pitch for a new dawn in Scotland’s relationship with the rest of these islands is the claim that, once independent and still rich in hydrocarbon reserves around its shore, this member of the UK would become a much richer country.

Ineos’ bitter stand-off with its Grangemouth workforce has erupted at very awkward time for the SNP. It has pushed what is happening in Perth down the news agenda and dragged Alex Salmond off to late night meetings in Edinburgh with both sides in the dispute. That’s bad enough. But the bigger threat, by far, is that Grangemouth might never open again and, in the process, blow a gaping hole in Scotland’s onshore oil and gas infrastructure.

Without a deal between Ineos and its workers, Scotland could lose its dominant oil refinery, leaving petrol retailers to look to other parts of the UK for supplies. Also lost would be Grangemouth’s downstream petrochemical processing plant which creates the feedstock for so many of the materials that feature in every aspect of 21st century life. A big dent in the Scottish economy’s export potential.

And it would compromise the viability of BP’s Kinneil plant next door, where oil and gas from the Forties pipeline system in the central North Sea is dried and separated and sent for refining, processing or export. Kinneil, which accounts for around 40 per cent of entire UK oil production, draws its steam and power from a power station on the Ineos site.

You begin to see how big the stakes really are in this wrangle. The Grangemouth complex is already shut down and cold. And Ineos is playing very hard ball with its workforce, over the sacrifices they must make to ensure the plant’s future financial viability, if Ineos shareholders, principally Ratcliffe and his senior management team, are to even contemplate turning the plant processes on again.

Ineos has a long-standing reputation for ruthlessness. In just 15 years it grew, in terms of sales, from an idea to become the biggest privately-owned company in Britain, largely by buying up unwanted assets from multinationals like BASF, BP, Dow and ICI. At the end of 2005 it made what it called at the time its “transformational” acquisition, buying BP’s multinational Innovene subsidiary, including Grangemouth, for £6 billion.

But it 2010, after a spat with the UK government over corporate taxes, it moved its group tax domicile to Switzerland to save some £400 million over four years.

That followed a near-death experience during the great crash when the heavily-indebted behemoth breached its loan covenants, as the oil price halved.

In just three years Ratcliffe’s personal fortune crashed from an estimated £3.3bn to just £150m. He almost lost control of his corporate creation. But he swallowed his pride and did a deal with his lenders. They say he’s a billionaire again, just. But it’s also clear that he and his fellow Ineos shareholders are pursuing their cost-cutting agenda with renewed vigour.

It’s not even clear that Ineos’s stated intention to invest in Grangemouth, if the workforce accepts its survival plan, is the whole story.

When Ineos bought Innovene (including Grangemouth) from BP, it argued that the acquisition of an oil refinery in Scotland and a sister plant in Southern France would help it integrate upstream raw materials with its core petrochemical processing operations.

But the amount of gas coming out of the central North Sea, via the Forties system and Kinneil, is dwindling fast. That’s left the petrochemical side of Grangemouth increasingly short of feedstock, leaving Ineos to promote the idea of shipping fracked gas from America to a proposed new terminal on the Forth.

Ineos has already established such a supply chain in Norway. But it appears reluctant to establish an equivalent facility at Grangemouth without significant grant and loan guarantee support from the UK and Scottish governments.

Meanwhile, the petrol refining side of Grangemouth must be struggling to make any money at all. With excess refining capacity and muted demand across Europe, refining margins went negative last month to the tune of $1.70 a barrel, a record low since the figures were first collated in 1995. New EU environmental controls on refineries are likely to add further costs of around $2.50 a barrel when they come into effect between 2015 and 2020.

In 2011, Ineos turned the refining side of Grangemouth and its other refinery near Marseille into Petroineos, a 50:50 joint venture with PetroChina, listed arm of the China National Petroleum Corporation. Suppose Ineos were to walk away from refining because it is peripheral to its core chemical interests and it can’t make any money there anyway. It could, of course, sell its share in the business to the Chinese.

If that were to happen, the bulk of Scotland’s petrol supplies could end up controlled by an arm of the Chinese state, with all the strategic and security implications that implies, were Scotland to choose independence.

Scotland’s First Minister was uncharacteristically reluctant to discuss the Chinese dimension of the Grangemouth saga, in his first joust with Jim Naughtie on Radio Scotland yesterday.

But Mr Salmond is too wily a political operator not to be fully aware that the current Ineos/Unite impasse could, if not resolved very swiftly, cast a very long shadow over the last 11 months of debate about the nature of the new beginning his party is pressing on the people of Scotland.