Skip to main content

Fuel Supply: Grangemouth Refinery

Volume 700: debated on Thursday 24 April 2008

My Lords, with the leave of the House, I shall repeat a Statement made in another place by my right honourable friend the Secretary of State for Business, Enterprise and Regulatory Reform. The Statement is as follows:

“With permission, Mr Speaker, I would like to make a Statement on the implications of the industrial action at the Grangemouth refinery, which, I regret to report, is scheduled to begin on Sunday and to last 48 hours.

“Throughout the last few days, we have kept in close contact with Scottish Ministers, both parties to the dispute and with the industry as a whole. I am grateful in particular to ACAS for the effort it has made to resolve matters between the parties. Our first priority now is to ensure the maintenance of sufficient fuel supplies during the period of industrial action.

“Over the past few days significant additional supplies of imported fuel have been made available in Scotland. I have been advised by the industry that there is sufficient fuel to re-supply forecourts and other users ahead of the planned industrial action. Industry has also advised us that, at present, fuel stocks at Grangemouth, together with the planned imports of finished product through Grangemouth to replace lost production, should be sufficient to maintain supplies through the period of the industrial action and the consequent re-starting of the plant.

“We are already working under our established Memorandum of Understanding with industry to develop a jointly managed approach which allows fuel suppliers to work together to maximise available fuel. We also have available, if necessary, the National Emergency Plan for Fuel which can be used to ensure fuel is available for priority groups such as the emergency services. Our best assessment is that, at present, there is no need for the Government to take action under its emergency powers. We are working closely with the Scottish Executive, and with the regional forums in Scotland, to prepare for further action should that become necessary. We will not hesitate to use these emergency powers if this becomes necessary.

“The oil companies have reported significant increases in fuel up-take this week in response to concerns about shortages of fuel. While this response is perfectly understandable, I want to emphasise that industry has made it clear that there is sufficient fuel available via imports and that any localised shortages will be re-supplied quickly.

“It is also essential to prevent the industrial action at Grangemouth from disrupting the flow of North Sea oil and gas associated with the Forties Pipeline System and the Kinneil processing plant at Grangemouth. I believe that there can be no justification whatever for action that adversely affects production of oil and gas from the North Sea. Continuing production depends on power, steam and cooling water being delivered by or through the Grangemouth site. Discussions are continuing this morning on ensuring the continuance of these vital utilities and of course it is essential that they are maintained.

“Finally, there is a need to protect critical equipment to allow a rapid return to normal operation following the period of industrial action. This will require the provision of safety cover for the INEOS refinery and petrochemical plants. It will also require maintaining the steam supply throughout the plant to ensure the integrity of steam lines, pipes and production units.

“This is a dispute for INEOS and Unite to resolve as a matter of urgency. The Government’s view is that both of them have a responsibility to minimise the impacts of their dispute on the public and on the wider economy. I would urge both sides to get back to the negotiating table as quickly as possible and to resolve this dispute without any further harm being done to the public and to the economy. We will continue to monitor the situation closely, working with the Scottish Executive and emergency services, local authorities and other key agencies”.

My Lords, that concludes the Statement.

My Lords, I thank the Minister for repeating the Statement and I strongly agree with her that it should be a priority to persuade the unions and INEOS to reopen negotiations at the earliest opportunity. I urge both sides to lay aside their own immediate interests and give thought to the serious consequences that this dispute could have for the general public and the economy.

The Minister will be aware that there has been much speculation about the impact of this shutdown. Does she agree that we need to maintain a sense of proportion in relation to these events? That is the only way to reassure the public and avoid the scenes of panic buying of petrol or stockpiling of supplies that we have seen in the past. Can she confirm that, as the situation does not as yet represent a widespread shortage, she does not expect there to be any impact on petrol prices on the garage forecourt and that she will monitor what happens to petrol prices to ensure that no one tries to take advantage of the situation and push their prices up unfairly? Fuel prices in general, and oil in particular, are already sky high, so we cannot afford to take this threat lightly.

