With rumour and counter rumour surrounding INEOS here in Scotland, its perhaps time to explore the background to this company and its enigmatic CEO Jim Ratcliffe.
INEOS the company
INEOS is a young company. It has grown to become a leading chemical company with sales today of around $40 billion. Most of our employees have spent all their working lives in the chemical or oil industry. We continue unashamedly to extract best practices from this very impressive group of people in all spheres of activity. We believe INEOS is a refreshing place to work and we are prepared to embrace new approaches to business (emphasis added).
They also have a wonderful page on sustainability, which is perhaps the best concentrated source of oxymorons I’ve ever came across.
The name of the company is certainly quite imaginative:
Ineos is an acronym of INspec Ethylene OxideSpecialities, a name derived from their first acquisition in 1998. It also stems from one Latin and two Greek words that founder, Jim Ratcliffe, and his two sons found when searching for a company name. “Ineo” is Latin for a new beginning, “Eos” is the Greek goddess of dawn and “neos” means something new and innovative. As a result, the name Ineos represents the “dawn of something new and innovative” (Source: Wikipedia).
Originally established as Inspec in 1992, INEOS took on its current form in 1998. Along the way, the company bought out chemical subsidiaries from the likes of BP, ICI and BASF, including a takeover of BP’s refinery at Grangemouth in Scotland. INEOS also runs a French refinery at Lavéra near Marseilles in the south of France, along with various other plants around the world.
In 2011, INEOS signed up to a $1Billion deal with PetroChina in a parnership ‘presenting an opportunity to further develop our interests in China and beyond’, stated Jim Ratcliffe.
At around the same time INEOS, as noted in the Financial Times, ‘moved its headquarters to Switzerland for tax reasons’.
The agreements came during a state visit to Britain on Monday by Li Keqiang, the Chinese vice-premier. Mr Li also signed £2.6bn of commercial deals with other British companies, including BP, the oil group, on the latest stage of a European Union tour which has boosted Chinese trade relations with EU nations.
And in August last year, Scottish First Minister Nicola Sturgeon visited Petroineosduring a trade visit to China.
So is the Scottish Government ‘in bed’ with INEOS? That remains to be seen. But despite the blurb on their website, the relationship with workers at the Grangemouth plant have been anything but.
In 2008, a strike by workers at the plant over pensions generated panic amongst motorists around the UK.
The strike was called because when ‘Ineos bought the Grangemouth refinery from BP in 2005. It inherited the final salary pension scheme, which it now wants to close’. INEOS claims it couldn’t afford to maintain the pension scheme. But:
There are claims – denied by the company – that it has engaged in anti-union activity in both Norway and Texas. Privately, sources close to the union accuse the firm of buying up assets and then cutting costs through the introduction of new working practices.
In 2013, there was a suspicion of anti union motives when INEOS temporarily closed down the Grangemouth plant following a dispute over the suspension of union leader Stevie Deans. As reported by the Finacial Times, ‘Ineos, the plant’s owner, alleges that Mr Deans – a Grangemouth employee for 20 years, chairman of Unite in Scotland and head of the Falkirk constituency Labour party – made “inappropriate use of company resources”’.
INEOS’s conditions for reopening the plant were that ’employees would have to accept a pay freeze and changes to their pensions and union representation because the site was losing about £150m a year, the pension scheme was £200m in deficit and the costs were an “unsustainable” 65 per cent of salary’.
The Carr report provides a useful overview of the dispute (P26). It should be noted here that due to objections from trade union bodies, the review conducted byBruce Carr QC was necessarily limited in scope.
Shifting to the other side of the political spectrum, this article in Indymedia UK bySocialist Party Scotland, offers an alternative perspective to the dispute.
The article notes that the Government responded to the financial woes of INEOS with a bailout:
As part of the deal Ineos will be bailed out to the tune of £134 million in Scottish and UK government grants and loan guarantees. The company claims it needs this to ensure a £300 million investment at Grangemouth over the next few years. After claiming the business was on its knees, Ineos is now saying the site has a 15 to 20 year future ahead of it.
