Sir Jim Ratcliffe's stricken Scots refinery has 'unsustainable' £360m in losses

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

Staff have been told that a start has been made on projects that will see the Petroineos 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, told the Herald it will remain a refinery until spring 2025 and that jobs would remain safe in the short term.

They say the move will provide "greater operational flexibility and safeguard the site as a national fuel hub for decades to come".

READ MORE:  (from 2020) Scots refinery part-owned by Ineos to axe up to 200 jobs and mothballs plants

They say the preparatory work will make it possible to import petrol, diesel, aviation fuel and kerosene into Scotland from vessels arriving via the Firth of Forth.

The development comes as Sir Jim Ratcliffe was said to be poised to take a 25% stake in Manchester United in what is said to be a £1.25bn deal.

SNP MSP for Falkirk East Michelle Thomson said she was seeking urgent discussions with Petroineos to understand the extent of this decision and seeking "any and all available assistance from the Scottish Government".

Company sources have told the Herald that the size of the losses incurred by the company were at a level that could not be sustained by any government support.

"It would not be economically viable," said a source.

Grangemouth’s place in the chemical and oil industries goes back more than a century.

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 supplies 70% of the fuel to Scotland's filling stations as well Northern Ireland and the north of England.

Petroineos estimated the refinery is responsible for 4% of Scotland’s gross domestic product and responsible for approximately 8% of the nation's manufacturing base. 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.

The refinery has long been seen as vulnerable to cuts given its age.

The Herald can reveal that the move comes after the company that operates the refinery made total losses of £361.64m 2020 and 2021.

It came as the value of its assets including the old refinery, equipment and other property declined by £383m as of 2021 described as an 'impairment loss'.

That came after Petroineos cut the capacity of the refinery with 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.

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.

The company has been in consultation with the Scottish Government and the UK Government about the transition.

That is despite the fact that the Petroineos Manufacturing Scotland Limited, which owns and operates the plant was passed off as a going concern in its last annual financial statement for 2021 signed off in March of this year as its parent company has access to uncommitted bank credit facilities of £7.095bn.

The company, Petroineos Refining Limited had committed not to demand immediate payment of money owed if it compromised the refinery company's ability to continue as a going concern. At December 31, 2021, that amounted to £360m.

The board said that as with any company placing reliance on other group companies for financial support, they acknowledged "there can be no certainty" that this support will be continued. But at the date of the approval of the latest finanical review in March, of this year, they had "no reason to believe that it will not do so".

The development has caused concerns amongst the 500 direct staff with hundreds more agency staff and contractors reliant on its existence who are worried for their futures.

One specialist staff member told the Herald: "What will happen will shed hundreds of those jobs.

"It means the end of crude oil refining at Grangemouth and in Scotland. It will simply be an import, storage and distribution terminal.

"A fuels terminal would require much less people to run, but it is unclear at present how many. We have no clear ideas of numbers, just that redundancies would occur.

"The concern is over the 100s of redundancies which will inevitably occur plus all the uncertainty of what the future holds.

"The other point of view is energy security, as Scotland's only manufacturer of transport and heating fuels closes. Energy security for the UK should still be covered by the remaining refineries."

Gary Smith, general secretary of the GMB union said: "The intention to transition from domestic production to a fuel import terminal poses serious questions about the UK's energy security. It will also cause real concern for the wider UK energy and manufacturing sectors.

"Time and again, GMB has said the UK needs a plan and not bans for better energy independence and prosperity.

“The announcement should be a huge wake up call to policymakers across the political spectrum.”

Scottish Labour's shadow Scottish secretary Ian Murray said if the closure goes ahead it will be "a damning symbol of our two governments’ industrial failure".

“Both of our governments must get round the table to try and protect these jobs and support these workers," he said.

According to Petroineos, it has a refining capacity of 150,000 barrels per day while Grangemouth plays a leading role in supplying Scotland’s fuel demand, and is of strategic importance to the nation's energy supply and regional economic development.

It is connected to the Forties Pipeline System (FPS) for its crude oil intake from the North Sea and connected to Finnart Ocean Terminal for crude oil import and finished products export.

In November 2020 it emerged that two production plants at the site, which had not been operational since the Covid lockdown the previous March were being mothballed. It said the move will reduce future operating costs at the site.