The Minister will be aware that the industry believes that a two-day strike is damaging but manageable. However, there is deep concern about the implications of a longer dispute, which would undoubtedly increase the risk of serious shortages throughout the United Kingdom. How are the Government monitoring the situation, and will they make a commitment to keep Parliament informed?

Can the noble Baroness give us an indication of what action the Government will take if the unions and INEOS do not see it to be in their own interest to come to an agreement and restart production after two days? On current plans, the Forties oil field will be forced to cease production for a number of weeks. Can the Minister tell us whether any long-term damage will be done to North Sea fields, where there are only limited facilities to store oil and gas in situ? What effect will that have not only on UK oil prices, in the future?

What is the Minister’s understanding of the impact of the strike on plans to invest in the future of the Grangemouth facility? What impact does she think a strike will have on INEOS’s ability to fund the £750 million investment programme necessary to modernise the plant, and in this respect, does she agree that a strike will actually put jobs at risk and damage the interests of those working at Grangemouth and in a vital British industry?

Finally, while these discussions are ongoing, can the Minister give us more details about how her department is working with the industry to secure fuel from other sources to make up the shortfall while Grangemouth is out of action? To what extent does she understand that fuel has been stockpiled to minimise the effect of the strike on the public?

My Lords, I thank the Minister for repeating the Statement. The short-term damage that this strike could have would mirror the effects of the fuel protests. I know all too well the issues at stake for Scotland, having witnessed what took place in Northumberland. Those businesses that are on the end of a distribution line, especially in rural areas, suffer because panic buying leads to a complete lack of available fuel. I know that because at the time of the fuel protests I owned a tourist attraction which suffered substantially. The amount of traffic on the A68 fell dramatically as people decided not to take the route in case they had the misfortune to run out of petrol. Indeed, petrol supplies did run out, but not for any reason other than that everyone decided that they needed a full fuel tank. People would drive a great many miles to fill up and thus emptied the petrol stations. That did not happen in the towns. I hope that the Government will ensure that rural areas are not treated as second-class citizens. While town petrol stations were immediately replenished, those in rural areas were not.

I understand some of the concerns of those working at Grangemouth. The closure of final salary pension schemes is affecting many businesses across the country. But they are in a situation where they hold so many of us over a barrel that their demands are slightly more pressing. Someone had to say that at some point and I thought I might as well get in there.

However, I was surprised by the comment in the Statement that it is essential to prevent industrial action at Grangemouth disrupting the flow of North Sea oil and gas. What actions could the Government take if the strike were to escalate? Of course, as long as the strike is legal, it is possible for those people to undertake work. I do not think it would be in their interests, of course, but do the Government have a subsidiary plan for bringing workers in to make sure that the supply from the North Sea continues? If disruption was to take place, do the Government have an estimate of how much the Treasury would suffer from loss of tax revenue in the short term, given that so many demands are being made for Treasury money at the moment?

My Lords, I wholeheartedly agree with the noble Baroness, Lady Wilcox, that we need to have a sense of proportion about what is happening. Indeed, the Secretary of State was clear in urging that people do not buy more than they need and that they maintain their normal buying patterns. This will ensure that there are no shortages.

There have been reports of a couple of incidents of petrol stations putting up their prices. While in some instances that may be understandable, we have to be clear that in no sense can profiteering be acceptable. If there is any evidence of collusion in any way, the OFT will be ready to investigate.

On the actions that we will be able to take should they be necessary, it is not the current assessment that any emergency actions are needed. If they were, there is a national emergency action plan which will enable us to ensure that fuel supplies are available to essential services, that we can do bulk purchasing, and that we can distribute supplies and put caps on individual purchases. There is no assessment that any of this is currently needed. The Energy Act 1976 allows us to take action to direct the industry, but again that is not assessed to be needed. However, a memorandum of understanding, which has been in place for a while, was activated this Monday. It forms part of our discussions with the industry and allows those in the industry to have discussions with each other without fear of any issues around competition law. This will enable them to ensure that there is a managed supply.

