Scottish Parliament statement on Grangemouth Oil Refinery - Feb 22

The Cabinet Secretary for Wellbeing Economy, Net Zero and Energy (Màiri McAllan)

I am pleased to have the opportunity to update members on the Scottish Government’s response to the announcement by PetroIneos that it will begin preparatory works on an import terminal at the Grangemouth refinery. I begin by acknowledging the significant contribution that the Grangemouth refinery makes to Scotland’s economy, both in meeting domestic road and air fuel demand and in providing highly skilled and well-paid jobs. I also place on record my support for the workforce and highlight their unique importance in delivering Scotland’s transition to net zero. I express my gratitude to them, as well as to the operator, as they continue to maintain operations through what has been, and continues to be, an extremely challenging time with the global market.

The decision by PetroIneos, which was confirmed to its workforce on the same day that it was announced to the Scottish Government—21 November 2023—was a commercial one that was made by the company. PetroIneos has made it clear that the announcement responds to prevailing and expected global market conditions and, importantly, that it does not convey closure. Indeed, PetroIneos has stated that the anticipated changes are expected to ensure security of supply for road and aviation fuel in Scotland long into the future.

However, I absolutely understand the concerns and questions that have been raised in recent months, primarily in respect of the refinery’s workforce. I therefore wish to use my statement to set out two principal matters. First, I will confirm the Scottish Government’s resolute commitment to playing our part in ensuring a just transition for the cluster and the wider community, and to co-operating with all those with responsibility in that regard. Secondly, I will set out the activity and engagement that we have undertaken, and will continue to undertake, pursuant to that.

The Grangemouth refinery is of strategic importance to Scotland. Therefore, as members would expect, the Scottish Government has, for some time, engaged with PetroIneos and other businesses, as well as with our public sector partners, on the future of the cluster. However, following PetroIneos’s announcement last year, ministers have spearheaded an enhanced programme of engagement with the business and its shareholders, trade unions, the United Kingdom Government, Falkirk Council and others.

In the days immediately following PetroIneos’s announcement, the First Minister met Grangemouth senior management, and my colleague Neil Gray, the former economy secretary, met Unite the union and the Scottish Trades Union Congress and held a parliamentary briefing for MSPs. The following week, ministers held meetings with their UK Government counterparts and, thereafter, with constituency representatives and the leader of Falkirk Council.

Neil Gray proceeded to meet PetroIneos’s senior management and shareholders, and, on 13 December, he appeared in front of the Economy and Fair Work Committee on the matter. Then, on Thursday 18 January, he chaired the inaugural meeting of the Grangemouth future industry board’s leadership forum, which was attended by Scottish ministers including my colleague Gillian Martin; Scottish Enterprise; Falkirk Council; union representatives; PetroIneos; the UK Government Minister of State for Energy Security and Net Zero, Graham Stuart; and others, including those from Forth Valley College.

That engagement has centred on reaching a collective understanding on how to realise the potential of the cluster and secure a truly transformative and sustainable future for those who live in and work at Grangemouth. That includes our commitment to explore every avenue to accelerate the build-out of new low-carbon projects at the cluster.

That remains my priority as I take up my post. In my first few days as Cabinet Secretary for Wellbeing Economy, Net Zero and Energy, I have already exchanged letters with the business, and I plan to meet it soon. I have also corresponded with Minister Stuart, I have responded, today, to the committee’s most recent correspondence and I am now giving this statement.

Importantly, I have set a date and circulated a focused agenda for the next meeting of the GFIB leadership forum. When we meet, I will restate the Government’s commitment to encouraging new low-carbon projects, and I will emphasise the need for urgency to ensure that we maximise new opportunities and minimise the gap between the refinery’s transition and those new opportunities becoming available.

Members will be aware that such matters engage both reserved and devolved responsibilities. I therefore welcome the UK energy security minister’s commitment to attend the GFIB meeting and his confirmation to me in writing that the UK stands ready to

“engage with the business on any proposals it presents”.

We have seen elsewhere—most recently, in Wales—how the UK is able to provide significant financial support to aid industrial transition. Given Minister Stuart’s confirmation in particular, I trust that the UK Government will bring that same commitment to Scotland, to Grangemouth and, very practically, to our next GFIB meeting.

I mentioned that the development and deployment of emerging technologies is a critical part of a just transition for Grangemouth. Avenues such as hydrogen production and biofuels manufacturing offer potential opportunities to transition to new sustainable jobs in technologies that are critical to our path to net zero. I assure members that work is under way in pursuit of that.

