analytics
November 01, 2013

With the Scottish Independence vote less than 12 months away, it was no surprise to see leader of the Scottish National Party (SNP), Alex Salmond, getting heavily involved in recent events at Grangemouth. No surprise because the plant’s importance to the Scottish (and UK) economy is huge, producing as it does, almost 20% of Scotland’s total foreign exports. In fuel terms its significance is even greater, with a staggering 75% of supply north of the border coming from this one source.

However, with the current integrated UK supply chain, the temporary loss of Grangemouth Refinery was costly but not catastrophic. Sea-fed depots in Aberdeen and Inverness could receive fuel from other refineries in the UK, whilst the central belt was supplied from import facilities on the Clyde and Forth. If any strike were to persist for significant amounts of time, then further volume could be trucked in or supplied by rail from the North of England. But if we look into the future, a far more interesting topic would be how an independent Scotland would fare in a similar crisis. Admittedly even the most rampant (Unionist) “No” campaigner could claim that Scotland would no longer be able to source fuel from England (or elsewhere) once the country broke free - that is after all, the nature of globalised markets. But in a debate that has focused heavily on the idea of “going it alone”, how many Scots will vote next year fully understanding the impact of living in a country where (virtually) all fuel supplies are reliant on a single refinery, which according to its owners, loses £10m per month and will shut by 2017 - unless ongoing “radical survival plans” are implemented?

Furthermore, when the Scottish people vote in next year’s referendum, what proportion will remember who actually owns the site? In the good old days, Grangemouth was a BP facility - a company which for years was almost as Scottish as it was British (Petroleum), with its operating bases in Grangemouth and Aberdeen. But BP sold Grangemouth several years ago and it is now is a 50 / 50 Joint Venture between PetroChina (China’s State Oil Company) and Ineos - a Swiss based conglomerate, largely funded by Private Equity money from London. Surely only the most delusional would consider it likely that the Chinese Mandarins and money-men from the city will have sincere interests in Scotland’s long-term fuel resilience. So it may well transpire in 2017, that the new Scottish Government is faced with the prospect of either subsidising or nationalising the site. At what cost would this be to the Scottish tax-payer and what other key assets would the new Scottish Government choose to nationalise under similar circumstances? On a more philosophical level, is nationalisation the kind of economic socialism that SNP voters believe in? Few will blame the party of course, if they avoid this subject in the run-up to the referendum, but the fact remains that within the lifetime of the first independent Scottish Parliament, nationalisation of Grangemouth could be the reality. It’s either that or running the country without a refinery and relying 100% on fuel imports – a situation that no other country in the EU faces.

EU membership and Scotland’s automatic right to this, also presents a rather interesting link to the Grangemouth crisis. It certainly provides another reason why the strike at Grangemouth was manageable at a UK level. Why? Because EU Compulsory Oil Stocking (CSO) regulations stipulate that all EU members must hold between 60 and 90 days of emergency oil stocks. Now significantly, most emergency Stocks in Britain are held outside of Scotland, so on day 1 of independence the new country will find it almost impossible to meet its oil stocking obligations. Once again, few could blame the SNP for steering clear of this highly technical subject in the run-up to the referendum. But the issue does highlight why the Unionists are right to argue that Scotland’s automatic entry to the EU cannot be taken for granted, because on this - and presumably several (many?) other “technical” issues - the new nation will fail to meet the national entry criteria. Meeting the criteria will not be a quick process either. In the case of emergency oil stocks, Scotland will either have to rely on business to hold the stocks (as Britain currently does) or it must build scores of new fuel storage tanks (= very significant cost) to set-up an oil stocking agency (as for example Belgium does). With the mortal problems currently facing Grangemouth, it seems out of the question to rely on the likes of Ineos to meet Scotland’s emergency fuel requirements, so this would mean the new Scottish Government having to build a stock agency from scratch. To put such a project into perspective, an identical exercise in Belgium (the creation of APETRA) took 10 years to complete!

So there we have it – a whole article on the oil industry’s place within Scottish Independence, that doesn’t even touch on the breathtakingly difficult issues around North Sea Oil (which also will affect the CSO mechanism). But the issues around refined oil – Grangemouth, Scotland’s integrated place within the UK’s supply-chain and its future fuel resilience – should all serve as a reminder that the issues at stake in “breaking free” are complex and cannot be addressed through superficial debate. It is on practical issues that the independence vote should (but won’t) be based, because modern countries are not defined by flags and concepts of nationhood, but on the workings - or non-workings - of places like Grangemouth.


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