To

Secretary of State

From

S40(2), Materials & Resource Industries

Date

30 October 2015

Meeting with INEOS Chairman, Jim Ratcliffe, HoC or BIS 8th floor [TBC],
14:45-15:15, Wednesday 4 November 2015.
Purpose
o INEOS is one of the largest chemical companies globally (Anglo-Swiss HQ) and one of our
Strategic Relationship Management companies (Baroness Neville-Rolfe is the contact
Minister). Your meeting with Chairman, Jim Ratcliffe, has been organised at your request
following the concerns he raised in a meeting (16 Sept) with DECC SoS, Amber Rudd, about the
UK’s decline in manufacturing relative to Germany and the US, the relationship between this
and UK energy prices, and his ambitions for shale gas in the UK. [N.B. Tom Crotty, Director UK
operations, has recently met with Lord Maude (Sept) and Baroness Neville-Rolfe (Jul).]
Attendees
o Jim Ratcliffe, Chairman - INEOS
o Tom Crotty, Director UK Operations, INEOS
o Stuart Edwards, Deputy Director, Materials and Resource Industries – BIS
Our objective
o To update Jim Ratcliffe on the measures Government is taking to address the UK’s
competitiveness for energy intensive industries (EII) like INEOS, particularly in light of the
ongoing steel crisis, and to take his views on these, and how Government is tackling longterm energy policy, particularly around shale extraction.
o INEOS has been a marked success story of the Strategic Relationship Management (SRM)
Programme; this, combined with engagement through the sector-led Council, the Chemistry
Growth Partnership (CGP), has significantly shifted the negative views Jim Ratcliffe voiced in
2010 about the UK business environment. INEOS has since made a number of substantial
investments into the UK and has made clear its intention to make further strategic investments,
most notably in the North Sea, in order to help its UK petrochemical assets to have ongoing
access to competitive energy. Your meeting is a good opportunity to welcome this investment
activity and ask how we can support further investment going forward.
Their objective
o To raise concerns about the decline of UK manufacturing and the link to high energy
prices; this is part of Jim Ratcliffe’s push for the UK to develop a viable shale gas industry. He
believes shale gas could revolutionise UK manufacturing as it has done in the US and prevent the
continued loss of manufacturing investment overseas. He wants INEOS to be the biggest player
in the UK shale gas industry. INEOS has bought a number of shale licences and is proposing a
generous community benefits scheme to secure local support for hydraulic fracturing (“fracking”).
Issues or elephant traps
o You will be aware discussions are still ongoing with the EU Commission on finalising state aid
clearance for planned EII compensation schemes.
CC list
o Soubry MPST, SpAds, Niall Mackenzie, S40(2), S40(2), DECC S40(2).
Briefing
o See overleaf