First, PetroIneos has commenced early study work that is focused on the future establishment of a biofuels refinery at Grangemouth that is capable of producing sustainable aviation fuel. If that project is taken to fruition, Grangemouth could become home to Scotland’s only SAF production plant capable of meeting future aviation demand for decades to come.

The Scottish Government supports that project. In my former role as transport secretary, I commissioned an expert working group on SAF, of which PetroIneos is a part. It met for the first time in mid-February this year.

There are technical and regulatory issues to resolve. Businesses have been clear that the UK’s post-Brexit proposals on a cap on hydroprocessed esters and fatty acids present a barrier to their biofuels considerations. We stand ready to work with all stakeholders to overcome those issues and to promote the feasibility of a biorefinery at Grangemouth.

Separately, Ineos is considering fuel switching at Grangemouth. That project would involve the transitioning of the power source of Ineos’s assets at Grangemouth from natural gas to hydrogen, enabled by the construction of a low-carbon hydrogen plant connected to carbon capture and storage. The business believes that, if connected to the Scottish cluster, the project could evacuate approximately 1 million tonnes of carbon emissions per annum, which would significantly contribute to the net zero ambitions of Scotland and of the UK.

The deployment of carbon capture, use and storage via Scotland’s Acorn project is critical to that. UK Government progress on that is long overdue. Although I sincerely welcome recent developments, progress is still too slow, so I use this opportunity to urge the UK Government to urgently provide clarity.

Grangemouth has a long industrial tradition, which the Scottish Government is determined to preserve. I have given just two examples of how that might be done. Of course, those opportunities sit alongside what could be realised via the Forth green freeport and the Falkirk growth deal. Ultimately, it is clear to me and to those with whom I have been working that the infrastructure, skills, knowledge and industrial expertise with which Grangemouth is synonymous will be fundamental to unlocking our transition.

As members know, the refinery sits within a wider industrial cluster that provides a home to 10 large operators, which employ approximately 3,000 people—upwards of that number at different times—all of whom have a variety of skills and expertise in chemicals, oil and gas, and wider manufacturing sectors. Given that combination, the cluster is Scotland’s leading manufacturing hub, providing a range of products and services that are vital to the functioning of our economy.

In that context, I raise my final point, which is the development of our Grangemouth industrial just transition plan. Development of the plan commenced early last year, through extensive work with members of the GFIB, industry operators, workforce representatives and the Grangemouth community. That early work has allowed us to develop key aspects of the plan—including, first and foremost, setting a vision for the cluster in 2045.

Through our work, we have heard from a range of stakeholders across industry, who have outlined their ambitions for the future as well as some of the challenges that we will face in seeking to achieve those. We have also heard from workforce and community members, who have outlined their priorities for improved access to jobs and training and a desire to foster civic pride in Grangemouth as a place that will undoubtedly help to drive Scotland’s net zero transition.

As we move towards our spring publication, we will continue to work with a broad range of stakeholders to articulate the action that is required to deliver that vision. Although the development of our just transition plan predates PetroIneos’s announcement about preparation works on the import terminal, work in that respect will be captured in the plan and will inform our thinking.

I am pleased to give my first statement in my new role on this important topic, which spans economic, social and environmental issues. I restate the Scottish Government’s commitment to working with all interested parties to plan for and realise the fairest and most prosperous transition possible for Grangemouth and for Scotland, and I commit to updating members on progress.

The Deputy Presiding Officer

The cabinet secretary will now take questions on the issues raised in her statement. I intend to allow around 20 minutes for that, after which we will need to move on to the next item of business. Members who wish to ask a question and who have not already done so should press their request-to-speak buttons.

Douglas Lumsden (North East Scotland) (Con)

I thank the cabinet secretary for advance sight of her statement and welcome her to her new role. I acknowledge the significant contribution that the Grangemouth refinery makes to Scotland’s economy. On my visit to Grangemouth earlier this month, I met some of the workforce, and I know how much they care about the future of the terminal.

The news that shocked most people in November was no surprise to the Scottish Government. From a freedom of information request response, we have seen that the disgraced former Cabinet Secretary for Net Zero, Energy and Transport, Michael Matheson, met PetroIneos in February 2022. In his letter from April 2022, we see that options were being evaluated and that the Government committed to a just transition for Grangemouth workers. It is clear that it knew what was coming. What preparation work to protect the workforce was carried out between April 2022 and the making of the PetroIneos announcement? Why are options not further advanced, considering that the Government has had two years to prepare?