The article also makes the following claim:
There is clear evidence that Ineos, in all likelihood in conjunction with the UK government, had been preparing for a confrontation with the union. The stockpiling and the importation of fuel to mitigate the impact of the strike and the inevitable shutdown of the plant were at an advanced stage, even before the strike was announced. This alongside an attempt to decapitate the union leadership at the plant indicated the lengths the company was prepared to go to.
Essentially the article claims that INEOS was looking for an excuse to confront the union and that the financial woes of the company were massaged to make the situation look a lot worse than it actually was. According to the article:
Unite, however, asked Richard Murphy, an accountant and a campaigner against corporate tax-dodging to review Ineos’ public accounts, which themselves will not tell the true story. Murphy found Ineos Chemicals Grangemouth Ltd has added one-off measures to make the accounts look bad, including a write-off in the valuation of the petrochemical plant – in other words it was worthless. The same petrochemical plant that is now described as having a bright future of at least 15 to 20 years.
Murphy found that Ineos’ accounts imply that they expect to make £500 million from Grangemouth alone by 2017 and that operating profits grew by 56% last year. Murphy says that Grangemouth chemicals made £7 million profit last year and £6 million the year before.
“Unlike any other company they decided to factor in investment as a loss”, said Murphy. “They are using accounting rules I don’t recognise. They are using numbers I can’t find in any actual published accounts.” Ineos internationally also made a profit of over £2 billion in 2012.
The language within the article reflects what might be considered ‘socialist rhetoric’. Nevertheless given the investment from PetroChina and the tax avoidance strategy of the company, it does raise important questions. And this article from Open Democracy poses some answers.
The article suggests that INEOS provoked the Union into taking industrial action, that whole affair was deliberately calculated. In response to the action INEOS closed down the plant:
Switching off a refinery is a big deal and it may now take more than two weeks to get the plant operating again, if Ineos ever decides to restart. Thing is, the union had called off the action. This plant was not closed down by a union; it was closed down by the owners. Immediately after that they claimed the industrial-action-that-never-was was costing them a fortune. It is at this point that suddenly we are regaled with a PR drive which suggests the company is in severe distress and that employees must take significant cuts to pay and conditions. To cut a long story short, it goes to ACAS, the union claims a deal was close but/so Ineos walked out. It imposed a new contract on workers and told them they had three days (individually, not through the union) to agree the new contract or workers would be sacked and the plant (or half of it) closed down.
Then there is the issue of the financial affairs of INEOS and the decision of the company to relocate to Switzerland in order to avoid a VAT bill. This article from Prime Economics takes a closer look at the private company that likes to keep its cards close to its chest.
Essentially through private equity funds, INEOS’s sequences of aquisitions and deals that led to the companies rapid expansion has created a debt burden:
In its page on billionaires in March 2006, Forbes Magazine said of Ratcliffe and Ineos:
Later years’ accounts state that the debt load was $8.7 billion, not $10.7 billion. Still, this leaves a lot of financing costs to recover to keep paying interest to the banks. Someone had to pay the banks their due, while enabling Ratcliffe to maintain his station as a billionaire. Ah yes, the workforce.
And the tax issue?:
“Save” taxes means, of course, avoid taxes. Because Ineos owed VAT, it seems, and unlike the rest of us (heavy sarcasm) could not get HMRC to give it a year’s grace to pay up. So Ineos and its owner, Mr Ratcliffe, upped and offed to Switzerland. True to the patriotic tradition of the British financial business elite.
According to the Daily Telegraph on 6th September this year,
The company’s debts due to the banks were, it seems, a higher priority for Ineos than paying tax due to the UK government.
In conclusion the article states:
It’s a sorry tale of amoral debt-financed global capitalism in “race-to-the-bottom” mode – a company that leaves the UK to avoid paying its fair share of taxes, a company built on and fuelled by debt, a company that fails to negotiate with its workforce in any reasonable way – and a company supported financially along the way (it seems) by the British taxpayer, since our state-owned and rescued banks failed to act on our behalf when they had the chance to block the company’s tax-avoiding migration.
