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INSIGHT: Grangemouth Petrochemicals closure threatens wider industry

23 October 2013 14:47  [Source: ICIS news]

LONDON (ICIS)--The decision by INEOS to put its Grangemouth petrochemical plants in Scotland in the hand of liquidators has come swiftly, although the bitter dispute with the refinery and petrochemical sites’ workforce had been brewing for a long time.

The company’s decision hammers home the message that Europe is a costly place for petrochemicals and that the viability of some petrochemical plants can’t be guaranteed unless changes are made.

The UK government said on Tuesday that a loan guarantee for the INEOS plan to build an ethane import terminal and storage facilities at Grangemouth had reached the pre-qualification stage. Additionally, about 50% of the Grangemouth workforce has been prepared to accept the company’s offer of changed employment terms and conditions.

But INEOS made it clear on Wednesday that the shareholders in the refinery at Grangemouth - oil giant PetroChina and INEOS itself - could not see a future for Grangemouth without change.

“There was only ever going to be one outcome to this story if nothing changed and we continued to lose money,” said Grangemouth Petrochemicals chairman, Calum MacLean.

INEOS said that the liquidation process is likely to start in a week.

“Petroineos will now decide on whether to restart the refinery. This will be primarily dependent on the removal of the threat of further industrial action,” it added in a statement.

The petrochemical site has been losing money, particularly as natural gas liquids (NGLs) feedstock supply from the North Sea has dwindled. And INEOS says its petrochemical plants at Grangemouth have been operating at 50% of capacity.

An INEOS spokesman confirmed on Wednesday that the site is losing £10m a month, needs £300m of investment and while shut down is losing £2m a day.

It has approached the UK government for a £125m loan guarantee and the Scottish government for a £9m grant. It says that final salary pension costs at the complex are 65% of salary.

INEOS has all sorts of problems at Grangemouth. It has invested in the larger 700,000 tonnes/year KG cracker to add some feedstock flexibility. The decision on when it might close the smaller 320,000 tonnes/year G4 cracker has been pending for years. Another big question would be what to do with excess naphtha from the adjacent Grangemouth refinery should the smaller cracker close. The site also can produce 295,000 tonnes of propylene.

Downstream from the cracker are capacities to produce benzene, butadiene and ethanol, linear low density polyethylene and polypropylene.

INEOS is trying to compete in Europe by building more cracker feedstock and ethylene supply flexibility. It has 1m tonne/year capacity ethylene import terminal in Antwerp, through which it can tap into supplies of deep sea ethylene. It can import ethane at Rafnes in Norway to feed its cracker there. In Europe INEOS is ethylene short.

At the heart of this decision lies the fact that INEOS says it would need to spend £300m to add US shale-derived ethane import capability at Grangemouth. INEOS has said that a new agreement with the Grangemouth workforce was essential if an investment of that magnitude were to be made.

But the company made it clear in early October that downstream markets in Europe, threatened by low-cost imports from North America and the Middle East, were extremely tough.

Downstream from the Grangemouth crackers, INEOS will close a 300,000 tonne/year vinyl acetate monomer (VAM) plant at Hull in eastern England. The plant takes its ethylene feedstock from Grangemouth.

Operator INEOS Enterprises said that low-cost imports and a hostile trading environment had made the closure of the Saltend VAM plant inevitable despite expenditure on the business and the efforts of management and employees.

“Regrettably, our cost per tonne remains significantly higher than the international competition and as a consequence we have lost a number of important contracts,” CEO of INEOS Enterprises, Ashley Reed, said.

Of deep concern in the UK is that a decision to close Grangemouth would have a severe knock-on effect on other cracker operators in the country and the supply of petrochemicals to downstream users and of polymers to the converter industry.

An ethylene pipeline system connects Grangemouth to other cracker sites in the UK at Wilton in northeast England and Mossmorran in Scotland. Downstream operations run by Shell at Stanlow are also on this link.

There is a clear threat to UK manufacturing industry should such a large slug of ethylene capacity, more than one third, be removed from this system, International eChem chairman Paul Hodges told ICIS on Wednesday.

He also warned of the downstream impact on converters and others in the UK chemical industry should such sizeable upstream plants close permanently. 

“There is a real danger that the UK sleepwalks into a position where its manufacturing revival is put at risk as a result of this closure, which adds further problems on top of the UK’s already high energy costs,” he said.

 

By: Nigel Davis
+44 20 8652 3214


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