Unite the union’s survey of the workforce found that 88 per cent of respondents said that politicians were not doing enough to protect and support jobs at Grangemouth. They have been let down by the Scottish Government, have they not, cabinet secretary?

Màiri McAllan

I will open my response to Douglas Lumsden by reiterating something that has been put to me frequently, even in the number of days that I have been leading on the matter, which is a plea from those involved not to politicise the matter. I therefore urge Douglas Lumsden and his colleagues to resist the urge to do so.

With regard to when the Scottish Government was aware of matters, I made it clear in my statement that we were informed of PetroIneos’s decision to begin preparatory works to assess an import terminal on the same day as the workers and the UK Government. I was equally clear in my statement that, as a responsible Government, we have been engaged for years with the owners and operators of Scotland’s central industrial complex—of course we have. It would be a complete dereliction of our duties if we were not.

Future planning is, of course, part of that, but what is crystal clear is that the decision was announced to us at the same time as it was to the wider community. My focus now is on doing two things: maximising the opportunities for new and emerging technologies, and minimising the gap between any transition and their becoming available.

Daniel Johnson (Edinburgh Southern) (Lab)

I welcome the cabinet secretary to her role. In a portfolio that often talks about growth, it is good to see her leading by example with her expanding range of responsibilities.

This is a very serious matter. The cabinet secretary was right to pay tribute to the workforce, who are highly skilled. This is, after all, a profitable site, and although she has asked us not to politicise the matter, I note that in its statement yesterday Unite itself said that it was angry at the failure of both the Scottish Government and the UK Government to bring forward proposals. I must therefore press the cabinet secretary on when the Scottish Government first received an indication from PetroIneos that this was a possibility.

In addition, what will be the impact on the future footprint and possibilities, given the cessation of refining on the site? Has the Scottish Government discussed whether it could take steps to maintain current operations? In other words, has the Scottish Government asked PetroIneos what it would take to keep refining at Grangemouth?

Màiri McAllan

I am happy to respond in similar terms to Daniel Johnson as I did to Douglas Lumsden. The announcement was made to the Scottish Government on 21 November 2023, the same day as it was confirmed to the workforce, the UK Government and wider stakeholders.

I reiterate what I was keen to stress in my statement, which is how important the views of the workers at Grangemouth are. They are being articulated through the unions, with whom we have had considerable engagement, and I intend to ensure that that continues to be the case. Their role on the Grangemouth future industry board leadership forum will be critical to that multilateral discussion that we need to have.

As for future activity, I have already spelled out our intention to maximise the opportunity for new and emerging technologies. The decision to consider preparatory works for an import terminal has been made by the company against prevailing and expected global market conditions, and I understand that it will secure fuel supply in Scotland for years to come. Because of that combination of matters, my focus is on looking forward and not back.

Michelle Thomson (Falkirk East) (SNP)

I thank the cabinet secretary for her statement. For a just transition to be successful, the community must feel that it is an integral part of the change. I appreciate that the cabinet secretary referenced this in her statement, but can she give more detail on how the community can be actively, rather than passively, involved? Any change can be judged a success only if it is delivered through people and not to people.

Màiri McAllan

I entirely agree with Michelle Thomson’s sentiments. To me, the core definition of a just transition is that it is made for people and by people. That is why, in everything that we have sought to do in developing our Grangemouth-specific just transition plan, we have sought to co-develop it with those who work and operate at the Grangemouth complex and, vitally, those who live around it.

The work that we have done to date on developing the plan has very much embedded the community’s views. If Michelle Thomson, as the constituency MSP, has views on how we can enhance that, I will always be very glad to hear them. Equally, the Grangemouth future industry board leadership forum will continue to be a key forum through which we hear the community’s views, not least from local council leaders, Forth Valley College and others. I am always interested in ways of maximising community engagement.

Stephen Kerr (Central Scotland) (Con)

I welcome the cabinet secretary to her new role. There was new information in The Herald on Monday about the hydrocracker, but she did not mention that. Can she comment on that now? Also, I worry that she is expecting too much of the Grangemouth future industry board, which she has just mentioned—it is pretty much stacked with public bodies. Why is there no wider private sector involvement? What exactly is she expecting the board to do, and by when? What resources does it have at its disposal?