 AGENDA FOR MEETING – ISSUES TO RAISE AND POINTS TO MAKE
Agenda Item:
Issue to raise and points to make:
1. UK
• You should update JR on developments in addressing high energy costs
Foundation
for the energy intensive industries (EII) in the light of the ongoing steel crisis
Industries –
and invite his views on these and more broadly on the UK’s long-term
energy policy.
manufacturing
decline and
• Given their UK investment profile and the important role they are playing in
competitiveness
developing a UK shale gas industry, including their efforts to bring the
and energy
public along with them, we want to open a genuine dialogue with JR on
prices
how to address his concerns around the business impact of energy
prices.
• You should thank Tom Crotty for the work he has been leading under the
2. Developing a
Chemistry Growth Partnership (CGP) to drive the development of
viable UK shale
alternatives to fossil fuel based energy and feedstocks and to support the
gas industry &
development of a viable shale gas economy in the UK. You should
INEOS UK shale
invite him/JR to update you on progress, including INEOS’ strategy for UK
gas strategy
licences.
update
• You should note that you are interested in their views on the progress
Government is making to introduce shale extraction to the UK, and that
you would like to maintain this dialogue going forward to engage their
industry expertise in ensuring a good result for the UK and in helping to find
solutions as problems arise.
• Planning system – S43(2)
• 3D seismic survey access - we’re aware of the increasing difficulty in
accessing land to carry out geological (seismic) surveys. You should
welcome INEOS’ leadership in proposing a solution working through the
British Geological Survey; a working group is considering this proposal.
• 14th licensing round - the considerations required and the consultation
process which needs to be completed in accordance with the Habitats
Directive are still being taken forward. DECC expects the second tranche
of licences to be announced this year.
• Sovereign Wealth Fund - as announced by the Chancellor in the 2014
Autumn Statement, and set out in our Manifesto, we are determined to
ensure that local communities share more of the proceeds and feel more of
the benefits, using a proportion of the tax revenues that are recouped from
shale gas production. We will present our proposals later this year for
how we intend to design the sovereign wealth fund.
3. INEOS update • Listening mode, but welcome INEOS’ investments in the UK. Interested
on recent move
to hear about INEOS’ current investment strategy and how we/UKTI can
into North Sea
offer support and help further UK investments.
oil and gas
• S43 (2)
• North Sea - Even with the challenges presented by lower oil prices, the
North Sea still provides very good opportunities and remains fully open for
business. Government is absolutely committed to supporting new
exploration and investment. We need to continue with a collaborative
approach to realise the full potential of the UK’s oil and gas resources.
• Taxation – the Chancellor introduced a £1.3bn package of reforms in the
March Budget to make sure the North Sea continues to attract investment
and safeguard the future of this vital national asset.
• Among other measures, this included reducing the rate of Supplementary
Charge from 30% to 20%, reducing the rate of Petroleum Revenue Tax
from 50% to 35% from 1 January 2016 and introducing a new Investment
Allowance to reward new investment.

 ORGANISATION AND BIOGRAPHIES
Jim Ratcliffe, INEOS Chairman
Jim has been Chairman of INEOS since 1998. He has 38
years experience in the chemicals industry. In 1992 he led
the successful buyout of Inspec Group plc, which he left in
1998 to lead the acquisition of INEOS plc (currently INEOS
Oxide) from Inspec. Jim began his career with Exxon
Chemicals where he completed his MBA at London
Business School before moving to Courtaulds. From
Courtaulds he joined Advent International and then Inspec.
Jim graduated from Birmingham University in 1974 with a Degree in Chemical Engineering.
He also studied and qualified as an accountant. He then completed his M.B.A. at London
Business School.
Tom Crotty, Director, INEOS GROUP
Tom is a Director of INEOS with responsibility for Corporate Affairs and
Communications and the development of INEOS business in new territories.
Following a 20 year career with ICI, he came into INEOS in January 2001 as
CEO of INEOS Fluor. He subsequently became CEO of INEOS ChlorVinyls
and then INEOS Olefins & Polymers Europe.
Tom is President of the Chemical Industries Association (CIA) (the largest
UK chemicals sector trade association) and a Board member of CEFIC (the
Europe-wide chemicals trade association). He is also President of the
European Petrochemicals Association (EPCA), Vice President of Plastics Europe, Chairman
of Cogent (the UK Sector Skills Council for the process industries) and sits on the CBI’s
Energy & Climate Change Board. Tom is the energy lead for the Chemistry Growth
Partnership, the industry-led council for the chemicals and chemistry-using sectors.
INEOS
INEOS is the largest chemicals company operating in the UK, with a turnover of £18bn. It has
been named as the largest private company in the UK in terms of sales revenue 1. INEOS
directly employs c. 3,500 people in its five UK sites (and estimates a further 17,500 indirect
jobs from these operations). It operates Scotland’s largest manufacturing complex at
Grangemouth which is the only refining / petrochemicals complex directly attached to the
North Sea.
INEOS is now estimated to be the 10th largest chemical company in the world. Assets in the
US, which has benefitted from the shale gas revolution, are now far more profitable than
those in Europe. It moved its headquarters to from the UK to Switzerland in 2010, citing UK
taxation policy as the cause.
The chairman, founder and CEO of INEOS, Jim Ratcliffe, is the majority shareholder. He built
INEOS up by buying under-managed assets from larger companies like ICI and BP, cutting
running costs and extracting more value from them.
Recent updates
Imminent – S43(2). INEOS also operates the hydrocarbon “cracker” at Grangemouth, which
forms the heart of the petrochemicals cluster. INEOS recently secured a grant from the
Scottish Government as part of a billion-pound investment project to upgrade the cracker;
this will use imported shale gas from the US as a feedstock, with first imports due to come
into the UK in 2016.
1

