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Grangemouth Oil Refinery: Energy Security

Volume 743: debated on Tuesday 9 January 2024

Motion made, and Question proposed, That this House do now adjourn.—(Mr Mohindra.)

“Bathgate no more, Linwood no more, Methil no more, Irvine no more” sang the Proclaimers as they detailed the devastation caused by industrial closures and the hardship and emigration that followed. That was in the 1980s as Thatcher mercilessly shut the pits, decimating Scottish industry. Not just the many individuals who lost their jobs, but entire communities and the whole country suffered as de-industrialisation took root. The country has recovered but much has still been lost and for some it is irrecoverable, irreplaceable, or both. Scars remain and pain runs deep. The devastation will neither be forgotten nor forgiven. But is there now to be a new line of “Grangemouth no more”?

Scotland’s oil refinery stands threatened. Its closure would result in the perversity of an oil-producing nation lacking refinery capacity. I asked the House of Commons Library for research on oil-producing nations and refinery capacity. There are few nations which are oil producers yet lack refinery capacity. Norway has two refineries, and of those nations which lack a refinery capacity none are in the top 25 oil producers, as Scotland is. Instead, they are countries which neither produce as much oil as Scotland nor even have a developed economy. They are largely developing nations such as the Congo or Trinidad and Tobago, not a developed and industrial land like Scotland, which now faces the absurdity of being a major oil producer yet lacking refinery capacity.

If closure proceeds, Scotland will be getting treated like a developing nation: its raw product taken for a song and then sold back as a refined product, but at a premium to people and nation. Exploitation is what it is called. The Rosebank field and the North sea are to be the saviours of the UK economy, yet Scotland is to lose its refinery and face social and economic hardship as a result. Exploitation is what it is. That is what we will inherit if action is not taken.

Oil was first discovered in the 1960s and it would have made Scotland one of the wealthiest countries in Europe, but it was deliberately hidden from the Scottish people. That was to downplay expectations and diminish ambitions. Norway across the North sea has been transformed socially and economically by its oil resource, with a standard of living that Scots can only look at with envy and a sovereign wealth fund that Scotland can only dream of. Yet Scots have continually been told that the resource would soon be gone, and in 2014 at the referendum it was not just running out but even an impediment, a drain on an independent Scotland. Yet now it is at the heart of the UK’s economic recovery.

Although it has been rediscovered, what is in it for Scotland? As has been said, some nations discovered oil and made the desert bloom, but Scotland discovered oil and is seeing an industrial desert created in so many of its communities, and one could well now be Grangemouth. It is not just absurd but perverse that an oil-producing nation should have no oil refinery capacity. It is more than an economic argument; it is vital for economic security. War in Ukraine and conflicts in the middle east have shown the consequences. In the world in which we live, energy is essential and securing all aspects of the supply chain is common sense.

Let us look at the economic arguments and consequences of any closure. The loss and hardship would be significant for thousands, not just hundreds, sending shockwaves through industrial Scotland. The plant’s workforce is 500 but there are also some 2,000 contractors attached to it. Moreover, they are skilled jobs and their loss, as with past industry closures, will impact on future generations. Not only have current and past generations benefited from working there, but numerous apprentices were trained there, even if ultimately plying their trade elsewhere. We already have a skills gap; this would worsen it considerably.

Job losses would be significantly higher than those simply at the site. Closure would reverberate across industries clustered nearby because of the refinery. If it closes, many of them will also be lost. They are in a variety of sectors, whether chemicals, plastics or other fields. That is without even considering the huge number of individuals who depend on the site whether for their corner shop, as drivers or in other trades, both locally and from more distant parts. There is always a multiplier effect in any redundancy but, given the pivotal nature of the industry to the country’s economy and its impact across a swathe of sectors, it would be huge. Both the town of Grangemouth and all of Scotland would suffer. The knock-on effect would echo across the entire country as industrial closures did decades ago, whether the pits or car plants.

Grangemouth’s refinery is a national asset upon which our energy security and industrial economy depends. That is why it must be retained. There has been a refinery there for a century. It currently provides 70% of Scottish filling stations, as well as many in northern England. It is also the primary supplier of aviation fuel for Scotland’s airports—not an insignificant issue for an island nation with many remote island communities. As I have stated, energy security demands it.

