Those of a certain age will likely be familiar with the late American comedian, Bob Newhart. Newhart’s comedic schtick was observational and involved monologues via the medium of an imagined telephone call. The audience could only hear Newhart’s words of this one sided conversation but he would also manage to convey sufficient of what the other person was saying to allow the audience to get the gist. As with most comedy, the amusement was based upon exaggeration and/or the surreal. There are many famous Newhart sketches (The Driving Instructor, Air Traffic Controller ….) but my favourite is a telephone call between Sir Walter Raleigh in Virginia and a colleague in London. Raleigh is informing him that he’s sending a ship full of tobacco which of course, nobody in England had ever heard of. Raleigh already had a reputation for the weird and wonderful and is called ‘Nutty Wal’ back at H.Q. The more Raleigh attempts to explain what tobacco is, the more useless it sounds. There’s snuff which you grind to a powder and snort up your nose, thus making you sneeze. Then you can cut the leaves up, wrap them in paper and put the tube in between your lips ….. and “yes Wal, what do you do then, Wal? You what …. you set it on fire …. hey Wal, it sounds just great ….”
I instantly thought of Newhart when reading about Scotland’s Grangemouth refinery, which is planned to close soon. Owners, PetroIneos (a joint venture between PetroChina and Ineos) intend to shutter the plant (Scotland’s only refinery) and Ineos chairman, Jim Ratcliffe, made clear, the UK chemical industry is facing extinction. He blamed the closure on the U.K.’s “lack of energy strategy as well as high energy prices”. He went on “deindustrialising Britain achieves nothing for the environment. It merely shifts production and emissions elsewhere. We are witnessing the extinction of our major industries as chemical manufacture has the life squeezed out of it. Energy prices have more than doubled in the last 5 years which has incentivised imports from the U.S. where energy prices are 5 times lower.” Ratcliffe might be a Manchester United supporter (and indeed owns 25% of the club) but this shouldn’t be held against him; as the U.K.’s richest individual he knows a thing or two about wealth creation. Which neatly brings me to Ed Miliband, Secretary of State for Energy and Climate Change.
Miliband, not for the first time, doesn’t seem to understand the real world. Despite Grangemouth being situated on the North Sea (you know ….. where the oil and gas deposits are) he called it “deeply disappointing that PetroIneos has confirmed its previous decision to close Grangemouth oil refinery”. It’s losing money, Ed, what do you expect? You’ve blocked North Sea oil/gas licences and ensured energy is too expensive for a substantial proportion of U.K. chemical manufacturers. If it wasn’t so serious, Miliband’s comments would be laughable. “We will stand by the workforce in these difficult times, that is why we are announcing a package of investment today. This will help the workforce find good alternative jobs, invest in the community and seek a viable industrial future for the Grangemouth site with potential for future support from the National Wealth Fund.” It already had a viable future; it’s been destroyed by halfwits like Miliband. As for the National Wealth Fund, I suspect that’s a misnomer; National Unsustainable Subsidy Fund would be more accurate.
The governments at both Holyrood and Westminster have committed £225m of public money to finding ‘low carbon’ uses for the site. Furthermore, they have commissioned (together with PetroIneos) a £1.5m feasibility study from Ernst & Young to deliver specific proposals. This was obviously going to deal in platitudes and it didn’t disappoint, producing such waffle as “The Grangemouth cluster is important to Scotland’s economy and energy security, hosting a concentration of strategic energy infrastructure assets, a logistics hub and a highly skilled workforce, contributing £900m to the U.K.’s economy annually.” Well, after being awarded a £1.5m contract, it would have been rude to issue two lines saying something like ‘under current government idiocy, the site has no viable future, whatsoever’. However, a potential alternative use Miliband is now considering involves harvesting Scottish timber, transporting it to Grangemouth where it would be ‘fermented’ into bioethanol for blending into fuel or used to produce chemicals and cosmetics. Such a project, according to the study, is high risk and would require government subsidies.
All of which brings me back to the Bob Newhart sketch. Only instead of Walter Raleigh telephoning to extol the virtues of tobacco, it’s Ed Miliband trying to turn trees into petrol.
Jim: “Dave, it’s ‘Nutty Ed’ on line 1 for you”
Dave: “What is it now? Elastic tow ropes, rungless ladders, odourless air fresheners?”
Jim: “No, something about turning trees into petrol.”
Dave: “Good grief, it’s worse than I thought.”
“Hi Ed, what’s new? Grangemouth …. Yes, I know it. Scotland’s last refinery, strategically adjacent to oil and gas fields. What’s the plan?”
“Ok; let’s just see if I’ve got that right. We grow trees for 30 years, we cut them down with heavy, fossil fuel powered, equipment, transport them 100s of miles on trucks, ferment them for who knows how long ….. and what do we do now, Ed? We create the fuel we could have got from the North Sea but at a price that is so high it requires government subsidy? Hey, Ed, it sounds just great, leave it with me.”
The value of investments and any income from them can go down as well as up and you may not get back the amount originally invested.
This material should not be considered as advice or an investment recommendation. Investors should seek advice from an authorised financial adviser prior to making investment decisions.
John Newsome can be contacted on 01423 705123 or john.newsome@williams-im.com. Williams Investment Management LLP is authorised and regulated by the Financial Conduct Authority.
