30 July 2009

Global perspectives: China makes overtures for U.K. refinery

By Cris Whetton

In Scotland, the owner of Grangemouth, one of Britain’s largest refineries, could break it up and sell off parts of it to a group controlled by the Chinese Government, in a deal that would cut the $10.7 billion (£6.5 billion) debt of Ineos, its struggling owner. Details of the talks with PetroChina emerged as Jim Ratcliffe, Ineos’s chairman and controlling shareholder, fights to rescue the group’s finances. Ratcliffe, one of Britain’s richest men, secured a waiver from Ineos’s lenders in late May and has to come up with a restructuring plan. The sale of either an overall stake or key parts of the Grangemouth site, which is a vital processing terminal for North Sea crude, is a part of that effort. Sources close to the talks said one possible scenario would involve PetroChina buying the site’s oil refinery, while Ineos would maintain ownership of the polymer and petrochemical processing plants next to it.

Ineos bought Grangemouth from BP in 2005 as part of a wider $8.2 billion (£5 billion) deal. Located on the Firth of Forth, the 220,000 bpd Grangemouth is Scotland’s only refinery and supplies nearly all its gasoline and diesel, as well as much of the fuel consumed in Northern England.

Chinese oil companies have been taking advantage of depressed valuations to bolster their global presence, although most of the activity so far focused on the upstream oil and gas sector. In early June, PetroChina tabled a $2.2 billion (£1.3 billion) bid to buy nearly half of Singapore Petroleum Company. It is also close to finalizing another refinery investment in Japan, and acquiring part of Grangemouth would give it greater power in global oil trading.

Meanwhile, Norway’s AF Gruppen signed the final contract with StatoilHydro, on behalf of the Technology Centre Mongstad partners, to perform the engineering work at the technology center for carbon dioxide cleaning at Mongstad.

The value of the deal is $24 million (NOK 150 million). The project began this month and will wrap up in June 2011. The agreement includes engineering work at the CO2 Technology Centre Mongstad, and consists of foundation, concrete work, the establishment of pipeline-systems, a refrigerated tank, and a transformation station.

The refinery will soon begin testing the Carbon Capture and Storage technology in order to reduce the amount of carbon dioxide emitted. At first, the refinery will host a small-scale pilot project capable of capturing 100,000 metric tons annually from 2011. A few years later, a full-scale facility will be able to remove most of the carbon dioxide emitted by the refinery and a gas power plant. The Mongstad refinery emits around 1.7 million metric tons of carbon dioxide a year. StatoilHydro said the Mongstad project is leading the way in this field, and it could help cut as much as 4% of the country’s greenhouse gas levels.

Cris Whetton is InTech’s European correspondent.