Grangemouth: Ministers reject saving oil refinery as North Sea revenues soar

But in effectively rejecting a call for investment to save the plant energy security and net zero minister Graham Stuart agreed that there was a "legacy of historic underinvestment in the refinery".

The Herald revealed in November that bosses at the Petroineos plant in Grangemouth established almost a century ago, told staff that Scotland "simply won't be big enough to support a fuels refinery" due to falling demand.

Staff were told that a start had been made on projects that will see the Grangemouth plant transition from a refinery to potentially an imported fuels depot over the next five years.

Petroineos - the joint venture between Ineos Group and China’s state-backed PetroChina - which bought the refinery in 2005, said it will remain a refinery until spring 2025 and that jobs would remain safe in the short term.

READ MORE: Grangemouth: Jobs at risk as Sir Jim Ratcliffe-backed refinery to shut

The development came as Sir Jim Ratcliffe was poised to take a 25% stake in Manchester United in a £1.25bn deal that has now had Premier League and Football Association approval.

Petroineos said on Thursday that the move was a "prudent step by a responsible operator" and was committed to exploring options for a bio-refinery at Grangemouth.

Based on Scottish Government analysis, which works on an assumption that around 90% of oil and gas revenues come from Scottish waters, North Sea revenue stood at £10.57bn in 2022/23.

Oil and gas receipts include offshore corporation tax, petroleum revenue tax (PRT) and the temporary energy profits levy (EPL), together place a 75% tax on North Sea profits until the end of March 2028.

UK government-appointed and funded economic forecasters are predicting a 37.75% dip in 2023/24 - putting North Sea receipts at £6.6bn. That has been put down to lower expected energy prices, and to a lesser extent lower production and higher spending by producers, including for investment and decommissioning.

The two-year £17.2bn North Sea windfall covering 2022/23 and predicted revenues for 2023/24 eclipses the £14.5bn that local government was budgeted to receive from the Scottish Government this year to run public services including education, social care, waste management, libraries and planning.

It is a £15.6bn rise on the two years before the Covid pandemic and a 75% jump from the £9.802bn raised 20 years ago between 2022 and 2024.

Over the past 20 years, some £102.554bn has been brought in from the North Sea.

It has been estimated that £60-80m would be needed to re-start the hydrocracking unit at Grangemouth which some say will pave the way to profitability and a lifeline for the refinery and hundreds of jobs.

In general major products produced from hydrocracking are jet fuel and diesel but Liquefied Petroleum Gas (LPG) can also be produced.

Experts say the cost of repairing the Grangemouth unit which went offline in April, last year, and has not been working since has played a key part in its anticipated closure.

But it has emerged that attempts to get the UK Government to intervene have fallen on deaf ears.

READ MORE: How Sir Jim Ratcliffe's Grangemouth plant became a manufacturing icon

In an appeal response, energy security and net zero minister Graham Stuart said the decision to close the refinery was a commercial decision for Petroineos to make.

And in providing no hope of government intervention, he said that any public subsidy would "likely draw legal challenge from its competitors" across the UK and abroad.

"Petroineos themselves say that its configuration makes it inherently inefficient. This has resulted in Grangemouth bearing a higher unit cost of production than other refineries," he said.

"The scale of the investment required makes it challenging to argue that this would represent value for money.

"Petroineos has indicated it may consider building a bio-refinery which would produce Sustainable Aviation Fuels at the Grangemouth site. The UK Government will continue to encourage them to pursue this.

"I want to assure you, however, that the UK Government will continue to work closely with the Scottish Government and Petroineos on this issue, to understand all the options for the future of the refinery, and to ensure that fuel supplies for Scotland and the UK are maintained."

His stance came in a response to an appeal from former justice secretary now East Lothian MP and Alba Party deputy leader Kenny MacAskill who is tomorrow (Saturday) launching a campaign to save the refinery.