Figures supplied by Ineos for the Sunday Times Top Track 100 companies 2015
www.fasttrack.co.uk/fasttrack/leagues/top100programme.html

 October 2015 – INEOS agreed a $750m deal to purchase (subject to competition clearance
from the European Commission) all of the UK North Sea gas fields (12) owned by the DEA
Group, the German-based oil and gas firm owned by the LetterOne Group. The fields
provide up to 8% of the UK’s gas, enough gas to warm 1 in 10 British homes, and are well
positioned, close to INEOS’ assets in the North East and Scotland. This new deal is a direct
result of the Government’s intervention in April to ensure the continued and safe production
of the UK’s petroleum resources in the North Sea. INEOS has been reported in the last week
also to be in advanced talks with Fairfield Energy on acquiring a further stake in the Clipper
South gasfield that would take its holding up to 75%.
September 2015 - INEOS is to develop its Grangemouth site into a manufacturing hub for
central Scotland. It has commissioned a new £20m headquarters building for the site and is
to demolish old buildings and decommissioned plant to make way a new manufacturing
cluster at the site. Companies arriving on the site will be able to use common services and
infrastructure including raw materials, power and steam.
July 2015 - INEOS is setting up a new HQ in London for its UK subsidiaries including the
Grangemouth business, its new INOVYN joint venture in chlorvinyls with Solvay and some
corporate functions. INEOS is apparently considering moving its marketing department to
the UK but the overall corporate HQ will remain in Switzerland.
July 2015 - INEOS formed a 50:50 joint venture, INOVYN (London HQ), with Solvay, a major
chemicals multinational (Belgium HQ). INOVYN combines operations of both companies in
chlorvinyls and related chemicals. The deal received EC competition clearance after certain
divestments by Ineos (including its ethylene dichloride units at Runcorn in UK). INOVYN will
be the leading European supplier of vinyls, chlorine and caustic soda with annual sales
around €3.5 bn and over 4,000 employees spread across 18 European sites. S43(2)

EBITDA Breakdown (2013) for Ineos
Group 2013 (Figures provided by Ineos)
North America
Germany
Belgium
UK
France

%
46
30
13
5
4

2

Additional background
2

Update: The Salt End (Hull) VAM plant was mothballed in October 2013, with a loss of 18 jobs.
Hence this site now employs only 24 people. The Runcorn & Northwich site and elements of the
Newton Aycliffe will become part of the new INEOS JV with Solvay, INOVYN.

 Agenda item 1
Jim Ratcliffe (JR) wants to discuss what we can learn from the issues in steel so that we
avoid a similar issue in chemicals, and linked to this, his views on long-term energy policy
(there will be some overlap between agenda items 1 & 2).
Energy is typically 30% of chemicals production costs and therefore critical to chemical
production economics. The UK chemicals industry has a GVA of £200bn and the
Chemistry Growth Partnership (CGP), the sector Council for the chemicals and chemicalsusing industries, is working to increase this by 50% by 2030; securing competitive UK
energy supplies is critical to this (and to retaining this industry in the UK) - Tom Crotty leads
this workstream.
Government has taken a range of actions (since 2010) to support energy intensive industries
(EII) and help industry offset the costs of climate and energy policies including exemption
from some measures and payment of compensation for others.
56 different businesses across the UK have received a total of £131m in compensation since
August 2013 – £65.56m in respect of the EU Emissions Trading System and £66.04m in
respect of the Carbon Price Support mechanism. (w/c 19 October 2015) - main sectors
currently benefiting from relief – iron and steel, paper, organic and inorganic chemicals.
Why is the government not providing relief to more sectors/companies?
• State aid guidelines published by the European Commission specify which sectors
are potentially eligible to receive guidance.
• (For EU ETS, CPS) The coalition government committed to seek a review of the
European Commission’s state aid guidelines, with a view to extending eligibility to a
number of additional electricity intensive sectors. We are still waiting for some
industries to provide the data necessary to make our case, and will take a decision
at the appropriate time. The earliest we can lobby the Commission is 2016.
• (For RO/FiT, CfDs) The draft relief scheme on which we consulted last year included
those sectors which data showed to be typically electricity intensive in the UK.
Based on additional data and representations from industry bodies, we have
published a revised list of sectors in DECC’s consultation on the CfD supplier
obligation. We will make our final decision on eligibility later in the year.
When will RO/FiT compensation/the CfDs exemption begin?
• We are pressing the Commission to approve our case before the end of the year.
• SoS has raised this directly with Competition Commissioner Verstager, emphasizing
the urgency of securing clearance as soon as possible.
• All compensation will now be paid from the date approval is received, as announced
by the PM.