Industrial disputes and alleged dodgy accounting apart, INEOS recently has been more in the spotlight over its position on fracking and other forms of unconventional gas (UG). And there has been suspicions of wheeling and dealing with the Scottish Government over the current moratorium on UG production.
Following the 2013 dispute at Grangemouth, INEOS announced a £640 million investment, acquiring 729 sq miles of fracking exploration licences in central Scotland. The move would make INEOS one of the biggest players in the UG market in the UK. As a ‘sweetener’, the company has said it would ‘give 6% of its shale gas revenues to local communities, a sum it expects to reach £2.5bn. Home and landowners directly above the wells would share 4% of the revenue, while communities living close to the wells would share 2%’. Richard Dixon, Director of Friends of the Earth Scotland said ‘the move was “a transparent attempt to bribe communities” and called Ineos “masters of spin”’.
In addition the company is also building a facility at Grangemouth for processing ethane gas imported from the US. The deal was secured with ExxonMobile and Shell. INEOS states on its website:
INEOS Europe AG, ExxonMobil Chemical Limited and Shell Chemicals Europe B.V. today announced a long-term sale and purchase agreement to secure ethane from US shale gas for the Fife Ethylene Plant (FEP) at Mossmorran in Scotland, from mid 2017.
The Fife plant will receive ethane from INEOS’ new import terminal in Grangemouth, Scotland. Access to this new source of feedstock will help complement supplies from North Sea natural gas fields. The agreement will also ensure the competitiveness of a major manufacturing facility in Scotland and help secure skilled jobs in the long run.
FEP is owned and operated by ExxonMobil and Shell has 50 percent capacity rights.
INEOS has committed £450 million to construct the new ethane import terminal at its Grangemouth facility. It represents the most significant investment in UK petrochemical manufacturing in recent times and is supported by both the UK and Scottish governments. An existing pipeline will transport the gas from Grangemouth to Fife.
And the funding for the project? This is the statement on the INEOS website:
INEOS AG has invested more than £300m at its Grangemouth site as part of a long term survival plan necessary for the site to manufacture petrochemicals beyond 2017. The loan guarantee from the UK Government now enables it to raise financing on £230m specifically to cover the import facility and storage tank to be built at the site.
Chief Secretary to the Treasury, Rt Hon. Danny Alexander MP said:
Over £1bn of infrastructure projects have now been brought forward as a result of the UK guarantees scheme and £36bn worth of projects are pre qualified. Our action is creating the right conditions for more investment in our infrastructure, helping to build a stronger economy and a fairer society across the country. The Grangemouth guarantee is fantastic news for Scotland’s economic future, and for the UK’s energy security.
This is major step forward that ensures the long-term future of petrochemical manufacture at Grangemouth. The ethane tank will be the largest in Europe and is central to the site’s plans to import shale gas from the USA. By 2016 Grangemouth will be a shale gas-based facility, essential if it is to compete in world markets beyond 2017.
The first shipment of ethane to Europe arrived at Norway in March 2016. It forms part of a ‘virtual pipeline’ in the form of a convoy of purpose built ships:
Evergas will build eight ships of 27,500 cubic metres of capacity and a further four of 32,000 cubic metres of capacity. Eight of these ships will be dedicated to transporting ethane for INEOS. These ships are multi-gas carriers also capable of transporting LNG, LPGs, ethylene, ammonia and vinyl chloride monomer.
Grangemouth gas will come from a Enterprise Products facility that is currently under construction in Morgan’s Point, Texas.
At Grangemouth itself, a new import terminal is being built that will receive the ships coming from the US. ‘The new import terminal at Grangemouth will also benefit the Fife Ethylene Plant facility in Mossmorran, Scotland after it was announced that the owners of the plant had agreed a long-term sale and purchase agreement to secure ethane from mid 2017.’
