Scotland’s only oil refinery at Grangemouth is to cease operations next year. The Petroineos facility will be converted to a terminal for importing finished fuel such as petrol and diesel.
Petroineos said Grangemouth is increasingly unable to compete with bigger, more modern and efficient sites in the Middle East, Asia and Africa. The closure is expected to result in the loss of around 400 of the 475 jobs at the refinery, which has been operating since 1924.
‘Demand for key fuels we produce at Grangemouth has already started to decline and, with a ban on new petrol and diesel cars due to come into force within the next decade, we foresee that the market for those fuels will shrink further,’ a Petroineos spokesperson explained. ‘That reality, aligned with the cost of maintaining a refinery built half a century ago, means we are exploring ways to adapt our business.’
Petroineos, a joint venture between Ineos and PetroChina, noted that maintenance costs had required more than $1.2 billion (£908 million) since 2011, resulting in losses of over $775 million for the same period. Grangemouth is one of six refinery facilities in the UK and produces petrol, diesel, kerosene, jet fuel and fuel oil, as well as a small amount of petrochemical feedstock naphtha.
‘The operational reliability of Grangemouth Refinery has been poor in recent years,’ according to the spokesperson. The refinery has a capacity of 150,000 barrels per day, but ‘utilisation has been decreasing year by year since 2019, from 81% in 2011 to 55% in 2018’. Around half of the refinery’s crude oil input comes from the North Sea, with the rest imported.
The UK imported almost 42 million tonnes of crude oil in 2023, mostly from Norway (35%) and the US (32%), as they produce similar composition crude oil to the UK. A few million tonnes originated in Nigeria, Libya and Canada, according to Fuels Industry UK.
‘The assumption is that the import terminal will meet the current supply of the refinery, which is around 80% of Scotland’s fuel supply,’ says Jamie Baker, director of external relations at Fuels Industry UK. ‘Typically, the UK refineries produce more petrol than we need and don’t produce enough jet fuel and diesel fuel, so we balance it out through imports.’ In total, about 56 million tonnes of oil products were delivered to the UK, with jet fuel especially up in 2023.
Asia and the Middle East have invested in very large refineries that serve the local and export markets
‘We’ve seen a lot of imports from US refineries in recent years, says Baker. ‘Quite a lot comes from Europe. The Netherlands and Belgium have quite a lot of refining capacity relative to their size.’
Separately at the Grangemouth complex, Ineos operates a petrochemical plant and the Forties Pipeline System. These businesses will be unaffected by the refinery closure, Ineos stated. The Ineos Olefins and Polymers plant has a capacity of around 1.4 million tonnes/year of ethylene, ethanol, polyethylene and polypropylene, and employs around 1000 people. The pipeline has around 500 employees, transporting 300,000 barrels of crude oil per day from 85 North Sea fields.
With news of the refinery’s closure, Petroineos says it is working with UK and Scottish governments on Grangemouth’s potential as a low-carbon fuels manufacturing hub. A feasibility study – Project Willow – is assessing options such as sustainable aviation fuel, low-carbon hydrogen and related products, and e-fuels, with commercially viable opportunities to be identified by spring 2025. Unions representing the refinery workers have criticised both governments for acting too slowly, saying that any jobs from Project Willow are likely several years away.
The UK and Scottish governments have pledged an additional £20 million funding and career support package for the community and workers, on top of £80 million in existing joint funding for the wider Falkirk and Grangemouth region.
If refining capacity falls in Europe, we may lose a local supply of competitive feedstocks, which could impact the European chemical industry
Valeria Sterpos, from management consultancy Bain & Company, expects to see ‘declining demand for the traditional [refinery] products and increased demand of greener products such as renewable fuels that require different supply chains and adaptation of assets,’ but also increased market volatility.
She says refiners are facing choices. One option is to adapt existing plants and progressively produce new products. A second choice is to continue to produce traditional products. In a shrinking market, this will favour the most competitive refineries. Even so, they will need to further increase efficiency and reduce their carbon footprint.
‘If you don’t have competitive assets, and you don’t have funding to transform those assets, you can review your footprint and shut down or become a logistics hub,’ says Sterpos.
In the past, European refineries could export to Asia, but ‘now Asia, and also the Middle East, have invested in very large refineries that serve the local market but also the export market,’ Sterpos adds. The chemical industry in Europe will also feel an impact in terms of feedstocks such as naphtha, although this will not be instrumental in investment decisions for refineries.
‘Feedstock for the chemical industry is a minor portion of refinery production – 80% is fuels or other products,’ says Sterpos. ‘If refining capacity falls in Europe, we may lose a local supply of competitive feedstocks, which would be likely to have an impact on the European chemical industry.’
Nevertheless, ‘if producing countries in the Middle East and southeast Asia continue to produce naphtha from large, efficient refineries, then the impact might not be that big,’ she concludes.