We are seeking to transition from a carbon economy, but it must be a just transition and at a pace allowing our economy and society to adapt. The cumulative impact of closure might not be the 4% loss of GDP suggested by Petroineos, but even the 0.25% or 0.3% loss of GDP suggested by the Fraser of Allander Institute would be damaging enough. Where is the outrage and anger? Where is the ministerial statement here at Westminster or the call to action at Holyrood? Instead, there has been silence or sanguinity, hope that it just might not happen or, even more disgracefully, quiet resignation to its fate.

Thankfully, Unite the Union and the workforce are strenuously making the case, and I am grateful for their assistance and input. Closure is still only potential rather than actual, but the threat is real, and there has to be a balance between causing unnecessary alarm and taking urgent action. Unless action is taken now, disaster will befall Grangemouth refinery and the impact will be grave upon all—workers, the wider community and the entire nation.

What needs done? Ownership has changed over the years, and profitability has been affected by under-investment. No blame can be attached to the current or past workforce. Responsibility may also rest with previous owners other than PetroChina and INEOS, currently in charge. Steps can and must be taken to address the current profitability and buy time so that a transition can take place both at the site and across our economy. Moreover, there are also actions that will increase capacity and thus profitability and productivity. That means linking Scotland’s oil refinery with Scotland’s oil production. Finally, there is the just transition and the need to prepare for the new world. That can and must be done at this site.

Let us examine those three aspects that must be done. First, there is the need to fix the hydrocracker at the refinery. Its current inoperability is impacting on profitability. Restarting it would increase profitability threefold. That is significant, and would allow an extension of life at the plant, even without any additional steps being taken. It is estimated that it would cost between £60 million to £80 million to do so, but it must be done. The money must be found, whether from Westminster, Holyrood or the existing business. Surely, from all three, finance can be found. It is a small cost for such a huge asset that is essential to not just our economy but our society. After all, there is a moral as well as a financial economy. The price must not be paid by the individuals and communities who would suffer from its loss.

As well as restarting the hydrocracker, there should be an increase in capacity and in what is refined. It will surprise many that North sea oil is not refined at the Grangemouth refinery, despite the pipeline for the Forties field coming ashore at Cruden bay and being pipelined on to Grangemouth. Almost all the product refined at the plant is brought in on tankers from elsewhere. It comes in on ships and goes away in trucks. Meanwhile, North sea oil is transported to other refineries, whether in the UK or abroad. That must end. It has always been absurd, but now it is criminal. Oil from the Forties field pipeline, which last year moved approximately 40% of the UK’s oil from the North sea, must be refined at Grangemouth. It requires technological and engineering changes, but they must be made. As Rosebank comes on stream, and as the Forties continues to flow, refining must be at Grangemouth. Scotland is entitled to expect no less from its resource.

The Prime Minister has trumpeted the necessity of continuing to exploit North sea oil, and while I can take issue with the extent and pace of it, I agree with the logic. It is absurd to import oil when we have our own resource. Not only is it economic self-harm, but it is environmentally daft to transport it across the seas when it is off our shores. Why spew out the significant fumes of a supertanker by the hundreds of thousands when we can pipe the oil ashore? To achieve that requires ensuring that the oil is refined here, which it currently is not.

The hypocrisy of the Prime Minister’s position has been exposed by those who oppose development. Their arguments have legitimacy unless steps are taken to ensure that the resource is refined here, rather than having the environmental double whammy of transporting our product far away for refining and then having those ships cross with others importing refined product from elsewhere. The Forties field oil supply must be refined at the site, and the technical and engineering work to achieve that must be done. It is bad enough that ownership of the Rosebank field lies with the Norwegian state energy company, but to have that product refined abroad compounds the agony and the absurdity.

Finally, there needs to be preparation for the transition from fossil fuels to renewables. Steps must be taken to prepare the site for biofuels, which will be required in the future. The sites to refine them need to be established. It makes sense to secure the short-term future of the site by restarting the hydrocracker. Similarly, extending the refinery’s capacity by ensuring that North sea oil is processed there is essential. Steps need to be taken towards that transition, which humanity is required to make for the sake of life itself, not just the planet. But it must be more than just warm words and empty rhetoric; it requires preparation and action. Making Grangemouth a future site for biofuels refining must be part of that.

