How US shale gas could re-energise Grangemouth

The Daily Telegraph includes a feature article in its business section, published today, which highlights INEOS' plan to invest £300m to make Grangemouth profitable again. Alastair Osbourne describes the wasteground at the site that is to be the location of the £125m ethane storage tank that will transform Grangemouth. At 40m high and measuring 57m across, the tank will mark a fresh start for the site. It is also described as being the first tangible symbol in Britain of the shale gas revolution in America that is remodelling the global energy and chemicals markets. “Without the opportunity from US shale gas, there is no question that the Grangemouth petrochemicals plant would close. It’s only because there is this great opportunity to source cheap ethane that we were able to go back to the shareholders and say, please put £300m into this site,” says Calum MacLean. From the second quarter of 2016, Grangemouth will start importing ethane from the US - the first shale product ever to be landed in Britain. Even after the shipping costs, it will still be 50pc cheaper than the dwindling feedstocks coming out of the North Sea.

The article also examines the changing economics of the European chemicals industry. There are 46 crackers in Europe, all but four crack naphtha. Only four of the gas crackers are ideally placed to capitalise on cheap shale gas. INEOS owns two of them: at Grangemouth and Rafnes in Norway. For the next 15 to 20 years INEOS thinks those gas crackers are going to have a fundamental advantage.  Last year European chemicals companies produced about 19m tonnes of ethylene out of a capacity of 22m tonnes. Around 2m tonnes of naphtha cracker capacity is coming out of the market, including the old cracker at Grangemouth. But analysts predict 3m to 6m tonnes of annual US exports to Europe over the medium term. “Right now American producers are building the equivalent of one-third of their installed base. They don’t need that for their own market. All of it will be aimed at the export market. A lot will go to Asia, because that’s where the growth is, but some will come to Europe.” said Tom Crotty. But with the new economics at the site there is a serious commercial opportunity for a strike-free Grangemouth. Geir Tuft says: “Our philosophy is actually very simple. You’ve got to have good plant, you put the cheapest stuff you can in, you run it hard and sell all you can. Then you match that up with a very strong focus on fixed costs.” Thanks to shale gas, Grangemouth now has its chance to do just that.

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