Scotland’s Grangemouth Refinery Stays Shut as Talks Fail

Grangemouth, Scotland’s only refinery, will probably stay shut this weekend after talks broke down between its operator Ineos Group Holdings SA and the Unite union over plans to cut costs and changes to wages and pensions.

Ineos, which operates the 210,000 barrel-a-day facility and a petrochemical plant, said the union refused to rule out industrial action during a 60-day consultation on the company’s cost-cutting plan. Unite, the U.K.’s largest union, said it would only return to talks if the company suspends the proposal.

“For any negotiations to take place they have to drop the imposition on the workers,” Peter Welsh, a spokesman for Unite, said by phone today. Employees already offered to hold off on any industrial action until Dec. 31 in the last round of mediated talks, which ended without a deal this week, he said.

Unite called off a 48-hour strike on Oct. 16 which threatened to cut about 45 percent of the U.K.’s oil production. The site supplies power and steam to BP Plc’s neighboring Kinneil processing plant, which handles crude from the Forties Pipeline System, gathered from more than 80 offshore fields.

Workers at Grangemouth, which makes about 80 percent of Scotland’s fuel, held a two-day strike in 2008 that curbed North Sea crude output as well as disrupting fuel supplies.

“The union refused to accept Ineos’s offer to restart the Grangemouth plant in exchange for a commitment that there will be no further industrial action this year” after a meeting this morning, Ineos said in an e-mailed statement today.

Supplying Steam

The facility will continue to supply steam to Kinneil while the refinery is offline, Richard Longden, a spokesman for Ineos said by phone from London yesterday. The Grangemouth oil refinery is jointly owned by Ineos and PetroChina Co. Ltd., while Ineos is the sole owner of the petrochemical site, which has a capacity of 1 million tons a year.

Scotland’s First Minister Alex Salmond met with both parties yesterday, calling on Ineos to restore output and on the union to pledge not to strike until the end of the year, according to a statement from the Scottish government.

“This will provide the right atmosphere for the necessary consultations and negotiations to build a secure future for this crucial facility,” Salmond said.

Restoring full production at the refinery after the outage could take weeks, Ineos said yesterday. During the eight weeks it took to reach normal operations after the 2008 strike, a compressor caught fire and crude oil leaked, the company said.

Sufficient Fuels

For now, the company is able to supply “sufficient” quantities of fuel to the Scottish market using inventories in storage, and if needed will import oil products by sea, Longden said by phone today.

Forties grade accounts for about 55 percent of the refinery’s crude intake, and a prolonged halt may reduce prices for the grade, according to Jonathan Leitch, an analyst at research company Wood Mackenzie Consultants Ltd. in London.

“It could be bearish for Forties and North Sea crudes due to the lack of Forties consumption by Grangemouth,” providing the pipeline flow isn’t interrupted, he said.

The Forties grade traded at a premium of 25 cents a barrel to benchmark North Sea Dated Brent on Oct. 14, according to a Bloomberg survey of traders and brokers monitoring the Platts pricing window.

Union Leader

Workers had planned a walkout on Oct. 20 because of a dispute over a company investigation into union leader Stephen Deans and disagreements over pay and conditions. The parties failed to reach a deal after two days of talks this week mediated by the U.K.’s Advisory, Conciliation and Arbitration Service.

Ineos started direct consultations with employees yesterday, including a proposal to replace a final salary pension plan, change working terms and close inefficient units, the company said. The company aims to get a response from workers by Oct. 22 and will consult its shareholders about resuming production after that, Longden said.

Unite is looking to take legal action over the plan, which it said introduces “pay freezes and pay cuts,” the union said yesterday.

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