Why This European Is Bullish on America


The billionaire founder of Ineos says the shale revolution is making the U.S. a world-beater again. It would be ‘unbeatable’ with a lower corporate tax rate.


Jan. 10, 2014 6:28 p.m. ET
LondonAmerica’s energy boom is spurring a new British invasion, this one headed by Jim Ratcliffe, chairman and CEO of Ineos Group Holdings, the multinational petrochemical giant he founded in 1998. “The United States from our point of view,” Mr. Ratcliffe says, “presents lots of opportunities for investment and growth.”

In the U.S., where the economic discussion is often dominated by hand-wringing about “secular stagnation” and declinism, growth remains subpar and unemployment stubbornly high. Yet the explosion in shale gas and oil production made possible by hydraulic fracturing and horizontal drilling are, the Ineos founder says, set to reinvigorate the U.S. economy. Mr. Ratcliffe sees an America in which a boom, driven by cheap energy, is already well under way.

A chemical engineer turned industrialist, Mr. Ratcliffe left Exxon XOM -2.75% for the private-equity firm Advent in the late 1980s. Some four years later, he got back into running a chemicals company when he helped lead the buyout of a BP BP.LN -1.12%chemical plant in Hythe. He took the resulting company, Inspec, public before leaving again to buy out Inspec’s Antwerp plant, which formed the starting point of what has become Ineos. Much of its growth into today’s $43 billion a year behemoth has come through acquisitions, the biggest of which was its purchase of BP’s chemicals business in 2005.

But for all the deal-making, Mr. Ratcliffe insists he is “a manufacturer at heart,” born and reared in Manchester, England—where, he notes, “the whole Industrial Revolution began.” These days he is one of Britain’s richest citizens, owning about two-thirds of the privately held Ineos.

Neil Davies

Most people think of oil and gas as fuels, but to Ineos they’re “feedstocks” for making things. Ineos turns petrochemicals into plastics and related materials in massive plants known in the business as “crackers.” Cracking is the chemical process by which natural gas and crude oil are broken down into ethylene. From ethylene, Mr. Ratcliffe says, “you produce polyethylene, polyester, PVC—all the world’s biggest plastics,” which make up the stuff of modern life. Everything from soda bottles and fleece jackets to car bumpers and computer cases comes ultimately from the natural gas or oil that petroleum companies pull out of the ground.

There are two kinds of crackers, one for oil and one for natural gas. For a long time in most places, the two “had similar economics,” Mr. Ratcliffe says. But now “what’s happened in the United States with shale gas is that the price of gas has dislocated from the price of oil. If you have a gas cracker it becomes very, very profitable.” Ineos owns the second-largest gas cracker in the U.S., outside Houston, and so suddenly it also has “access to lots of cheap shale gas.” It’s good to own a gas cracker in America right now.

Mr. Ratcliffe, a tall, trim 61-year-old with a gravelly voice and something of a mop-top, is holding court in a conference room in a boutique hotel near Hyde Park in West London. Until recently, Ineos Group Director Tom Crotty notes, Ineos liked to call itself “the largest company you’d never heard of.” That changed, at least in Britain, last October when Mr. Ratcliffe threatened to shut down Scotland’s only crude-oil refinery, which Ineos owns, in the midst of a labor dispute.

The price of keeping it open, Mr. Ratcliffe told the union, was to accept salary freezes, an end to final-salary pensions, and greater freedom for the company to set work rules. When the union balked, Mr. Ratcliffe said he was prepared to walk away, prompting a political and economic panic from Edinburgh to London. Within days, the union capitulated. Now he’s proposing to spend millions of pounds to export American shale gas to Scotland, where Ineos will crack it at the same plant he nearly closed two months ago—the refining complex at Grangemouth also sports one of Europe’s four gas crackers.

Ineos is already building a similar project at its other European gas cracker in Norway. Shale gas has made the feedstocks Ineos needs so cheap in the U.S.—”a lot less than half the price of European feedstocks,” Mr. Ratcliffe says—that suddenly it makes sense to build a natural-gas liquefaction plant and export terminal in the U.S., buy specialized tankers to ship liquefied natural gas across the Atlantic and re-gasify it in Europe, all to feed ethane into Ineos’s gas crackers in Norway and Scotland.

This is a radical transformation of the petroleum business. As recently as 2011, the U.S. was a net importer of petrochemicals. In the middle of the previous decade, oil companies were clamoring for new liquefied natural gas import terminals to address the high price and shortage of gas. Today there are “10 new world-scale crackers being built” in the U.S. “on the back of all the shale gas you’ve found,” Mr. Ratcliffe says. He foresees net petrochemicals exports from the U.S. “to the tune of $30 billion by 2018-2020.”