In summary, securing the refinery is essential for Scotland, not just Grangemouth. The arguments for it are social, economic and environmental, and the case is overwhelming. It is simply perverse that an oil-producing nation should have no refinery capacity, or that an industrial desert be created where a natural bounty should see a country and its communities bloom. It is for those reasons that I ask the Minister to meet me and workers’ representatives from the site. Additionally, and most essentially, will he ensure that these three steps are taken? First, will he ensure that funds are found to restart the hydrocracker? Secondly, will he ensure that oil from the Forties field that is piped to Grangemouth is refined there, and that oil from new developments such as Rosebank will also be refined there, negating the environmental harm of the trans-shipment inward and outward of oil?

I commend the hon. Gentleman for bringing this debate forward. Does he agree that the East Lothian oil refinery at Grangemouth is a necessity not only for Scotland, but for all the United Kingdom? It must stay open not in opposition to renewable targets, but in partnership with them.

Yes, I agree with that.

My final point is that as we transition, we must ensure that actions are taken at the site for that new future by ensuring a biofuels capacity there. We simply cannot have the absurdity of an oil-producing nation lacking a refinery capacity, never mind the perversity of the oil it produces being shipped across the seas for refining.

May I begin by thanking the hon. Member for East Lothian (Kenny MacAskill) for securing this important debate and colleagues across the Chamber for joining it? I recognise that news of a plan to transition Grangemouth refinery into an import terminal is undoubtedly a matter of concern for many people. However, I make clear that the Government are committed to ensuring continued fuel supply, protecting jobs and creating opportunities in Scotland and across the UK. The primary responsibility of my Department is for the energy security of the whole of the UK, including Scotland. On 29 November, I met the Scottish Cabinet Secretary, Neil Gray, and we agreed that both our Governments would continue to work closely on this issue through forums such as the Grangemouth future industries board. Scotland and the UK will continue to have reliable supplies of fuels after the transition, in line with the UK Government’s commitment to energy security and resilience.

Before I go into specifics, I want to recognise that Grangemouth refinery has been an important asset for the fuel supply of Scotland and the local economy since it opened in 1924. No final decision on the future of the refinery has been made, but the planning for the conversion of the refinery into an import terminal is a commercial decision by its owner, Petroineos. That reflects its view of the economic sustainability of the refinery in the context of expected refining margins, domestic demand projections and international competition. Even in this macroeconomic context, the UK and Scottish Governments are working together to understand all the options for the future of the refinery.

As the Minister just said, Grangemouth is a vital economic factor for the immediate vicinity, for my constituents in Edinburgh West and indeed for all of Scotland. Will the Government continue to support Grangemouth, given its importance to the future success of the green freeport, of which it is a vital component, not least because of its future capability to produce the sustainable aviation fuel on which so many developments are predisposed?

The hon. Lady is absolutely right to champion such opportunities, of which there are so many going forward. That is why, if a decision is made on refining there, I believe that would be countermanded multiple times over by the opportunities in issues such as SAF, which she mentioned. Scotland and that area have such a role to play in delivering and continuing the UK’s global leadership in cutting emissions. We recently celebrated the fact that we have halved emissions—we are the first major economy on earth to have done so—and of course going forward we are ambitious than any other major economy on earth. Scotland has such a vital role to play in that.

My right hon. Friend makes an excellent point about the importance of the jobs at Grangemouth and the skills that have been developed over the years—this year, it is 100 years since it first came on stream. Does he agree with me and most of the oil and gas industry, which is adamant that the skills, technologies and supply chains that supply not just the Grangemouth refinery but the whole North sea offshore industry are vital for managing not just the energy security of today but the energy transition of tomorrow?

My hon. Friend is a great champion of those workers in the oil and gas industry. We now have an integrated energy industry. He may have seen the recent research suggesting that 90% of those currently employed in oil and gas have transferrable skills to the green transition, in which we can positively expect to see many more jobs in future if we maintain the strength of that industry today. That is why it is so disappointing that some Opposition parties oppose new licensing of oil and gas when that is vital to maintaining those jobs and that capability. In that respect, the Alba party is more constructive than others sitting on the Opposition Benches.

We are working closely with both the company and the Scottish Government to ensure a managed transition of the site, support its workers and ensure that Scotland’s fuel supply remains resilient. Petroineos’s plans will ensure that the Grangemouth site can maintain Scotland’s fuel supply through imports. Adapting the infrastructure to accommodate imports in larger tankers, particularly of diesel at Finnart on the west coast of Scotland, will ensure that the import terminal has greater flexibility and maintain robust fuel security.

