Grangemouth is closing! This headline has appeared in a wide range of publications over the last few weeks. What does actually mean and can we do anything about it.
Grangemouth is the largest industrial complex in Scotland and a location with a long and proud heritage. The location of the plant is, at least partly, due to the historical legacy of shale oil refining, developed by James ‘Paraffin’ Young. Indeed, a reminder of this history is still visible on approach to Edinburgh airport with the few remaining shale bings being visible (many of the rest form the base of the local motorway network). Another important factor is the proximity to the Grangemouth docks which have long imported oil from the middle east- since 1954 there has also been a pipeline to the west coast Finnart Terminal for access to North America markets. The Grangemouth complex had two main purposes- the refining of crude oil from a number of sources, including the North Sea, and a connected petrochemicals complex which produces a wide variety of products. The complex was owned for many years by BP (and predecessor companies). BP sold the complex to Innovene in 2005 as part of a worldwide divestment from key chemical industry, with this company being bought by Ineos later that year. Indeed, the sale by BP was part of a wider trend by the major oil companies to reduce their involvement in the refining part of the oil and gas industry. Ineos entered into a joint venture with Petrochina in 2011 which covered the Grangemouth refinery (but not petrochemiocals plant) and the Ineos refinery at Laverra in France. It is the joint venture, Petroineos, which has announced the closure of Grangemouth. The refinery currently employs 475 with the terminal likely employing fewer than 100. The company plan on developing a finished fuels import terminal.
Forties Pipeline System is also based out of the Grangemouth site and employs about 100 people. A key risk to the ongoing operation of the pipeline system and jobs is the government’s approach to upstream oil and gas taxation which could have a devastating effect on the fields which feed in to the pipeline.
A point largely unmentioned is that it is only the refinery that is closing. Albeit this affects about 400 jobs and a significant knock on effect in the local area. However, Petroineos have committed to keeping the petrochemicals plant opens which employs about 1,000 people. The plant produces annually about 1.3 million tonnes of products including ethanol (although this is due to cease in 2025 with the loss of 40 jobs), ethylene, olefins and polymers. Although not without their issues, in relation to waste and sustainability, we will presumably keep using these plastics even as petrol and diesel consumption declines. One may justifiably ask how long the petrochemcical plant will remain open but there is significant financial investment in the onloading facilities to provide feedstock for the plant.
So, why is the refinery closing?
The short term answer is that this is an economic decision. Unfortunately, this is part of a longer term decline in the facility with various parts of the plant being closed over the last 5 years. The plant, run by a cost focussed operator in Petroineos, is estimated to make losses of $500,000 per day. Presumably substantial capital investment would be required to maintain and upgrade the relatively old plant to modern international standards. Longer term the closure is due to overcapacity in the international refining business, reduction in North Sea oil production and future bans on diesel and petrol engine cars.
There have of course been wails of despair in the press about this planned closure. But what are the alternatives?
Some commentators and politicians have argued that we need to maintain the Grangemouth refinery for security of supply. However, between 60-80% of UK oil production is exported currently and we import a large proportion of our requirements. Grangemouth has 12% of UK oil refining capacity with a 6 refineries elsewhere in the country (although Grangemouth is of course the only one in Scotland). UK oil producers are increasing selling their product on international markets partly for practical reasons due to sulphur content and partly due to North Sea crude achieving better prices in the Middle East. This does not seem to be a strong argument for a risk to supply with the closure of the refinery.
Other commentators, including the local MP, have made the case for nationalisation of the refinery. However, what is the rationale for doing this? I have already argued there is not a security of supply issue. Petroineos is well known for running a lean operation so it is hard to envisage turning round a loss making facility. Could the government invest money to upgrade the facilities? It is hard to imagine a UK or Scottish government investing in an oil and gas refinery while having legal obligations to achieve NetZero, against an international market place which has over capacity. And could this be justified as a good use of capital when private money is not prepared to invest?
The saddest issue is the length of time the potential closure has been known about and how little has been achieved in this time. Grangemouth Future Industry Board was set up in October 2020 with representative from Scottish Government, Scottish Enterprise, Falkirk Council, Scottish Futures Trust, Skills Development Scotland and Transport Scotland- but notably not the owners of the plant. About 15 meetings have been held since 2020 with the most recent one being on 17th October 2024. The plant owners and unions have become involved during this time while this year the UK Government have attended. Going through the minutes, it is difficult to work out what has actually been discussed during these meetings. There is a lot of talk of ‘priorities’ and Project Willow but without any concrete plans. The most recent UK government statement talks positively about £100 million being invested in skills training which is obviously very welcome. The Industry Board also talks about ‘urgently assessing long term industries at the refinery site including low carbon hydrogen, clean eFuels and sustainable aviation fuels’. As an aside there is no mention of the Forth Green Freeport, which one would have thought would give Grangemouth alternative options compared with other sites. It would be hugely oversimplistic to suggest there are easy answers or simple alternatives. However, this body has been in place for four years and does not seem to have presented any solid ideas or plans. This is a huge failure in both industrial and political leadership.
In the meantime, other plants are showing alternative routes. The Stanlow refinery in Cheshire, which is a similar size to Grangemouth, was sold by Shell to Essar Oil in 2011. In addition to stepping in to the market for Scottish fuels, Stanlow will start production of low carbon hydrogen and invest in carbon capture and storage as part of the Hynet initiative. Shell are closing their oil refinery at Wesseling in Germany in 2025, and converting the hydrocracker unit to produce engine oils. I am not suggesting that all of these ideas will come to fruition. However, it is clearly a failure of political and industrial leadership in Scotland that we cannot present a real plan at all.
As we decarbonise the economy, a number of industries will not be required or will dramatically reduce in scale. Although most models, including those from the Climate Change Committee, show a place for oil even by 2050, the much lower volumes required for petrol and diesel will lead to a significant reduction in refining capacity. The requirement to reduce capacity of a range of industries puts a large question mark over the meaning and practicalities of delivering a ‘Just Transition’.
At heart though, this episode is a damning indictment of our industrial and political leadership, that even with several years warning, we cannot develop a credible plan for the Grangemouth refinery site. However, we should hold on and publicise the positives- a new import terminal and continued operation (at least for now) of the petrochemicals plant. And do better next time.
Stuart Paton is an energy industry advisor and former Chief Executive of Dana Petroleum. He is also an associate of Reform Scotland