A few months earlier, the energy firm sought a government loan package worth hundreds of millions of pounds amid low oil demand which was triggered by the coronavirus pandemic.

The request for the joint venture's loan followed Ineos owner Sir Jim Ratcliffe's move to Monaco for what were alleged to be tax reasons.

It is understood Petroineos had been in talks for weeks with the Scottish and UK governments about a loan package.

Ineos said at the time: “It should not come as any surprise that the refinery is talking to the government at a time when demand for fuel has fallen significantly during the period of lockdown,” before adding that “the request is not from Ineos but from Petroineos, a 50-50 joint venture between Ineos and Petrochina”.

The joint-venture believed it could have “a viable longer-term business” employing up to 450 workers at the site. In 2020 there were 637 full-time staff there.

At the time, Scotland's infrastructure secretary Michael Matheson described the job losses as "devastating" and vowed the Scottish Government would do everything it could to help affected employees.

News of the future of the plant came in a message to staff from refinery manager, Russell Mann.

He said: "The sort of timescale we have in mind for these logistics projects is about 18 months. That'll take us through to [the second quarter of 2025] or thereabouts.

"I would look at today as indicating it's a 'when' rather than an 'if' we transition. We don't have an actual date for the transition. It will be driven by the margins which currently are reasonably good.

"Ultimately this transition, this decision is going to be driven by those large external factors rather than anything local to Grangemouth.

"I think everybody is aware that the demand for our products is diminishing and has been for years and at the moment we have an up-kick in margins on the back of what's going on in Ukraine but that won't last forever.

"And it's fair to say a European refinery such as Grangemouth, where we're getting squeezed from the US and Far East, Middle East, that some time in the next five years or so it simply won't make economic sense to run this as a main fuels refinery.

"Ultimately the market in Scotland simply won't be big enough to support a fuels refinery and we would be better off transitioning to an import terminal at that point."

Petroineos said it will take 18 months for the preparatory work to transition the refinery into a fuels import terminal to complete.

It said the timescale for any operational change has not yet been determined but the refinery would continue operating until Spring 2025.

The company said: "Grangemouth is home to the only fuels refinery in Scotland, which has been a vital piece of national infrastructure for the past century but faces significant challenges due to global market pressures and the energy transition."

It said the company will also progress work to enable the conversion of its existing export terminal at Finnart on the Firth of Clyde – which is linked to Grangemouth by cross-country pipelines – into a diesel import facility.

"Once a decision is taken to commission the new infrastructure, Petroineos will have the means of importing finished fuels for onward distribution to customers around the country through its established supply networks," it said.

As part of the plans communicated to staff, Petroineos is also evaluating a range of low-carbon opportunities for Grangemouth, including the feasibility of a bio-refinery facility on the site. The company is working closely on this project with a range of interested parties, including the Scottish and UK governments.

Wellbeing economy secretary Neil Gray said: “This is a commercial decision and it is our understanding that these works will futureproof the site to allow it to continue as an important fuel supply source for years to come.

“The Scottish Government is committed to working with industry to secure a sustainable future for Grangemouth that reflects our ambitions for decarbonisation and a just transition for Scotland’s industrial sector whilst recognising the important role it plays in meeting fuel demand Scotland. We will continue to work in partnership with businesses like Petroineos to secure a long term, sustainable future for Grangemouth and those who live and work there.

"We will continue to engage with the UK Government and the business throughout this period."

A UK Department for Energy Security and Net Zero spokesperson said: “We understand that these reports will be concerning for the refinery’s workers, and are seeking assurances from Grangemouth on how they are supporting employees and the long-term future of the site.

“We remain confident in our fuel supply and the government will continue to back the North Sea oil and gas sector and green industries, such as offshore wind and carbon capture and storage, to protect our energy security, attract investment and create opportunities for communities in Scotland and across the UK.”

Franck Demay, chief executive officer at Petroineos Refining, said it was "business-as-usual" for the time being.

He said: "As the energy transition gathers pace, this is a necessary step in adapting our business to reflect the decline in demand for the type of fuels we produce.

"As a prudent operator, we must plan accordingly, but the precise timeline for implementing any change has yet to be determined.

"This is the start of a journey to transform our operation from one that manufactures fuel products, into a business that imports finished fuel products for onward distribution to customers."