 Agenda item 2
INEOS intends to be the leading UK player in onshore and offshore gas development
in the UK to feed its chemicals plants in Grangemouth, Teeside and Runcorn, and is at the
forefront of efforts to develop a viable UK shale gas industry.
In the short term it has responded to the increasing cost of domestic gas by preparing to
import ethane from the US (shipments beginning in 2016). However it hopes to be
producing domestic shale gas from 2019.
As above, the development of a UK shale gas energy and feedstock supply is vital for
the long-term future of the UK chemicals sector.
INEOS has welcomed Government’s recent announcement on the planning system in
England, but Jim Ratcliffe may be interested in whether a national planning approach will
be taken in future for the multi-site production phase for UK shale. He may also assert
that more samples and 3D seismic data are needed.
INEOS invested in a petroleum exploration license in the Midland Valley of Scotland
(adjacent to Grangemouth) in August 2014. In March 2015 it announced a deal with the shale
gas operator IGas to become the operator of three license areas near Runcorn, as well as
investing in four further IGas licenses in northern England, at a cost of £30m, plus £138m
funding for site development. They have made further applications in the current 14th
licensing round – DECC will decide on these this year.
Community benefits scheme - INEOS has responded to the moratorium on fracking in
Scotland by launching a promotional public engagement drive, including six “town hall”
events held in potential production areas in April and newspaper supplements in June.
INEOS intends to run further “drop-in” public information events in the autumn, along with
plans to host learning events for regulators and mineral planning authorities. It has yet to
comment on its strategy for its licenses in England.
The Infrastructure Act 2015, enacted on 12 February 2015, introduced provisions granting
operators looking to explore petroleum or deep geothermal a right to use deep-level land
(below 300m). The Act also introduced a number of safeguards related to hydraulic fracturing
operations. The UK onshore industry has agreed to offer £100k per fracked well site during
exploration and then 1 per cent of production revenue. Government has agreed that local
authorities will retain 100% of business rates. The INEOS proposal is to give 6% of
production revenues to landowners and communities and has also agreed to pay community
benefits during the exploration phase.
Sovereign Wealth Fund - both the 2014 Autumn Statement and the Conservative Manifesto
included a commitment to a Sovereign Wealth Fund linked to the north of England, without
defining what that meant. DECC and HMT, with support from BIS and DCLG, are developing
a policy which aims to enhance community benefits paid by shale operators to local
communities with a proportion of production tax revenues from shale sites. There may also
be uses not tied to communities, i.e. closer to a true sovereign wealth fund, but HMT
Ministers have yet to give their views.
Planning system - DECC and DCLG are preparing advice on national planning, ahead of a
decision to be taken this autumn as requested by the Chancellor. Two of the key
considerations will be the potential impact on public consent, and the length of time
applications have to take under the national planning system relative to the local system.
Local planners might be less willing to approve exploration if subsequent larger-scale
production is not subject to their approval, plus the impact of any reduced public consent on
exploration sites proceeding.

