Petrochemicals giant Ineos’s Grangemouth refinery and petrochemical plant, which is the largest industrial site in Scotland and its only refinery, is expected to remain open after union leaders accepted demands from the management in an effort to save 1,400 jobs, according to a Reuters report.

Last week, Ineos stopped production at the 210,000 barrels-per-day refinery, which provides 70% of Scotland's fuel, due to the dispute with Britain’s largest union Unite. It had initially encouraged members to reject the company's plan to cut pension provisions and freeze pay, plans that Ineos considers vital to reducing losses at the plant. PetroChina owns 49.9% of the Grangemouth refinery, while Ineos owns all of the petrochemical plant.

According to local sources, although Grangemouth was one of the best-configured refineries in the UK, producing large quantities of diesel and jet fuel as well as gasoline, it would have been difficult for any new investor to turn the plant around. Analysts have also questioned whether refineries in Europe, which are mainly geared towards producing gasoline, can compete in the longer term against competition from other regions, says the Reuters report.

Customer loss forcing closure

The above news comes after Grangemouth petrochemicals’ lost one of its key strategic customers, announced by Ineos early October. The Ineos Vinyl Acetate Monomer (VAM) facility at Saltend in Hull has traditionally taken up to 100,000 tonnes or 20% of ethylene from Grangemouth but said in a closing statement that low cost imports into Europe has resulted in it having to stop production and close down.

The European VAM market has increasingly been hit by imports from Saudi Arabia and the US, both of which benefit from cheap sources of gas. Despite the Hull VAM plant being world scale, and only recently built, it simply cannot compete with chemical plants that can benefit from cheap Middle East gas or cheap US shale gas.

Calum MacLean, Ineos Grangemouth Chairman says, “This is a sad day for the whole site at Hull, which also hits Grangemouth hard when it is already suffering from depleting raw materials and increasing costs. Despite being a modern facility, the Hull site is a clear example of how uncompetitive feedstocks can kill a business. This is similar to the situation at Grangemouth.“

Ineos launched a ‘Survival Plan’ for the Grangemouth petrochemicals site that includes a substantial investment to build a new gas import terminal, to bring in additional gas from the US. This investment is dependent on significant reductions in site costs including reforming the company’s pension scheme, which now costs 65% of base salary and has a deficit of almost £200 million.