As to the longer-term impact, it is important that we have the same sense of proportion. This is a two-day industrial action and there is no reason to believe that it will have any significant impact on investment plans going forward, on the industry or on jobs.

On the noble Lord’s questions about rural areas, the Scottish Executive are very seized of this issue. The supply in rural areas is usually by coastal tankers and barges and provisions have been made to ensure that these can be resupplied as quickly as possible.

I do not know whether the Treasury has made any estimate of lost tax revenue. I suspect that if it had it would not say, so I am not going to promise to write on this matter.

We urge both parties to come back to the table and resume negotiations. As the noble Baroness and the noble Lord have said, the issue of longer-term impact arises out of sustained action rather than any immediate action.

I hope I have answered all the questions, but if I have not I will come back. The noble Baroness asked whether we will maintain our scrutiny of what is going on. We will be very vigilant. My department is working closely with industry, through direct discussions with the MAU, the Scottish Executive, local authorities and the emergency services. We will maintain those discussions and report back to Parliament on any issues that arise.

My Lords, I thank my noble friend for repeating the Statement. For many years I had the privilege of representing many of the people involved in this dispute. Indeed, at one time my former parliamentary constituency was the boundary wire of the petrochemicals complex at Grangemouth. It has to be recognised that this is only a 48-hour strike. It may well be only the first, although I hope it will be the last. I take the point that ACAS has an important role to play here.

The significance of pension arrangements for people in the petrochemicals industry should not be underestimated. They have a tradition of being retired comparatively early and therefore pensions are of almost disproportionate significance. Men are normally laid off before they are 60 and they tend to be long-serving workers, so anxieties about pensions are often of considerable substance. This is not the kind of action that the men and women whom I know, and had the privilege of representing, take willy-nilly; it comes as a last resort.

In some respects, this is different from the way they were treated by BP when it was their tough but, at times, paternalistic employer. Ineos represents a rather different breed, and there is a different response coming at this time. I would be cautious about this, because these people are fairly moderate workers. They are not patsies, they do not get taken for a ride and they do not like to be—as they would see it—abused in industrial relations. We can hope only that ACAS will be able to resolve the dispute as quickly as possible. They know the routes. It is just a question of getting both sides walking along the same way at the same time.

My Lords, I agree with my noble friend that the most important issue now is to get both parties back to the table. I hope that ACAS will remain involved. It would be inappropriate for me to comment on an individual’s company’s pension issues, particularly when they are currently in dispute.

My Lords, I underline the point made by my noble friend Lord Redesdale from over the border in Northumberland. Over the past decade there has been a serious reduction in the number of filling stations available in rural areas in Scotland; quite a major drop. It is therefore essential—although I realise that this matter is more for the Scottish Executive than for the Minister’s department—to ensure that the rural areas are safeguarded if there are any diminutions of supply, because the people there do not have the choices that there are in the city.

Can the Minister tell us what retail products come out of the Grangemouth refinery? The reason I ask that is that there have been conflicting press reports, one of which suggested that it is just diesel fuel that it refines and that there is no problem with unleaded green petrol of the kind that most of us use.

My Lords, I fully understand the issue about rural Scotland. As I said, this is a matter for the Scottish Executive, who I understand have taken special note of the fact that resupplies are needed—although supplies are in fact more intermittent so, perversely enough, there is a bit more time.

With regard to the products, if it will assist the noble Lord I can have a quick look through the list I have: petrol, diesel, kerosene and jet fuel, gas oil, fuel oil—and then it goes into the petrochemical feedstock of a petrochemical refinery, which is on site. A number of products come out of that refinery, so far as I can tell.

My Lords, I am grateful to the Minister for repeating the Statement. I agree with the noble Lord, Lord Redesdale, that this could potentially be a threat to the economy, particularly the rural economy. A 48-hour strike is not a problem, although if it drags on it will be a serious problem for us. I am glad to report from my latest information that everybody in Caithness seems well stocked, which is due largely to the presence of a major supermarket in the town of Wick. They certainly have contingency plans and do not need to panic at the moment. That is good news.