The ships were purpose built in China and will transport 800,000 tonnes a year of ethane gas, cooled to -90°C, across the Atlantic from the USA to Norway and Scotland.
Without the slightest hint of irony, the Swiss ambassador Jean-Jacque de Dardelhad this to say:
“Sixty five years ago, Switzerland and China began an extraordinary partnership. Today, our two countries continue to set impressive milestones. This project is a fine example of Swiss and Chinese companies coming together to produce ground-breaking engineering, delivering the most modern and environmentally sustainable gas carriers ever built”.
The Wall St Journal goes into more detail about the background to the deal. The article notes that:
Ineos’s shipments from the U.S. are underpinned by a 15-year contract with Range Resources, one of the most active drillers in Pennsylvania, and Consol Energy, another independent exploration-and-production company drilling in the Marcellus Shale.
Unlike crude oil and natural gas, ethane isn’t restricted for export from the U.S. But a lack of transportation options has limited exports to pipelines.
So it would appear that the deal is a win, win situation for all involved. With a glut in the US and no restrictions on exporting ethane, a solution has been found to move around a commodity that has a high greenhouse gas footprint.
As I pointed out in my previous article, shale gas has a high global warming potential (GWP). Add to that the additional impacts of cooling and transporting liquefied gas around the globe:
LNG is a carbon-intensive fuel, with life-cycle emissions significantly greater thanthat of natural gas. The energy needed to cool, liquefy, and store natural gas for overseas shipment makes LNG more energy – and more greenhouse-gas-intensive than ordinary natural gas. Opening natural gas reserves to unlimited exports will increase dependency on a fossil fuel with significant climate impacts.
Wooing the Scottish Government
In January 2015, the Scottish Government announced a moratorium in UG extraction. That hasn’t stopped INEOS from engaging in PR stunts with Scottish politicians and the public.
In particular there has been considerable conjecture over a meeting with First Minister Nicola Stugeon and Jim Ratcliffe on the day the moratorium was announced. The meeting ‘coincided with a u-turn from Ineos which had spoken out strongly against a moratorium just 48 hours earlier after it was suggested by a committee of MPs.’
Only a couple of days earlier the company had stated that ‘fracking was safe and said delays risked the collapse of UK manufacturing, but following Mr Ewing’s announcement it appeared to welcome the move saying it “understood the importance of consultation… We welcome the Scottish Government’s decision to manage an evidence-based approach.”‘
Herald Scotland reported in a later article a statement from Ratcliffe saying that ‘he has received private assurances from the SNP that the party is “not against” the controversial technique’.
Ratcliffe went on to say:
“[The Scottish Government] are being quite clear. What they’ve said to us is they’re not against fracking. But what they do need to do is get comfortable with whether they’re happy with the risks of fracking in Scotland. They want to spend a couple of years understanding it in more detail. I think that’s a responsible thing for them to do and say. We don’t need to do any fracking for the next couple of years. What we’d like to do is just drill a couple of holes, do the seismic, and just find out what’s down there.”
Friends of the Earth Scotland (FoES) made a clear response to the rhetoric coming from INEOS:
Dr Richard Dixon, director of Friends of the Earth Scotland, said: “The Scottish Government is officially neither for nor against fracking, that is after all why we are having a moratorium while the evidence is examined and the public are asked what they think. So, in some respects, Jim Ratcliffe is merely stating the obvious. We don’t share Ineos’ rosy view of the world, we’re convinced that Scotland will move to a full ban on fracking when we’ve looked at the evidence of health impacts, environmental contamination and climate change emissions that this industry has brought elsewhere.”
A Scottish Government spokesman said: “This simply reflects what we have already said publicly on this issue – no fracking can or will take place in Scotland while the moratorium we have announced remains in place, a policy that has received wide support from both environmental groups and industry. “We are taking a careful, considered and evidence-based approach to unconventional oil and gas, and the moratorium and the planned public consultation will allow all stakeholders and local communities to have their say.”
