Dwindling supplies of ethane gas from the North Sea has threatened the competitiveness of INEOS manufacturing units in Grangemouth (Scotland) and Rafnes (Norway).
In addition, across Europe, spiralling energy costs continue to threaten the very future of its petrochemical industry. The issue is widely acknowledged by those manufacturing businesses trying to compete in global markets. But as many wait for a political solution, INEOS is taking action, now, to protect its business before it is too late. From next year it will start shipping competitively-priced ethane from US shale gas to its gas crackers in Europe. Now it is looking longer term and is seeking to access indigenous gas from UK shale. Hydraulic fracturing has led to a manufacturing renaissance in America. It could do the same for the UK and Europe.
INEOS could soon be drilling for shale gas in a bold move that could help to safeguard the future of manufacturing in the UK and increase Britain’s energy security.
As Europe, which is now one of the most expensive places in the world to make petrochemicals, dithers over shale gas, INEOS has seized the initiative once again.
It has now acquired two licences to access indigenous gas from shale in Scotland. And although there is no activity at these sites yet, INEOS has already committed to full and open consultation with local communities and has also promised to share 6% of the revenue from its wells with homeowners, landowners and local authorities.
INEOS considers current arrangements with individuals and communities are not sufficiently equitable to convince the British people of the benefits of on-shore drilling for gas. But it believes a combination of community consultation and a fair share of the profits could lead to much greater understanding and acceptance of this important technology.
“We think our plan could be the game- changer for Britain,” said INEOS Chairman Jim Ratcliffe. “Giving 6% of revenues to those directly above shale gas wells means the rewards are fairly shared by everyone. It’s what they do in America and we think it is right to do this here because communities will have to put up with some inconvenience for about six months.”
INEOS believes it could eventually amount to more than £2.5 billion.
“That will make a substantial contribution towards new schools, parks, community centres and even hospitals,” said Jim. “It will be transformational for those communities. It will make a difference to their lives.”
The news was welcomed by the Country Land and Business Association which represents the interests of land and property owners in rural England and Wales.
“These proposals could help to speed up development of the industry which is important if shale gas is to contribute to the UK’s energy security and provide a bridging fuel to a low carbon economy as Government believes it can,” said association president Henry Robinson.
He said the association had consistently argued that the UK’s shale gas industry would be better served by giving landowners and communities an incentive.
“It seems only right that those whose property is drilled beneath feel some benefit from the process,” he said.
INEOS now has a stake in two exploration licences.
In August it bought BG Group’s 51% stake in the shale layer of an exploration licence (PEDL 133) which covers 329 square kilometres surrounding its Scottish refining and petrochemical plant at Grangemouth.
At the time Gary Haywood, CEO of INEOS Upstream, the company’s new oil and gas exploration and production business, hinted that INEOS was now well placed to become a major player in the UK on-shore gas production industry.
“We already have a large UK asset base, existing operating capabilities and an exemplary safety and environmental record, so this is a logical next step for INEOS,” he said.
In September INEOS, which is one of the very few companies that can use shale gas as both a fuel and a feedstock at its manufacturing plants, took another giant step in promising communities a share in the profits.
INEOS believes sharing revenues will give local people a real stake in the success of any venture.
Typically, those living in a shale gas community (approximately 100 square kilometers) would benefit from the output of 200 wells and split £375 million between them.
Home and landowners directly above the wells would share £250 million.
The rest of an INEOS shale gas community would share £125 million.
“Over the lifetime of a single well, home and land owners would get over £1.3 million and the community £600,000,” said Jim.
On October 13, INEOS announced it had signed an agreement with Reach Coal Seam Gas Limited to acquire an 80% stake in the exploration licence (PEDL 162) next to its first licence, in the central belt of Scotland, close to Grangemouth, which the British Geological Survey believes contains significant quantities of gas.
As part of the deal, INEOS will operate the licence and fund the initial activity on the site to determine whether the gas can be economically extracted.
“We are keen to move quickly to evaluate the potential of this resource,” said Gary. “If we can, it will provide a local source of competitive energy and raw materials to support manufacturing jobs in Scotland.”
INEOS is currently spending hundreds of millions of pounds to import large quantities of low-cost shale gas from America to Grangemouth to safeguard the future of its gas cracker in Scotland as the availability of gas in the North Sea dwindles.
But its decision to start drilling itself in the UK is a new – and exciting – venture.
The Institute of Directors believes that a UK shale gas industry could create 74,000 jobs and support many hundreds of thousands of manufacturing roles beyond this.
“UK shale has the potential to make up a significant proportion if not the totality of UK gas requirements going forward,” said Jim. “This would give the UK energy security for the first time in many years. It will help to protect manufacturing and jobs in Europe by securing competitive energy and raw materials and lead to a more competitive manufacturing sector. Our aim is simple – we hope to maintain and create jobs in Britain’s industrial heartlands.”
Shale gas also produces approximately half the greenhouse gas of coal and so has the potential to significantly reduce UK greenhouse gas emissions, as it already has in the USA.
INEOS has an exemplary safety and environmental track record at petrochemical plants. Its track record speaks for itself and when combined with the world’s leading experts in on-shore gas exploration and hydraulic fracturing , who are working exclusively for INEOS in Europe, people should become more confident in the compan’s ability to safely extract the gas.
Few companies in the UK have INEOS’ expertise or infrastructure to use and handle pressurised flammable gases safely.
Its experience above ground is widely acknowledged and over the past 12 months INEOS Upstream has been building up a team of world-leading experts in shale gas exploration and development to further strengthen its onshore gas credentials.
“It is extremely important that people know that shale gas can be extracted, transported and processed safely and in an environmentally responsible way,” said Jim. “INEOS is a company used to dealing with complex petrochemical processes so everything will be done to the highest possible standards.”