Màiri McAllan

Under a previous formulation, the Grangemouth future industry board was about the coming together of public sector bodies to provide a united public sector front through which to engage with industry. After consideration from the Scottish Government and recommendations from the Economy and Fair Work Committee, it has been reformulated to include industry. PetroIneos is on that board, too, so Mr Kerr might wish to revise his comments about industry not being represented.

PetroIneos said in its statement to the Economy and Fair Work Committee that the hydrocracker is currently offline because of operational issues. It is my understanding that the business is in the second root cause analysis, and I await the outcome of that.

Evelyn Tweed (Stirling) (SNP)

What assessment has been made of the potential impact of the closure of PetroIneos Grangemouth on supply chains and associated businesses in areas surrounding Grangemouth, such as Stirling?

Màiri McAllan

I understand Ms Tweed’s interest in the wider economic impact. We are seeking to establish an analysis of the economic impact of the proposals. Owing to the complexity of the corporate structure of the companies, it is essential that PetroIneos assists us in that, and I am pleased to say that it has agreed to work on that issue. That assessment will look at the potential impact of closure, but, equally, it will consider how that could be mitigated with the transfer to an import terminal. I also want it to consider how that could be further mitigated by the coming on stream of the new technologies that we are working to pursue.

Richard Leonard (Central Scotland) (Lab)

I remind members of my voluntary registration of trade union interests.

The cabinet secretary tells us of meetings and correspondence. Well, what the workers at Grangemouth want is not talking shops but workshops. They want action and not words. Can the cabinet secretary tell us the powers that the Scottish Government does have and is prepared to use to invest in infrastructure and energy diversification projects—including hydrogen, CCS and biofuels—at the Grangemouth complex, how the Scottish Government intends to apply those powers and on what timescale?

Màiri McAllan

I hope that it has been clear in my contributions that we are very much working with the company, including via investment, to support the development of early studies in respect of the development of biofuel refineries and fuel switching. Those are, I believe, the means to ensuring that we deliver a just transition for the very workers whom Richard Leonard is rightly concerned about—and whom I am concerned about, too.

As we do that work, I will absolutely ensure that workers’ voices and their unions’ representatives are at the heart of its development. Frankly, many people are engaged with the work and many have responsibility for its delivery. The coming together of all those actors is, I believe, the only way in which we will make the progress that is needed.

Kevin Stewart (Aberdeen Central) (SNP)

The head of the International Air Transport Association, Willie Walsh, warned recently that sites such as Grangemouth cannot produce sustainable aviation fuel due to regulatory barriers imposed by the UK Government. What calls has the Scottish Government made for the UK Government to remove those serious regulatory barriers and allow the production of SAF at Grangemouth? After all, that is a viable and sustainable economic opportunity for the Grangemouth area.

Màiri McAllan

I am as enthusiastic about the prospect of SAF development in Scotland as Mr Stewart is. He is right about the regulatory barriers to the production of a biofuel refinery that have been identified. The most prevalent of those is the UK Government’s proposed HEFA cap. The issue was raised by PetroIneos at the recent meeting of the Grangemouth future industry board, where Scotland’s energy minister, who is sitting beside me, pressed the UK Government to give full consideration to the UK position and, in particular, to any changes that could be made to support Grangemouth. After all, the proposed cap sets us apart from the position that prevails in the EU, and PetroIneos has made it clear that it is a concern and a barrier to what it is seeking to do.

I will continue the work that has been done by my colleagues Gillian Martin and Neil Gray in pressing the UK Government on that, and GFIB will be an appropriate place for us to do that.

Gillian Mackay (Central Scotland) (Green)

I welcome the cabinet secretary to her new portfolio. Many of the potential changes for the site in Grangemouth that the cabinet secretary has set out will functionally change both working in and living beside the refinery. Will the cabinet secretary outline what work is under way to ensure that the current workforce, where it is needed, can be reskilled in the potential industries that she has mentioned? Given the proximity of the site to homes, what work is being done to ensure that those in the community know how any operational changes at the site will impact on their lives and the local environment?

Màiri McAllan

Gillian Mackay is absolutely right, and her question goes to the heart of what I have been seeking to stress, which is that there are many parties whose views and opinions on all of this are absolutely critical. The point that she makes about future skills is particularly important. That is why I am very pleased that Forth Valley College is a member of the board, which is a multilateral forum through which we will take forward a just transition plan for Grangemouth.

