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Originally published December 26, 2013 at 9:42 PM | Page modified December 26, 2013 at 10:01 PM

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Scotland struggles to keep an energy lifeline

The episode made clear the vulnerability of Grangemouth as the capital of the Scottish petrochemical industry.


The New York Times

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GRANGEMOUTH, Scotland — The vast petrochemical complex at Grangemouth is a constellation of lights and glowing plumes of steam west of Edinburgh that has become a shimmering symbol of Scotland at an economic and political crossroads.

In mid-October, some of those lights went dark when James Ratcliffe, the chairman of Ineos, a Swiss multinational giant that owns much of the Grangemouth operation, ordered it shut down. Ratcliffe, during labor negotiations, was trying to shock the workforce into “accepting changes to bring the site into the modern world,” he said in a recent interview.

After the union backed down and accepted some of the pay and pension changes sought by Ratcliffe, the plant reopened. But the episode made clear the vulnerability of Grangemouth as the capital of the Scottish petrochemical industry. Although that industry vies with whiskey as the biggest contributor to the country’s export economy, it is under pressure from global forces that make other parts of the world better bets for the refining of petroleum into fuels and the processing of its byproducts into plastics and chemicals.

And because it occurred as Scotland was preparing for a September vote on a referendum to secede from the United Kingdom and make its own way in the global economy, the faceoff with Ineos was a reminder of the uncertain financial path an independent Scotland might tread. The closure of such an industrial linchpin could heighten doubts about whether the government is up to piloting the economy on its own or whether it could continue to provide generous social benefits like free university tuition.

“Everyone is still reeling,” said Joan Paterson, a Labour Party politician who represents Grangemouth on the Falkirk Council regional government and is skeptical about independence. “It was dark driving down there without the flares and cooling towers.”

The shuttering of the country’s largest industrial complex would have been a blow to Alex Salmond, the nationalist leader who is trying to convince voters that an independent Scotland would be able to continue to provide social benefits that are more generous than those available to most Britons.

“The Ineos crisis brought home what a big impact it would have if they were to go,” said Doug Edwards, an executive at CalaChem, a chemical-maker in the area. “There was the risk of a domino effect.”

Salmond, Scotland’s first minister, is banking on North Sea oil to underpin the country’s economy. His government claims that more than 90 percent of Britain’s oil reserves might become Scotland’s after independence because they lie under Scottish territorial waters.

Either way, one of the reasons that the Ineos plants are running up losses is that production from the North Sea is declining. These days, new refineries and petrochemical plants are being built in places such as Saudi Arabia and China, which are much closer to sources of still-abundant petroleum and natural-gas reserves or near fast-growing markets. The closure of Grangemouth, the only refinery in Scotland, would have left it dependent on imported fuel.

In many ways, a blow to Salmond might seem a win for the British prime minister, David Cameron, who opposes Scottish independence. But losing Grangemouth while Scotland is still part of Britain would also have undercut one of Cameron’s main arguments to the Scots: They would be better off economically by remaining in the United Kingdom.

As a result, both sides on the independence debate are trying to generate political capital by investing in Grangemouth. The Scottish government agreed to provide Ineos with a grant of 9 million pounds (or $14.7 million) for new investments at the site, while the much wealthier British government is leaning toward guaranteeing a 125 million-pound (about $205 million) loan.

Ineos, a global company with $43  billion in revenue last year, including its joint ventures, and 15,000 employees worldwide, is the largest of several big chemical businesses operating in the area. It bought the Grangemouth plants in 2005 from BP in a $9 billion deal. The refinery there, now run in partnership with PetroChina and called Petroineos, is Scotland’s only domestic fuel producer, meeting 70 to 80 percent of the country’s needs for gasoline and diesel, and jet fuel.

The adjoining Ineos petrochemical complex takes oil and gas derivatives from a BP-operated North Sea pipeline known as the Forties and converts them to materials such as ethylene, polypropylene and polymers used in products such as plastic bottles, food packaging and insulation.

The Ineos complex also sends petroleum derivatives by pipeline to a nearby factory run by Versalis, a petrochemical arm of the Italian energy giant Eni, which makes synthetic rubber for tires.

The Falkirk Council, the regional government, estimated that closing the plants might cost 6,500 jobs in the short term. The collateral damage to the broader industry over time would be harder to predict.

“Once you take out petrochemicals and refining, then the case for the other plants would decline,” said David Bell, an economist at the University of Stirling.



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