 3D seismic surveys - Geological surveys have been conducted for years for conventional oil
and gas without difficulty. However, with the rise in controversy around fracking, access to
land is increasingly being refused (even for non-fracking sites). Anecdotally, refusals are for
two reasons. The first is on principle, which has increased with the rise in controversy around
fracking. The second is on cost grounds.
Industry and INEOS in particular, had previously been pushing for government action to
mitigate or resolve the issue. However, this month (October 2015) INEOS has proposed a
national programme of geological surveys led by British Geological Survey using powers
BGS already has, which BGS is prepared to consider. The industry/BGS working group will
address questions of the coverage of the survey and the level of funding from the industry.
14th licensing round - INEOS have applied for licences in the latest (14th) Onshore Round
and will be offered 3 blocks in the first tranche (announced on 18th August), and may win
further onshore blocks in a second tranche of offers due to be announced later in the year.
This 14th round licences will grant exclusive rights to onshore oil and gas operations,
encompassing both conventional onshore oil and gas operations, as well as licences for
shale gas. However, licences do not allow automatic rights to operations such as drilling,
these will require further consent.

 Agenda item 3
INEOS’ recent investments have been of strategic importance to the UK, most notably a
£300m investment to its Grangemouth cracker facility, confirmed in October 2014, to
enable the import of shale based ethane gas from the US will reduce feedstock costs for the
chemical cracker by 50%. The raw materials produced from the cracker are essential to the
continued existence of the Grangemouth chemicals and processing industries cluster.
Furthermore, the investment will help the UK gain competitive advantage over the rest of
Europe in the bulk chemicals market with only 5 of the 44 crackers in Europe able to take
advantage of cheap ethane feedstock, and the UK having 3 of them. This investment is
supported by the Government through a £125m loan guarantee from the UK Guarantee
Scheme as well as a £9m grant from the Scottish Government.
The site employs 1,350 people. In its 2014 annual accounts, the operating company for the
Grangemouth refinery, Petroineos Manufacturing Scotland reported a £16.3m loss on
turnover of £240m. But INEOS has just announced that it is commissioning a new £20m
headquarters facility there as part of plans to create a "world class" petrochemical
manufacturing hub. As part of this investment, INEOS agreed to acquire a nearby
Combined Heat and Power Plant (CHP) from Fortum for S43(2). This natural gas fired
CHP plant serves the Grangemouth site (including INEOS’s own operations). They have also
begun a large-scale project to renovate the site, demolishing defunct plans to clear space for
new inward investors, and building a large office block to house staff from multiple INEOS
businesses.
Grangemouth refinery upgrade investment – S43(2)
S43(2), INEOS is undertaking a suite of investments and is actively looking to acquire UK
oil and gas assets – onshore and offshore – to further support its Grangemouth activities;
in October it announced its purchase of 12 North Sea gas fields from LetterOne group,
including the Breagh and Clipper South in the Southern North Sea. On completion of the
deal, expected later this year, the platforms, infrastructure and the highly skilled team that
runs them will transfer into INEOS Upstream, based in London. The deal is a significant
development of INEOS business into the energy sector. The FT reported this as a bold step,
making INEOS a fully-fledged offshore operator but suggested this deal “could mark the start
of a wider reshaping of the UK’s North Sea basin, one of the areas hardest hit by a collapse
in oil prices since the summer of last year.” INEOS will continue to explore opportunities in
other North Sea oil and gas assets that have become uneconomic in the hands of existing
North Sea operators.
OTHER RELEVANT BACKGROUND
S43(2)