Equally, I stress again to Gillian Mackay the community co-development that we have sought to put at the heart of how we do the just transition plan. I say to her what I said to Michelle Thomson, which is that, if she has any recommendations on how we can improve that, I am always glad to hear them.

John Mason (Glasgow Shettleston) (SNP)

The cabinet secretary seemed to indicate in her statement that there was quite a good working relationship with the UK Government. Can she assure us that that will continue, and can she give us any update in relation to it?

Màiri McAllan

I believe that the UK Government’s part in this is absolutely vital. If we consider the ambitions to consider biorefinery, we can see that the HEFA cap is a potential issue. If we consider the ambitions to consider fuel switching, we can see how critical CCUS is to the development of that. Those are deeply intertwined devolved and reserved issues.

I note that the UK Government has been willing to provide substantial sums of money towards industrial transition in other parts of the UK—namely Wales—and I would expect the same for Scotland. The Minister of State for Energy Security and Net Zero, Graham Stuart, has attended GFIB at our request, and I was disappointed to receive a letter from him yesterday that said that he did not think that another meeting with me and the Government was required in the meantime. I disagree, and I will press him for another meeting. In any case, I hope to see him at the next meeting of GFIB, at the end of the month.

Willie Rennie (North East Fife) (LD)

Clearly, there has been a lot of activity, but I think that Richard Leonard is right. It sounds to most people in Grangemouth as though there has been a series of meetings, letters and dates for more meetings. People will not believe it until they see it, so can the minister be a bit more tangible with timescales and outcomes? Can she also set out what the longer-term commitment from the company will be, including its financial commitment?

Màiri McAllan

I understand the desire for haste, but, equally, some of the really important building blocks of a just transition for Grangemouth cannot be developed overnight. That is why I am determined that the work that we do now, particularly with the board, is as focused and businesslike as it possibly can be, in order to drive the change that Willie Rennie is right to push for.

It is important to note that no formal decision has been made on the future of the refinery and that, currently, nothing will change from day to day. As far as PetroIneos is concerned, it is business as usual. The timescale for operational change has not yet been determined, which members can understand means that the timescale for transition cannot be set in stone. However, I am determined to ensure that we do the work now to minimise any gap between the transitions.

Murdo Fraser (Mid Scotland and Fife) (Con)

I, too, welcome the cabinet secretary to her new role. In her statement, she referenced the HEFA cap as being a barrier to the development of sustainable aviation fuel. The European Union is currently considering a HEFA cap for member states, with at least five EU members actively pushing for it. Is the Scottish Government’s position that there should be no HEFA cap? If it agrees that there should be one, what level should it be set at, and is that position shared with the Scottish National Party’s coalition partners, the Greens?

Màiri McAllan

I am aware that there are on-going consultations. My view is that we should seek to minimise regulatory barriers that get in the way of Scotland’s premier industrial complex being able to undertake a successful transition, which pertains to the HEFA cap and to CCUS coming on stream. I will not state an opinion on behalf of the Government, but I will say that PetroIneos has made it absolutely clear that the cap is a barrier. I will use the multilateral forum to work through those issues and to seek to deliver the just transition that I think we all want.

Audrey Nicoll (Aberdeen South and North Kincardine) (SNP)

The Forties pipeline system is a main artery that transports North Sea oil to the Grangemouth oil refinery. Although the transition away from oil and gas is essential for Scotland’s energy future, the potential closure of the refinery has implications for the north-east’s energy sector. Given the lack of levers available to the Scottish Government that would allow it to invest, can the cabinet secretary outline what engagement has taken place with the UK Government regarding the broader impact that a decision about Grangemouth would have on the wider Scottish economy, including in the north-east?

Màiri McAllan

The member is absolutely right to raise the importance of the Forties pipeline. Presently and historically, the vast majority of crude oil that is transported into Grangemouth via the Forties pipeline system is exported and it is not refined at Grangemouth, according to market demand. It is my understanding that the Forties pipeline system will continue to act as a means by which crude oil is extracted from the continental shelf and can then be sent via Cruden Bay to the Grangemouth industrial cluster and onward to Hound Point for export. I hope that that clarifies the position in respect of the Forties pipeline.

On the question about economic analysis, I referred in an earlier answer to the work that is on-going with PetroIneos in that regard.