I recognise that consumers may be worried that increasing the UK’s reliance on imported fuel products could increase the price they pay at the pump. I want to provide reassurance that this conversion is unlikely to drive up the price of petrol and diesel for the Scottish consumer. Fuel prices are mainly driven by international petroleum product markets and exchange rates, and imports into other sites such as Clydebank are already competitive in the Scottish market.

I also want to acknowledge that the announcement of the conversion will be concerning to the refinery’s employees and their families. We remain in close contact with the Scottish Government to mitigate impacts on jobs and the local economy. As part of our commitment to levelling up, the UK Government are already supporting the Falkirk Council area through the UK shared prosperity fund. Its allocation of more than £6.1 million will deliver a range of interventions that support local businesses, communities, people and skills. We are also supporting Falkirk Council with £40 million of UK Government investment through the Falkirk city and regional growth deal, which is supporting a range of locally driven projects that will create high-value jobs to help boost the local economy. We are working with the Scottish Government to deliver the Forth Green freeport, which covers the area. The freeport aims to drive a transition to net zero by 2045 by attracting up to £6 billion-worth of investment and creating approximately 50,000 jobs, generating an estimated £4.2 billion in gross value added in the first five years.

The Minister is giving a comprehensive reply. The Forth Green freeport is really important. He mentions that he has been in discussion with the Scottish Government and others in the Grangemouth area. Will he also make a direct plea to the freeport to make sure it is fully involved in any potential reinvestment in the facility at Grangemouth, which has been part of the industrial heritage and the industrial scene in Scotland for a very long time? It would be a very valuable contribution if the Government could make such an intervention.

As the hon. Gentleman will be aware, through contracts for difference and many other policy announcements from the UK Government, we are driving enormous growth in jobs in the green sectors. We expect them to grow to 480,000 jobs by the end of this decade. As I say, as a global leader in decarbonisation, Scotland, and that area in particular, has an enormous amount to offer and there are huge opportunities coming forward. We will publish next year a green jobs plan, working with industry to identify the pressure points and the opportunities going forward.

The Government remain absolutely committed to supporting the North sea oil and gas sector. The conversion of the refinery into an import terminal is not expected to impact significantly on North sea production. That is because only a very small amount of oil refined at Grangemouth currently comes from the North sea. Indeed, since the start of 2022, Grangemouth has received on average less than 10% of its supply from the North sea via the Forties pipeline, which the hon. Member for East Lothian referred to. This North sea crude would be made available to the open market via the terminal at Hound Point, alongside the rest of the Forties blend production. I can also confirm that there will be no impact on gas supplies.

I assure the House that the Government will continue to back North sea production by granting licences for new projects, such as the Rosebank field development. Developments such as Rosebank will continue to strengthen our energy security, support the transition to net zero, and create new jobs and opportunities. Rosebank, for example, is expected to be significantly less emissions-intensive than previous developments, which will help the UK to reach its ambitious targets for net zero. Its operator, Equinor, estimates that it will produce oil at around 12 kg of carbon dioxide per barrel, compared with an offshore production average of more than 20 kg of carbon dioxide per barrel. So it is already a much more efficient production. If electrification were to go ahead, it would be significantly lower again. In addition, the Rosebank project will provide investment of £6.3 billion in UK-based businesses, support around 400 UK-based jobs, and add around £24 billion to the UK economy across the project’s lifetime, according to its operator. Yet that licence finds itself opposed by the Labour party, even if it supports jobs and helps us to green the basin.

I want to finish by reiterating to the House the Government’s commitment to backing the North sea oil and gas sector to protect our energy security, attract investment, and create opportunities for communities in Scotland and across the UK. It is a declining basin. It is expected to fall, with new licences, at 7% a year. New licences are not part of increasing production, because we will not have increased production. It is about managing the decline and doing so in a way that brings forward developments such as Rosebank with lower emissions than the alternative. That is why it is the right thing to do for the environment, however counterintuitive that might seem. It is also the right thing to do for jobs and for the maintenance of the capability for the long term as we go through the transition and the green economy grows in the freeport as well as elsewhere.

The UK Government will continue to work closely with the Scottish Government on this issue to ensure that when the time comes, there is a just transition of Grangemouth into an import terminal—if that is the decision made—and to ensure that fuel supplies for Scotland and the UK are maintained. The Government will also continue to support economic development in the local area to ensure that there is a just transition for the workforce.

I look forward to continuing to engage with Members, and with the hon. Member for East Lothian in particular, on this vitally important issue.

Question put and agreed to.

House adjourned.