Grangemouth closure is one more repeat of huge mistakes of past

Will the oil refinery – owned in a joint venture between the UK’s Ineos and PetroChina, the giant Chinese state-owned energy conglomerate – join the long list of Scottish industrial companies to disappear? And if it does, why should it matter in a world headed for zero carbon emissions?

Let’s start by taking the world as it actually is and not as we imagine it to be or even as we might like it to be. Scotland was once an economy based on manufacturing and production. This created jobs, profits and public revenues. Scotland up until the late 1960s contributed more in tax to the UK Treasury as a share of GDP than England.

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But Scotland has been comprehensively and deliberately de-industrialised over the course of the past half-century. Only one job in 15 is now in manufacturing. Sixty years ago, 750,000 Scots were employed in making things. Today it’s around 178,000.

Surely that’s a global trend? Isn’t technology allowing us to make more with less? True, but the global economy has grown significantly faster than has the Scottish economy since 1970. And that gap in performance has only increased since 2000.

Average GDP growth in Scotland between the millennium and the Covid pandemic was around 1.4% per annum – less than half the global figure. If everyone else is getting richer faster than you are, something is wrong. And that something is the collapse of Scottish industry.

Again, maybe we were in the wrong kind of business. Weren’t we producing the wrong things? Far from it. We used to mine coal but Mrs Thatcher did for the miners out of political spite. Since the end of the miners’ strike in 1985, global coal output has doubled. We used to make cars but Linwood was shut in 1981. The South Koreans bought the Linwood machinery and now make 4.24 million vehicles per year. World car production is booming with the introduction of electric cars.

We used to produce steel till they closed Ravenscraig in 1992. Global crude steel production has more than doubled since then. We once built a quarter of the world’s shipping on the Clyde, then abandoned production in the middle of a world boom for tankers.

This catalogue of industrial suicide was more politically induced than economic. Yes, there were too many small yards on the Clyde and the river is too shallow for giant tankers or container ships. But the solution was re-investment in new yards on the deep Firth of Clyde – a move limited by the need to hide our nuclear submarines.

Scottish steel was finished off by high energy costs in a country drowning in power sources and desperate for industrial construction materials.

Here is the bad news – at Grangemouth we are about to repeat all these mistakes yet again. For the record, Grangemouth is one of six crude oil refineries in the UK and the only one in Scotland, supplying 80% of petrol north of the Border. The reasons given by Ineos and its Chinese sidekick for shutting oil refining at Grangemouth are superficially seductive – just as in all previous cases of de-industrialisation.

Firstly, Ineos has referred to poor and increasingly squeezed profit margins at Grangemouth, hinting that the switch to electric vehicles puts a limit to the plant’s life. However, demand for oil products has boomed since the end of the pandemic and energy company profits have been bolstered by revenues from refining.

In fact, the global refining industry made record profits last year. One result – Exxon Mobil is spending a cool $1 billion on expanding diesel production at its Fawley UK oil refinery in Hampshire next year. Asian countries (especially India) are also planning major expansions of their refining capacity. A declining industry this is not.

Now, it is true that some economies have a surplus refining capacity, notably the United States. But there is precious little evidence that the world as a whole is going to use less oil any time soon, and not before 2050.

LAST week, the International Energy Agency – the energy watchdog for the big industrial countries – actually issued a warning that global oil stocks were getting dangerously low. So what is Ineos really up to?

Certainly, it feels constrained by government regulation. Refining is a complicated industrial process, and the Grangemouth plant needs upgrading. It also needs £40 million up front to extend its operating licence – cash which it seems it is not willing to spend and which the UK Government has refused to subsidise.

But this modest sum seems more of an excuse than a genuine hurdle. Ineos’s real problem is that the main supply of crude oil for Grangemouth comes via the North Sea Forties Pipeline System. However, as the big North Sea fields reach the end of their commercial lives, flows through the pipeline are down by 40%.

In other words, Grangemouth is running out of feed. Whose fault is this? Answer: the UK Government and its total lack of any energy supply policy apart from its absurd and financially insane obsession with nuclear power.

Last month French power company EDF announced that its new Hinkley reactor will not be ready until 2031 and that the cost of it is now £35bn in 2015 prices. The original budget was £18bn and it was meant to open in 2025. None of this lets Ineos off the hook.

The company is privately owned by billionaire Jim Radcliffe, who now lives in Monaco, a move that it is estimated will save him £4bn in tax. Naturally, Mr Radcliffe is an ardent Brexiteer.

He made his pile by buying up cheaply old industrial assets the big energy companies and then running them as hard as he could with the minimum of new investment.

Radcliffe bought Grangemouth from BP using leverage finance – bank loans to you and me. Ineos’s company HQ is in Switzerland, another piece of tax management.

This is the Del Boy economy writ large. Mr Radcliffe has made his cash from Grangemouth and wants to cash out. Where do the Chinese come in? PetroChina bought a half share in the Grangemouth refinery from Ineos in 2011, and essentially bankrolls the operation.

In other words, Ineos has been using the Chinese as a cash cow. PetroChina management has been riddled with corruption – its former CEO is doing 16 years for accepting bribes.

Actually, neither PetroChina nor Ineos cares about Grangemouth per se. Their real commercial interest is in their other joint venture – the giant oil refinery and petrochemical facility at Lavera in the south of France.

For Ineos and Radcliffe, Lavera is a way to dominate the Mediterranean oil and chemical market. For PetroChina, working with Ineos is political protection.

Which leaves the poor bloody workers at Grangemouth out in the cold. Matters might look very different in an independent Scotland. I doubt if China would want to upset an indy Scottish government when it needs all the friends it can get in Europe.

But we would also need a Scottish government with a serious energy policy – one that values all of our energy supply resources and one that is willing to grasp that managing the shift to net zero does not mean dumping fossil fuels overnight.