Tuesday 22 October 2013

Grangemouth - another fine mess

It's a sad state of affairs up at Grangemouth. This is one of the most significant refinery and chemical production centres in the Uk. The most important in Scotland by a long way. In the world today, refining has become a difficult business as the margins have been squeezed.

Why so squeezed, well a glut of new infrastructure has been built and at the same time world oil production has levelled off. Gas from fracking has increased, but LNG is a vastly different infrastructure. As well as over-capacity, since 2008, finance for commodity transactions has been withdrawn by banks. When a site like grange mouth, which needs about $10 billion a year of oil to refine, struggles to get credible finance then the business is in trouble. Ineos the owner, is a Chinese company and this was hoped to be the solution to the problem. But with margins tight they are trying to get the workforce to accept lower pensions and pay freezes. Unite Union are dad against and the Scottish Government, full of Unite reps, has decided to try to find a new owner.

This all rather sadly reminds me of Petroplus and its Coryton refinery. There the banks withdrew the credit line and the company collapsed, no new buyer was found and the refinery has closed. Now at Grangemouth the same story is playing out. It's hard to blame workers for refusing harsher terms, but equally what at the Unions doing thinking another purchaser will be on the horizon.

If Chinese investors can't find the money then no one else will be able too. It's a terrible waste, look at ND's post on Teeside below and you can see how much valuable heavy infrastructure is being wasted by very poor macro-economic management in the UK.


Ryan said...

A better summary here:-


Basically demand is weakening for petroleum and increasing for diesel, but diesel is now being refined in Asia at lower costs and Grangemouth can't compete. I'm sure that if the employees at Grangemouth were prepared to work for £1 per hour then they could keep their jobs. I wonder why they won't do that?

This is the crux of the matter. How is it that western nations are still able to pay employees £10 per hour when the Chinese are paying £1 per hour??? Could it be that the Chinese paying themselves only £1 per hour is actually helping the West continue to pay its employees £10 per hour?

Clive said...

Steady on CU. That all looked like a case for -- stunned silence and sharp intake of breath -- government intervention in markets.

But whether you're on the left or the right, there's simply no good options here. Screwing over labour (as in workers, not the dreadful millipede) just isn't on and not really any sort of long term solution -- more-or-less a race to the bottom. Letting capital assets go hang is as you say a terrible waste and eventually the remaining refineries become a monopoly and can predatory price as much as they like (and they'd like a lot).

But -- the words stick in my mouth if it's any consolation -- government support is also a road to nowhere. EU rules on competition probably preclude it for a start and once something gets attached to the teat of state support, it gets tricky to ever remove it.


Clive said...

@ Ryan

Yep. I's called "Mercantilism"


We (Britain) played it very nicely for a long time in the 19th and early 20th centuries. It's a fraud, ultimately. Good while it lasts (for some actors anyway especially capital, labour not so much). But it can't go on forever.

The wrenching adjustments when it all comes crashing down are particularly nasty. Think Britain in the post WWII era. Or Japan since 1990.

CityUnslicker said...

Ryan - yes. However in the short term I don't get the Union position. You vote yes to the changes in conditions, then look around for another job.
Voting no gets you a P45 and its harder to get another job.
Ineos may have long-term problems, but they want to keep the place open for now. The car factories had similar stories, but yet now with foreign investment and a flexbile workforce it is a sustainable and competitive industry.

Ryan said...

CU: Agreed. In fact reading between the lines in the Reuters article would suggest that a slight reduction in wages would allow continued production for the forseeable future (i.e. the excess capacity would be taken out somewhere else). Jobs might go through natural wastage only, which is always a better way.

The Union is no doubt playing Marxist "screw the Tories" politics with the votes of unionised workers that are too dim to see they are being manipulated. The Ineos position appears to be indisputable given what happened at other refineries.

Ryan said...

Well, in fact this is the Unions position:-

'Unite general secretary Len McCluskey also welcomed news of the buyer talks with the Scottish Government in a statement.

He said: Jim Ratcliffe's (Chairman] behaviour has exposed a dreadful frailty at the heart of our energy supply, which is that one man's power and wealth can hold our governments and citizens to ransom.

