Gas city: Grangemouth - the frontline of Britain's energy war

The bitter pay dispute that has engulfed oil refinery has raged for years. Now the firm that owns it has threatened to turn off the pipes – which could spark an energy crisis across the UK

Grangemouth oil refinery on the Firth of Forth processes the fuel used in Scotland (Getty Images)

It sits on a site more than two times the size of the City of London, processes 80 per cent of all the fuel used in Scotland and powers the pipes which link the North Sea oil and gas fields to the British mainland.

But now the Swiss-based company that owns Grangemouth oil refinery on the Firth of Forth is threatening to shut the plant forever in a bitter industrial dispute that could have profound ramifications for the future of Britain’s energy security.

The plant’s 1,300 workers have been told they have until Monday night to agree to new less generous pay, pensions and working conditions to make the plant profitable.

The refinery’s private owners Ineos have called a shareholder meeting for Tuesday to assess the response of the workforce. An Ineos spokesman has said closing the site permanently was “ultimately one of the options”.

If that were to happen it would throw into doubt not only the future of North Sea oil and gas production in Scotland but have disastrous consequences for the First Minister Alex Salmond.

Grangemouth is Scotland’s last remaining oil refinery and its closure would result in a loss of between 1 and 2 per cent of Scottish gross domestic product. Not only this but any long-term closure of Grangemouth would – in the short term at least – increase the UK’s reliance on imported oil and gas, causing some to warn that petrol shortages could follow.

“Be in no doubt that the stakes are exceptionally high here. This could be seriously bad news for Scotland’s economy,” Alistair Carmichael, the new Scottish Secretary said.

The shut-down has its origins in a bizarrely parochial dispute. Unite, the union that represents most of the workers at the plant, had originally threatened a 48-hour walkout over the company’s treatment of Stephen Deans, Unite’s convenor in Scotland who works at the plant.

Mr Deans was initially accused in the furore over the selection of Falkirk’s Labour parliamentary candidate, which ultimately saw the party and the police clear Unite of allegations of vote rigging. But, despite this, Ineos has carried on with its own inquiry, based on an allegation that Mr Deans recruited party members on the firm’s premises.

Many in Unite believe that the Deans investigation was merely a pretext to incite the union into taking industrial action – so they could launch a much wider assault on worker rights.

And they may be right, because despite Unite calling off the strike earlier this week Ineos decided to shut down the plant regardless and yesterday morning sent letters to every employee giving them four days to agree to new terms and conditions.

This, Unite claims, includes significant wage cuts for some staff, reduction in holiday allowances, an end to final salary pensions and statutory redundancy payments only for laid-off staff. The company also wants a no-strike agreement with Unite.

The company says any worker who refuses to sign up to the new deal could be dismissed and only taken on under the new terms. But they are also keeping open the option of shutting the plant altogether if not enough workers sign up to the deal. “This is D-day for Grangemouth,” said Calum MacLean, chairman of Ineos Grangemouth.

Michael Connarty, the Labour MP for the constituency that includes the Grangemouth complex, said it did not sound like Ineos was looking for a solution. Ineos denies this and says Grangemouth is losing £10m a month, has lost £579m in the past four years, and will close by 2017 regardless unless there is new investment. It is also looking for £150m of Government support.

“We are going to talk to the workforce about the survival plan and ask them to support that survival plan, because we believe very, very strongly that Grangemouth has a great future but only if we can make the changes that are required to make it competitive,” said the Ineos director Tom Crotty.

“We are in a global market here. If we don’t make changes it will not have a future.”

But Unite believes the plant is still profitable and has questioned the company’s figures. It has written to HM Revenue and Customs asking it to investigate whether a re-organisation of the company, which resulted in it moving its headquarters to Switzerland, has obscured Grangemouth’s true profitability.

“The company has written off most of its assets [£389.2m], implying that it is struggling to remain a viable long-term business,” wrote Unite’s General Secretary Len McCluskey.

“Paradoxically, they have also announced they expect to realise a deferred tax asset of £117.3m suggesting they expect to make realisable profits of circa £510m in the foreseeable future.”

Mr McCluskey said he thought the creation of a new company may make its position even less transparent.

Whatever the truth, if the company were to shut Grangemouth forever, it could have a profound impact both on the Scottish economy and North Sea fields.

BP says the Forties Pipeline System, which brings oil and gas ashore from more than 50 North Sea fields, is continuing to operate normally at the moment.

The pipeline and BP’s own processing plant at Kinneil depend on steam from the facility at Grangemouth. But BP said it could not guarantee that this would continue to be the case if the plant shuts down.

It has left the Scottish Government struggling to play peacemaker, with very little real influence, in the hope of heading off political as well as economic catastrophe.

As Deputy First Minister Nicola Sturgeon put it: “The Scottish Government stands ready to do anything we can to help but we can’t strike that agreement for them, they have to come together and do that.”