The fair energy prices campaigner said: "The UK has made trillions from Scotland's North Sea oil. In return they propose to lay waste to Grangemouth and much of industrial Scotland. As well as harming the environment further by shipping oil out for refining only to bring it back at a premium for domestic supply. It's the economics of the madhouse and environmental lunacy.

"Scotland must benefit from her natural bounty. Norway has blossomed from its share of the North Sea resource whilst this will make parts of Scotland an industrial desert. It's why the money must be found to restart the hydrocracker, increasing profitability and Scotland's oil must be refined at Scotland's refinery. All that is part of a journey for a Just Transition to biofuels.

"But it's simply not on that the Treasury profit from Scotland's oil but leave Scots to pay the price. They owe it to us and our nation requires no less."

Alba's National Council has backed the workers at Grangemouth in their fight to retain the oil refinery as a national asset.

The refinery at Grangemouth, one of only six remaining in the UK, has been operating since 1919 and was one of the first to transform crude oil in the UK.

It produces a range of fuels including petrol, diesel, kerosene, LPG and jet fuel and currently employs around 500. Ineos employs another 450 staff on the site at Forties Pipeline Services and a further 1,000 in its petrochemicals business.

The 1,700-acre site is estimated to supply 70% of the fuel to Scotland's filling stations as well Northern Ireland and the north of England.

It is the primary supplier of aviation fuel for Scotland’s main airports, and a major supplier of petrol and diesel ground fuels across the central belt.

One specialist staff member told the Herald that the communication from management was that the refinery closure was "positive news" as they were "putting things in place to enable that transition when the time is right, in other words when refining margins drop too low to remain profitable.

"But that was not how it has been received by the employee population."

Another staff member told the Herald that there remain concerns over jobs. 

"We would love to see the refinery retained, but all the mood music is that fossil fuels are bad, even though they are still required, and I think that is why the managers have set this plan in place," he said. "What any of us want is certainty that we have jobs and to be honest, I do feel that we have jumped the gun on this with all the signs with the closures that have already happened that we are winding down.  To be clear,  we still need fossil fuels and we still need the refinery."

The company that operates the refinery made losses totalling nearly £360m in the pandemic-hit years of 2020 and 2021.

The Herald can reveal much of that was down to what is called an "impairment charge" which relates to a drop in the value of its property, which counts as a loss on financial statements.

Some £383m dropped from its value, in the wake of resizing its operations from November 2020. It then announced the closure of one of its crude distillation units and its fluid catalytic cracking unit.

The cut in capacity of the refinery led to an estimated loss of up to 200 jobs in 2020, as the hit to fuel demand from the coronavirus pandemic hit profits across the industry.

In the two years before the pandemic, it made losses of £26.066m.

According to the company, which received £415,546 in furlough payments under the taxman's Covid furlough scheme, the resized refinery allowed it to concentrate on product sales to inland markets and reduce a reliance on exports.

A Petroineos spokesperson at Grangemouth said: “The macro-economic environment for refining in North West Europe is challenging. Fundamentally, there is an excess of refinery capacity from lower cost base producers. This means that over the medium term continued crude oil refinery operations at Grangemouth will likely become uneconomic. As a result, Petroineos announced in November 2023 a plan to invest in new terminal import infrastructure. This is a prudent step by a responsible operator to ensure the stable supply of fuel to its customers well into the future.

“The commitment of our shareholders to the Grangemouth Refinery has been without question. They have invested over $1.2bn (£950m) in the refinery since the incorporation of the Petroineos joint venture in 2011, funded not from profitability, but from shareholders directly. In simple cash terms, the business has lost over $600m (£480m) during that period.

“The UK and Scottish governments are not alone in a global policy environment that is proactively pushing away from fossil fuels as part of a green transition. This, of course, has an impact on demand for the products we manufacture. Petroineos is committed to exploring options for a bio-refinery at Grangemouth, but scoping remains at an early stage. There is a clear need for more progressive government policies to underpin the commerciality of any such investment.

“Within this context, Petroineos remains ready to engage with any new interventions suggested by the UK or Scottish governments, and we will continue to engage proactively and constructively via well-established channels and forums.”