"Our politicians need now to step up. Our public utilities cannot be run by those indifferent to considerations of social responsibility.

"Unite calls upon politicians in Edinburgh and Westminster to support a new beginning for Grangemouth, free of the tyranny of one man's whims.

"If this means securing financial assistance - or even nationalisation - then this must be done.

So basically McCluskey is talking a load of nonsense about our "energy supply" when we either import crude or import refined product, and attempting to suggest that Marxist nationalisation is the only answer. The real answer is that we keep redeploying the human resources of UKPLC into leading edge industries that pay £10 per hour and not £1 per hour. Using the taxpayer to fund the £9 per hour so Grangemouth can compete with the Chinese head-to-head is a mugs game.

Demetrius said...

Could Salmond persuade the Chinese to build a new nuclear power station on the site? With RBS backing?

Anonymous said...

"How is it that western nations are still able to pay employees £10 per hour when the Chinese are paying £1 per hour???"

If you promise to double wages to £2/hour, you get very motivated people.

A economist pointed out that a single currency, single tax structure, and convergence politically means a single minimum wage eventually. We're just trying to avoid Romanian / Bulgarian levels for as long as we can.

And the way out for a country would be to re-skill like Singapore - just like we've retrained all the miners and steel workers when their industries collapsed.

It's not a macro-economic policy it's an education policy - Gove help us!

Electro-Kevin said...

CU @ 12.07

Where welfare is a safety net the union members do actually have an option "Our members would be better off on the dole." And they probably would be. Sometimes no job is better than a job in Britain.

"Being in a job would make it easier for them to get another job." I agree. I've found time and time again that the best way for me to find a good job was to take a crap one.

Doesn't this give lie to the long-term unemployed who balk at the prospect of litter-picking and argue "Where would we find the time to look for jobs ?"

Ryan said...

"Where welfare is a safety net the union members do actually have an option "Our members would be better off on the dole." And they probably would be. Sometimes no job is better than a job in Britain."

Yes, particularly true if your are fully paid up on NI and have been in a struggling industry for a long time such that you are close to retirement anyway.

The average age of the company where I work is close to 60. Every time we have the chance of early retirement a bunch of people queue up to accept. I'm guessing something similar is happening at Grangemouth. It's been around a long time and since getting rid of long-term employees is much more expensive in terms of redundancy payments I'm guessing the 1350 people that work there are close to retirement age - certainly looks that way from the pictures I've seen on Google images of those holding the Unite banners.

Fancy these decrepit old folk just fancy spending the rest of their days in Malaga and are happy to let Unite dress up their industrial action as something more. With that in mind the best thing to happen would be to close down Grangemouth, sack everyone, and let somebody else re-open the site with a new, younger, workforce.

CityUnslicker said...

Once a refinery closees Ryan trhere is no way back. The costs of re=opening are huge and you break your supply contracts - crude is hard get hold of at the moment and once you annoy your suppliers that is it.

Like other types of infrastrcuture, the key is to keep it on. Plus with over-capacity in the refinery world who is going to take a punt on re-opening. Ineos have another refinery in France which is une-utilised, that will be the beneficiary of Unite's action

Timbo614 said...

So the refinery stays but the petro- chemicals go. Only half get their retirement beano, but now in Margate not Malaga!

Hope Unite are happy.

Weekend Yachtsman said...

So the Union wants to resist reductions in shift allowance, the end of a bonus scheme, a wage freeze for a while, and the closing of the final salary pension scheme?

Most private sector employees can't dream of any of those things, and I for one have not had a pay rise in six years. All the other things happened to me before in other employment and have happened to millions of others.

Do these people realise how feather-bedded they are?

Of course, the public sector is something else, but they're not in it. Hard cheese.

Anonymous said...

Anon - "the way out for a country would be to re-skill like Singapore"

Han Chinese average IQ 105
White British average IQ 100
White British proportion of kids in English secondary schools - around 73%

I'd suggest that Singapore is in a better position to reskill than the UK.

Demographic investing is an interesting idea. I think Iceland will do well because of its lack of diversity, educated population and plentiful energy. The drawback is that a country like that prefers to keep its profits in-country rather than hand them to foreigners!