 READOUT OF DECC SOS MINISTER WITH JIM RATCLIFFE ON 16 SEPTEMBER 2015
Energy policy and gas
- JR opened the meeting by setting out his concerns around the decline in UK manufacturing (in
comparison to Germany, for example) and commenting that he felt that the UK was
disadvantaged in terms of energy costs. JR noted that this is especially true when compared to
the US experience, where shale gas has resulted in a fall in energy costs and in raw material
costs (especially in the chemicals industry).
- JR set out his reasoning for why gas is of central importance in the UK – specifically, that around
80% of homes in the UK are heated with gas, and that almost half of the electricity in the UK
comes from gas, mostly North Sea gas, which is declining. AL commented that HMG is working
on that.
- AL also made the point that interconnection is important to the UK.
Nuclear
- Commenting on the importance of nuclear in the energy mix, JR set out the situation that Ineos
has in France, where a nuclear plant supplies them with electricity after they bought part of the
plant (they pay €45/mwh, not index lined, for 35 years) – all agreed this was a very competitive
deal.
- The SoS and AL explained that we would expect the costs of new nuclear plants in the UK to
come down after HPC, and explained that nuclear is a very important part of our energy
strategy.
Grangemouth
- JR set out the situation for their US operations – namely, that they are doing very well. JR
explained their current plan to bring gas over to Europe, specifically to the gas crackers in the UK
(e.g. Grangemouth). In his opinion, without a cheaper feedstock, the Grangemouth plant would
have to close.
- S43(2)
Shale gas in the US
- JR told the Ministers that within 5 years, the Marcellus shale site is now producing more than
the full UK demand for gas. The volumes in the US are highly significant.
- JR added that commentators in the US think that only 5% of the US’s shale reserves have been
exploited so far.
- The SoS asked about the impact of declining oil prices on shale production. JR responded that it
is all about where the variable costs are – the least efficient and most expensive operations will
close first. Indeed, it is interesting to see that there has not yet been a collapse or a decline –
this is something that might be seen in a couple of years.
- In terms of cost per well, JR suggested that one would be looking at $7-10m/well (or less), which
determines the cost for 2-3 years. These are being funded in the US by public companies and oil
companies.
- JR discussed the Ineos experience with shale, comparing it to a manufacturing process (an area
of expertise).
Shale gas in the UK
- JR commented that there are a great deal of hydrocarbons in the UK – shale naturally is a part of
that picture.
- JR feels that more samples and 3D seismic data are needed.
- The SoS asked for JR’s views on the summer’s planning announcements – JR thought these were
helpful, Ineos had been very encouraged. JR also commented on a specific issue that they have
been having around getting permission to do seismic surveys on public roads (in Cheshire) – a
newly encountered issue, but something that they feel makes a lot of sense and could hold
them back. They ‘don’t want to run a planning business’.

 -

Ineos thinks that the community benefits piece is very important, which is why they have
committed to a 6% rate (JR commented that in the US this could be 20% in some cases). The SoS
noted that we will also have a Sovereign Wealth Fund set up in the UK.

North Sea
- JR commented that they are looking at the potential of buying existing assets in the North Sea.
They have a lot of transferable experience in running plants and are actively looking at
possibilities.
Attendees
- Secretary of State, Amber Rudd (accompanied by Private Secretary, S40(2)
- Minister of State, Andrea Leadsom
- Special Adviser, S40(2)
- Stephen Speed, Director EDU, DECC
- Jim Ratcliffe, Chairman and CEO, INEOS
- Tom Crotty, Director of Communications, INEOS
Actions
- AL’s office and S40(2) to note: AL to consider a visit to Grangemouth (no particular time in
mind) to see the scale of operations there.
Many thanks,
S40(2)
S40(2)
Private Secretary to the Secretary of State, The Rt Hon Amber Rudd MP
Email: sos.rudd@decc.gsi.gov.uk & S40(2)
T: S40(2)
Follow us on Twitter.com/DECCgovuk

 INEOS and Lord Maude meeting, 21 September 2015
Time & location
Who is the
Meeting with?
Which officials will
attend?

S43(2)

Monday 21st September, 2pm to 2:45pm, 1 Victoria Street
Tom Crotty, Head of UK Operations, INEOS
David Mitchell, Public Affairs, Burston-Marsteller
Stuart Edwards, Deputy Director, Materials & Resource
Industries, BIS / Senior Official for INEOS SRM
S40(2), Iran Lead, International Unit, UKTI

 INEOS and Baroness Neville-Rolfe Strategic Relationship Management
Meeting
(22 July 2015)
Attendees
Baroness Neville-Rolfe
Charlie Merritt, Private Secretary
Tom Crotty, INEOS
David Mitchell, Burston-Marcellor
Stuart Edwards, BIS
S40(2), BIS
S43(2)