INEOS’s rosy view of the world also includes various statistics, including the mouth watering sweeteners noted above and a promise of a jobs boom. But not for the first time, INEOS’s accounting prowess has been taken with a pinch of salt, this time from FoES, who released a briefing paper challenging some of the company’s assumptions.
With regards to compensation to people affected by drilling under their property:
“Home owners and land owners directly above the wells would share 4% of the revenue – typically £250 million.”
“The rest of an INEOS Shale gas community would share £125 million between them (2%), making a substantial contribution towards new schools, parks, community centres and even hospitals.”
“Over the lifetime of a single well, home and landowners would get over £1.3 million and the community £600,000.”
- Is INEOS trying to pass off payments to landowners to access their land as ‘community benefit’? A recent u-turn by the UK Government (in response to huge public and Scottish Government pressure) means that INEOS will have to secure agreement from Scottish home and landowners on an individual basis in order to frack underneath their property. A single landowner can refuse, and prevent, or at least significantly delay, INEOS’s plans. INEOS would be expected – and potentially required by law – to pay some form of compensation to people who agree to fracking underneath their property. It sounds like the 4% is being passed off as ‘community benefit’ when it is actually something quite different.
- INEOS is the only operator not to have signed up to a UK Government backed voluntary industry scheme whereby communities would get £100,000 upfront for every well fracked, and £20,000 for every horizontal well drilled. Because INEOS’s ‘community benefit’ payment is to come from profits, this means that if the industry turns out to be unprofitable, INEOS could walk away from its license areas having drilled and fracked numerous wells without communities seeing a penny. This is not unlikely: Caudrilla have estimated that it will need to drill 40 wells over 5 years to establish whether there is an economically viable resource in the Bowland Shale in Lancashire.
Then there’s the promise of lotsa, lotsa jobs:
“We believe Shale gas could revolutionise manufacturing in Scotland, creating tens of thousands of new jobs.”
- The ‘tens of thousands of new jobs’ to be created by fracking that INEOS (and the UK Government) like to mention in press releases are overstated. Any new industry will create jobs, but also has the potential for detriment to existing jobs, for example in local tourism. The numbersactually employed on site tend to be low – around 30 by INEOS’s own admission 10 – and itinerant.
- They are also dependent on the other doubtful numbers around production rates and profits.
- Jobs are apparently secure at the INEOS plant for 15 years now, as a result of the shale gas import deal, which is long enough to plan for a low carbon alternative future for the site and a just transition for workers.
INEOS engaged in community engagement program designed to ‘educate’ the public on the benefits of UG. It turned out to be an exercise in naivety for the company as the whole initiative backfired.
The following statement by Public Health Professor, Andrew Watterson summed up INEOS’s flawed approach:
“The Ineos presentation appeared somewhat confused at times about who regulated what in the UK. From a company that in the USA has been fined millions of dollars under Clean Air legislation, that is a worry.
“Ineos oddly seemed to be in denial about the many research and peer reviewed publications that raise important questions about the public health impacts of fracking. Their constant citing of a Royal Society report on UGE safety, compiled primarily by engineers and geologists, which barely contains any substantial public health research did not instill confidence in the company’s ability to address objectively the evidence and arguments about future fracking health risks.
INEOS Bio has pioneered a method of converting waste organic matter into bioethanol. According to the website:
Bioethanol is a renewable fuel. It reduces greenhouse gas emissions compared to gasoline (petrol). When bioethanol is combusted (burnt), it effectively returns carbon dioxide back to the atmosphere, which had been taken out relatively recently as the biomass grew. Conversely burning traditional gasoline (petrol) releases carbon dioxide into the atmosphere from carbon that has been stored in the form of oil over a significantly longer time period.