However, it is the rural areas that again need attention. I could not help but smile when the noble Baroness said that most rural areas were supplied by barge. Trying to get a barge into the Highlands of Scotland—up Lairg or somewhere like that—is an interesting thought. It is not the case. There are various ports such as Wick and Thurso to which petrol and other fuels are delivered. But getting it from there to the really rural areas is the issue. The price of petrol is important. I was heartened by the Minister’s response on that. When I was in her position, the brief from the excellent fifth cavalry sitting in the box was: “It’s a matter of supply and demand, not for the Government to interfere”. I am glad that the Government are taking a slightly stronger view on that, which I hope is conveyed also to the Scottish Executive.

The Minister did not answer the point of the noble Lord, Lord Redesdale, about North Sea oil. Perhaps she could go into that in a little more detail. It is critical. It is not just the oil coming from the North Sea, but all the industries related to it. Many people in Aberdeen and in Caithness work in the North Sea sector.

The Minister mentioned jet fuel in responding to the noble Lord, Lord Steel. We have talked about the motorist, but not about aviation fuel. Could there be a problem with aviation fuel for places such as the Hebrides, Orkney and Shetland, or Caithness? If there is no aviation fuel, and we cannot get the limited number of flights in, we will have a serious problem. I hope that the Minister will say something about that, too.

My Lords, I thank the noble Earl for correcting me. I certainly did not want to imply that barges go into rural areas; I simply meant that the restocking is done in that way. Nor would I wish to imply that we were going to interfere with pricing, although we are being very vigilant about security of supply. There was an impact of just over $2 on the price of crude oil yesterday, but that was due in part also to disruption in Nigeria—this is how the market works—and it has been corrected slightly, with the price back down to $115 today. I do not wish to give the impression that we will interfere in the event of the price reaching a certain level.

The four major airports are well stocked with jet fuel, and it is believed that the smaller airports also are well stocked. We completely take on board the points made about the impact that could be felt on North Sea oil, given that Grangemouth is responsible for about 700,000 barrels a day. A short, 48-hour strike would not have a significant impact. The processing plant would certainly have to be shut down, but if it is able to access low-pressure steam, for example, it can restart reasonably quickly. It is a matter of the time that it would take. That is why we have made very clear our views on ensuring that there is no significant impact.

The noble Baroness implied that this was about the whole of the United Kingdom and not just Scotland. Supplies in England are not being affected at all. There are seven or eight other refineries. Northern England is being supplied through other refineries, as is Northern Ireland, so the strike is not at this stage having an impact outside. I will certainly ensure that the Scottish Executive are completely aware of noble Lords’ strength of feeling about ensuring supplies in rural Scotland.

My Lords, I apologise to the House and to the Minister for not being present at the start of the Statement. The noble Lord, Lord Steel, referred to the problems with the supply of derv. This problem is known to be worldwide; there is a lack of refinery capacity to produce enough diesel. What have the Government done in recent years to encourage the UK industry to address that shortage? If we had addressed that problem, we would not have the problems to which the noble Lord, Lord Steel, referred.

Secondly, oil refineries are part of our critical national infrastructure. Does the Minister agree that the loss of one oil refinery should not be a problem for the economy? We should be able to survive quite happily despite losing one oil refinery. Does she agree that that is the case?

My Lords, as I have already indicated, the temporary loss of production in that one refinery is not having an impact on the whole economy. There are other refineries and this is a very international market, both for crude and for oil products. So while it might have an impact on price it is not having an impact on the national economy. However, it does have an impact on Scotland, given the fact that the whole infrastructure is built over the past 60 years around that one refinery.

There is a regime in place to incentivise refining diesel. We consult on that regularly and I should be happy to write to the noble Earl with the information from the relevant department, which in part is the Treasury.