His bullishness on America is a recurring theme. “The markets generally seem to be doing quite well in the United States, raw materials are plentiful, energy is cheap, skills are great,” Mr. Ratcliffe says. As a result, Ineos is “more and more turning its attention to the United States.” Seven or eight years ago in his industry, “people were shutting things down” in America “because it wasn’t competitive. Now it’s become immensely competitive.”

And most of that is because of shale gas and hydraulic fracturing. “I’m not sure we could spell ‘shale’ in 2008,” Mr. Ratcliffe jokes. “People hadn’t heard of it. We’re pretty big in chemicals in the United States, and we’re a big gas consumer, and nobody was talking about it.”

He has a different view of his native Continent. “Generally,” he says, “I’m quite bearish about Europe. There’s lots of debt kicking around all over the place, they’re all running trade deficits apart from Germany. There is no growth. We don’t have great competitive economics, certainly in things like energy and feedstocks.” On the contrary, Europe has “the most expensive energy in the world.” The Continent has been very slow to move on shale gas, and the U.K. has only lately, and somewhat reluctantly, started to embrace fracking. Older oil and gas fields in the North Sea are in decline, and any new sources from fracking are years away at best.

“There’s lots of shale gas around” in the U.K. and elsewhere, Mr. Ratcliffe says. But “in Texas there are 280,000 active shale wells at the moment. . . . And I think a million wells in the United States” as a whole. By contrast, “I think we have one, at the most two, in the U.K., and I don’t think there are any in France.” The French made fracking illegal in 2011, and the country’s highest court upheld the ban in October.

Today, Mr. Ratcliffe says, two-thirds of Ineos’s assets are in Europe, and one-third are in the U.S. But “from 2010-2013, our profits in Europe have more than halved,” while at the same time, Ineos’s “profits in America since 2010 have tripled. So our profits in America now are double, from a third of assets, our profits in Europe from two-thirds of our assets.” Much of this shift is due to the costs of energy and raw materials, but Mr. Ratcliffe points to an additional, more subtle factor.

Social protections in Europe make it much more expensive to shut down underperforming plants. Many Europeans will say, “Yes, that’s the idea. To protect jobs.” And indeed Mr. Ratcliffe was excoriated in certain circles for his threat to close the Grangemouth refinery.

But Mr. Ratcliffe argues that European-style social protections lead to under-investment that ultimately benefits no one. He offers an example: “In Spain we have a small unit which wasn’t successful and it was too small, making ABS [a plastic].” But to close it would have cost “a minimum of three years’ salary for every employee. So what you do is, you try to find ways of just sort of continuing for a few more years. And what you find of course is you lose a bit more money, and you lose a bit more money and you lose a bit more money. And eventually you do have to close it down. But by the time you close it down, it costs you a fortune and also you’ve lost money for eight years while you were fiddling about.”

By contrast, he says, in America “you’d just shut it down.” Which is why, he adds, “in America all our assets are good assets, they all make money.” That may sound like a European social democrat’s nightmare, but Mr. Ratcliffe takes a longer view, explaining that if the lost money had instead been invested in new capacity, the company would be healthier, employees’ jobs more secure and better-paying because the plant would be profitable. This logic is unlikely to persuade Europe’s trade unions, but Mr. Ratcliffe says that the difficulty and expense of restructuring is one of the things holding back Europe—and its workers.

America, he acknowledges, “is not without its issues,” citing federal debt and trade and budget deficits. But Mr. Ratcliffe’s “only gripe” about the U.S.—”you have to have a gripe,” he says—is that America “has the highest corporate tax rates in the world: “They’re too high in my view, nearly 40%. And that’s a pity because in most other parts of the world corporate tax rates are about 25%.”

‘America’s got quite reasonable tax rates from an employee point of view,” Mr. Ratcliffe says, speaking in a country that only recently lowered its top marginal rate to 45% from 50%, “but the corporate tax rate is too high. Because what you want to do is reinvest. If you weren’t paying all that tax, what you’d do is, you’d invest more. And we’d probably spend the money better than the government would.”

His suggestion for Washington on corporate taxes: “I think they should bring that down to about 30% or so. Then they’d be unbeatable. For investment, they’d be unbeatable, the United States.”

Mr. Carney is editorial page editor of The Wall Street Journal Europe and coauthor of “Freedom, Inc.,” (Crown Business, 2009).

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