Britain is to see its first deliveries of US shale-derived gas in 2016 when Ineos completes a £300m investment programme at its Grangemouth plant in Scotland.
The chemicals giant that had threatened to close Grangemouth in October after a bitter industrial dispute, has revealed a plan that will transform the economics of the loss-making site, making it almost instantly profitable.
Central to the plan is the construction of new shipping and storage facilities to handle imports of ethane, which is 75pc cheaper in America due to the shale gas revolution. Ineos has agreed a long-term supply deal, spanning 15 years, with US oil and gas group Range Resources.
The import of cheap ethane will allow Ineos to run its KG chemical cracker at full capacity of 700,000 tonnes a year - twice the rate currently possible due to the decline in gas feedstocks coming out of the North Sea.
Calum MacLean, chairman of Ineos’s Grangemouth site, said: “Running the cracker at 100pc is the biggest single thing that will turn this business from loss-making to profitable.”He said it would allow Grangemouth to “produce ethylene on a competitive basis”.
The Grangemouth site, which includes the adjacent oil refinery 49pc-owned by PetroChina, has lost almost £600m over the past four years. It is currently losing about £10m a month due to the combination of high labour costs and dwindling feedstocks.
Even allowing for the cost of shipping ethane from America, Mr MacLean said: “Typically, the feedstock being landed here will be 50pc of the price of the gases being sourced from the North Sea.”
To store the imported gas, Ineos plans to invest £125m on a 40m-high gas storage tank, capable of holding 33,000 tonnes of ethane, and related infrastructure. It will feed a site using 1,500 to 2,000 tonnes a day.
Tom Crotty, an Ineos group director, said the construction contract for the tank is expected to be awarded by the end of the first quarter next year. The bidders are the UK-listed Babcock International and Germany’s TGE - the company that built a smaller tank for Ineos’s Rafnes plant in Norway.
In the run-up to the first ethane imports in the second quarter of 2016, Ineos will also close some older assets - details of which triggered a fresh row on Monday with the Unite union.
News that Ineos plans to close its Naphtha cracker in the second quarter of 2015 - plus a smaller Benzene plant by the end of this year and a Butadiene facility in early 2015 - led to reports of 200 job cuts among the recently reprieved 800-strong workforce. However, Mr MacLean insisted: “We don’t expect there to be any material job losses.”
He said the closures would put a maximum of 50 jobs at risk and that many of these would be redeployed or offset by new recruits.
He said current consultation with the unions, including a pay freeze and the axing of the final salary pension scheme, would cut about £40m a year off Grangemouth’s £200m cost base.
The £300m investment plan includes expected losses until 2016, while the £125m spend on the new storage tank project is expected to be underwritten by the Government’s £40bn infrastructure loan guarantee scheme.
Mr MacLean stressed Swiss-based Ineos would still have to borrow at commercial rates from a bank: “The only thing the Government is doing is allowing that bank to lend us money which we probably would not be able to borrow because we are a loss-making company.
They are not giving us free money,” he said. Ineos’s controlling shareholder Jim Ratcliffe said in October he would close the Grangemouth chemicals plant after Unite told workers not to sign up to his cost-cutting “survival plan”.
After the union relented at the eleventh hour, Mr Ratcliffe reprieved the plant, saying his planned £300m investment gave it a “great future”. He added at the time: “We can’t put £300m into a plant that’s going to fail. That would just be stupid.”
telegraph.co.uk
The chemicals giant that had threatened to close Grangemouth in October after a bitter industrial dispute, has revealed a plan that will transform the economics of the loss-making site, making it almost instantly profitable.
Central to the plan is the construction of new shipping and storage facilities to handle imports of ethane, which is 75pc cheaper in America due to the shale gas revolution. Ineos has agreed a long-term supply deal, spanning 15 years, with US oil and gas group Range Resources.
The import of cheap ethane will allow Ineos to run its KG chemical cracker at full capacity of 700,000 tonnes a year - twice the rate currently possible due to the decline in gas feedstocks coming out of the North Sea.
Calum MacLean, chairman of Ineos’s Grangemouth site, said: “Running the cracker at 100pc is the biggest single thing that will turn this business from loss-making to profitable.”He said it would allow Grangemouth to “produce ethylene on a competitive basis”.
The Grangemouth site, which includes the adjacent oil refinery 49pc-owned by PetroChina, has lost almost £600m over the past four years. It is currently losing about £10m a month due to the combination of high labour costs and dwindling feedstocks.
Even allowing for the cost of shipping ethane from America, Mr MacLean said: “Typically, the feedstock being landed here will be 50pc of the price of the gases being sourced from the North Sea.”
To store the imported gas, Ineos plans to invest £125m on a 40m-high gas storage tank, capable of holding 33,000 tonnes of ethane, and related infrastructure. It will feed a site using 1,500 to 2,000 tonnes a day.
Tom Crotty, an Ineos group director, said the construction contract for the tank is expected to be awarded by the end of the first quarter next year. The bidders are the UK-listed Babcock International and Germany’s TGE - the company that built a smaller tank for Ineos’s Rafnes plant in Norway.
In the run-up to the first ethane imports in the second quarter of 2016, Ineos will also close some older assets - details of which triggered a fresh row on Monday with the Unite union.
News that Ineos plans to close its Naphtha cracker in the second quarter of 2015 - plus a smaller Benzene plant by the end of this year and a Butadiene facility in early 2015 - led to reports of 200 job cuts among the recently reprieved 800-strong workforce. However, Mr MacLean insisted: “We don’t expect there to be any material job losses.”
He said the closures would put a maximum of 50 jobs at risk and that many of these would be redeployed or offset by new recruits.
He said current consultation with the unions, including a pay freeze and the axing of the final salary pension scheme, would cut about £40m a year off Grangemouth’s £200m cost base.
The £300m investment plan includes expected losses until 2016, while the £125m spend on the new storage tank project is expected to be underwritten by the Government’s £40bn infrastructure loan guarantee scheme.
Mr MacLean stressed Swiss-based Ineos would still have to borrow at commercial rates from a bank: “The only thing the Government is doing is allowing that bank to lend us money which we probably would not be able to borrow because we are a loss-making company.
They are not giving us free money,” he said. Ineos’s controlling shareholder Jim Ratcliffe said in October he would close the Grangemouth chemicals plant after Unite told workers not to sign up to his cost-cutting “survival plan”.
After the union relented at the eleventh hour, Mr Ratcliffe reprieved the plant, saying his planned £300m investment gave it a “great future”. He added at the time: “We can’t put £300m into a plant that’s going to fail. That would just be stupid.”
telegraph.co.uk
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