The method employed involves the gasification of biomass to syngas followed by conversion to bioethanol:
It is an advanced thermochemical and biochemical bioethanol technology, which can convert cellulose, hemi-cellulose and lignin efficiently to clean bioethanol. It delivers more than 90% Greenhouse gas savings compared to gasoline (petrol), is cost-competitive and is independent of food production. The INEOS Bio bioethanol is expected to make a significant contribution to the growth in the European and North American bioethanol market.
The need to reduce our dependence on fossil fuels is pressing. Bioethanol has the potential to significantly reduce our dependence on oil-derived fuels for transport. However, we are still just at the beginning of the biofuels journey.But production ran into problems. The ICIS article goes into more detail about the process:
Unlike many cellulosic plants being developed, INEOS Bio did not use an enzymatic process to extract the sugars from biomass.
The enzymatic process produces C5 and C6 sugars as well as lignin. While the sugars can be converted to ethanol, the lignin cannot, and it is typically burned as a fuel for the plant.
INEOS Bio’s process can potentially convert much more of the biomass’s carbon into ethanol because it relies on a gasification process, which does not leave left-over lignin.
Under the gasification process, the company gasifies the biomass, producing syngas, which is a mixture of carbon monoxide (CO) and hydrogen. It feeds the CO to anaerobic bacteria, where the gas is fermented to produce ethanol.
But the entire process seems to have gone pear shaped:
We can conclude from this that the three companies with announced commercial cellulosic ethanol facilities — INEOS, POET, and Abengoa (NASDAQ: ABGB) — are finding the going much tougher than expected. I believe that the costs to produce their cellulosic ethanol are higher than the price they will receive for the ethanol. This is the sort of monthly cash drain that led to the shutdown of everyone else that ever tried to produce cellulosic ethanol commercially.
I suspect that INEOS has given up trying to produce cellulosic ethanol (their press releases have certainly dried up), and I suspect that the others aren’t too far behind. And there will be more tax dollars that have been flushed down the drain in pursuit of cellulosic ethanol, which companies have tried to produce economically — without success — for more than 100 years. It seems that those who do not learn history waste a lot of taxpayer money repeating it.
What we have here is a company that likes to make a lot of noise and spend a lot of money in trying to turn the pie in the sky into a feast, but instead ends up with a burnt offering.
We’ve heard a great deal about the miracle of shale gas in the UK. Now we have a bioethanol revolution in the US.
It would be more fitting if INEOS moved its HQ to cloud cuckoo land rather than Switzerland. Given the company’s track record, we should take its word with a sack of salt – never mind anything else.
The fact is, fracking is now a dirty word. Its unsustainble. Its toxic. Its built on billions of debt. The crash in oil and gas prices is causing fracking companies to go bankrupt. Savvy investors and insurance companies won’t touch the industry with the proverbial barge pole.
The ethane exports from the US has given both the US shale gas industry and INEOS a lifeline, without as much as a whimper from environmental groups.
Since I put this article out, I came across this article from Oil Change International, which brings into perspective the damage being done to the renewables industry due to the UK Governments fracking fetish.
With respect to solar power:
Earlier this week, I blogged about how the Government was now undertaking a U-turn to allow fracking in the UK’s most precious landscapes, such as National Parks.
Yesterday, the Government followed up this move by slashing the subsidies to the solar industry by 65 per cent. The Government’s own impact assessment calculates that some 18,700 jobs out of a total workforce of 32,000 could be lost due to the subsidy cut.
The article continues:
To further undermine their environmental credentials, the government also yesterday announced a massive increase in the number of shale gas licenses – some 159 in all. The biggest winner was Ineos, the huge Anglo-Swiss chemicals group with 21 licenses. In all, nearly three million acres of some of the most beautiful parts of the UK could be fracked in the new round of licensing.
Environmental campaigners were outraged. Greenpeace energy campaigner Hannah Martin said: “Just days after an historic agreement at the Paris climate summit to move towards a renewable energy future – the UK government’s gung ho approach to a new fossil fuel industry is bizarre and irresponsible.”
Frack-Off has just updated their site to highlight the zones around the UK that INEOS is active.