Huge opportunity for Grangemouth - an independent Scotland could grasp it.

Scotland is on the brink of discovering if a just transition away from fossil fuels will be a reality or just a slogan. There is a plan for Grangemouth, Scotland’s only oil refinery, to become a world-leading hub for sustainable aviation fuels.

But the biofuels market doesn't yet exist at scale. It requires the UK government to shape it, providing a price floor for Sustainable Aviation Fuel, so as to reduce investor risk.

If Scotland were an independent country it would be able to focus on this as a national priority. As it is, the Scottish government has no power over energy regulation. It has to sit on its hands and wait for Westminster, which has so often shown itself indifferent to Scotland’s needs, to act. 

What are the issues facing Grangemouth?

Grangemouth is Scotland's only crude oil refinery - it is the oldest in the UK and was opened in 1924. It currently produces non-sustainable aviation fuel and a wide range of chemical products derived from oil for agriculture and industry. It uses oil from the North Sea but it also imports shale oil from the US and natural gas from Europe.  

Grangemouth posted a €688 million loss before tax in the year to the end of December last year, sharply higher than the €298m loss in the previous 12 months. It blames increased competition and the rising cost of imported raw materials. 

Ineos acquired the site in 2005 and are responsible for the entire plant, while the refinery itself is owned by Petroineos - a joint venture between Ineos and PetroChina. The owners' current plan is to convert the site into a terminal able to import petrol, diesel, aviation fuel and kerosene from the Forth into Scotland - but this would require a workforce of fewer than 100 employees compared to the current 475.

Its closure will leave Scotland without an oil refinery - while England has four and Wales one. The Pembroke oil refinery in Wales is one of the biggest in Europe and is highly profitable. Owner Valero Energy returned over $6.6 billion to stockholders through dividends and stock buybacks in 2023. ExxonMobil has invested heavily in its refinery at Fawley in Hampshire, the biggest fuel producer in the UK, and it is part of a highly profitable operation. The other oil refineries  - at Stanlow, Lindsey and Humber- have faced challenges but they are not loss making. They are benefiting from large investments from their owners to reduce their carbon footprint and keep them competitive. But several other refineries, both in the UK and Europe, have closed down or become import hubs in the last two decades. 

The International Energy Authority expects demand for transportation fuel to start to decline from 2026. Although the oil price has gone up a bit recently because of the situation in the Middle East, it can’t go very high without triggering more price-sensitive production in the USA, now the world’s biggest oil producer.  There is a strong supply along with weakening demand. 

Grangemouth has lacked the kind of major investment that would have been required to secure its future. It is not likely now -  for commercial as well as climate reasons - that any investor would pour in the kind of money that would be required to modernise Grangemouth as an oil refinery. But the closure is a blow in the short term with hundreds of workers looking at redundancy and a loss to Scotland’s economy. 

There will also be an impact on energy security, both for the UK and independent Scotland.  Scotland will not be able to refine North Sea oil at home but will have to see it exported and bought back as end products. 

What is the biofuels proposal?

Sustainable Aviation Fuels (SAF) are synthetic alternatives to fossil fuels, made from renewable sources, which can include waste cooking oils, vegetable fats and agricultural waste, as well as captured carbon dioxide. New UK-wide rules are expected to require 10% of air travel to be powered by sustainable aviation fuel (SAF) by 2030.

Rise, a coalition group made up of the UK’s leading airlines, airports, engineers and producers, including Edinburgh, Glasgow and Aberdeen Airport, are urging business and government leaders to act quickly to increase the production of SAFs, which can reduce carbon dioxide production from airline flights by up to 70%. Rise says Scotland could become a world-leader in SAF production which could boost the economy by £1.8bn by 2030 and create 60,000 jobs across the UK.

They warn the UK Government needs to “act quickly” to secure vital investment.

Ministers are being urged to bring forward a promised Sustainable Aviation Fuel (Revenue Support Mechanism) Bill quickly to help secure funding for these projects.

Conclusion

The closure of Grangemouth is a huge issue for Scotland. If this is handled badly it will show people that the ‘just transition’ is not going to happen with oil and gas any more than it did with coal mining, when workers were thrown on the scrap heap and whole communities collapsed into poverty and despair, leading to huge social problems which still persist today.

The biofuels market doesn't yet exist at scale. But it soon will - the demand is there and will increase as new rules over aviation pollution come into force. Scotland could move into a strong position to supply this emerging market.

But Scotland is not an independent country. Its needs are way down the priority list for the UK. Scotland holds just under 9% of seats in the UK Parliament. Holyrood has no say over how energy is regulated and so it can’t move to create the market framework that would be required to get this biofuels plan off the ground. 

This situation shows the limits of devolution. Independent countries such as Sweden, Norway and Iceland are able to innovate and move towards a low-carbon future without throwing workers on the scrap heap. There is a huge opportunity here - but Scotland currently does not have the power to grasp it.