Ripple effect of closure goes beyond Scotland

The announcement of the closure of Grangemouth brought back memories of the 1992 closure of the steel plant at Ravenscraig. Just as Ravenscraig once had an iconic status, Grangemouth is now a central piece of Scotland’s manufacturing jigsaw. Between them, the refinery and petro– chemical plant, which have a turnover of about £5 billion a year, probably accounts for 8 per cent of Scotland’s manufacturing output.

If the petrochemical plant closes, about 800 jobs will be lost. If the refinery closes a further 550 will go. But Grangemouth is widely linked to the Scottish economy, buying inputs principally from the oil industry but also across other industries and services. The employment effects would be felt beyond Grangemouth. Many consumers and firms buy products that depend on fuel from the refinery and chemicals from the plant.

Grangemouth provides a significant share of Scottish exports. Key markets for the fuel produced include the north of england and Northern Ireland. These economies would also suffer if the fuel had to be brought in from higher-cost locations. The refinery is closely linked to the production of North Sea oil. Closure would disrupt the transformation of crude oil into fuel products. Oil firms would have to transport crude to refineries in the rest of the UK or elsewhere in europe.

One puzzle, though, is that the UK government yesterday launched a £40 billion scheme “to encourage longterm investment in British infrastructure”. One of the proposals accepted was for “ethane storage facilities at the Ineos Grangemouth plant”.

The probable intention is storage for gas to supply the petrochemical plant from sources other than the North Sea. The implication is that until recently, further capital investment was part of Ineos plans. If so, there is perhaps hope that Grangemouth will not go the way of Ravenscraig. l David Bell is professor of economics at the University of Stirling.