UK Oil Crisis - How Wise To Allow Control Of Half Of N. Sea Output By 1 Private Equity Firm?

[hatrack]

While the fate of energy flows into Britain were being sealed on Monday and Tuesday this week, Gordon Brown was pre-occupied with the past, let alone the present or the future, trying desperately to undo tax muddles that he himself created. Gordon Brown will be remembered as one of the greatest Followers this country ever had.

BP have begun the process of closing the Forties Pipeline according to this Reuters report. This is some 30 hours in advance of the planned 2 day strike by 1200 workers at Grangemouth Oil Refinery operated by private equity firm Ineos. The closure of the Forties Pipeline will likely result in closure of around 60 offshore oil and gas fields that feed oil and condensate into the pipeline. Around 700,000 bpd oil and 70 million cubic meters (MCM) per day gas production will be lost costing UK plc around £90 million per day at spot prices.

It is relatively straight forward to shut down the pipeline and all the fields that feed it, but the process of restarting production will likely be significantly more complex. It seems possible that up to 6 days production may be lost. BP once owned and operated the Grangemouth refinery and the Forties pipeline in addition to the off shore Forties Field. In 2003 BP sold the refinery to private equity firm Ineos and the Forties field to Apache corporation. This is a tightly coupled complex system best operated by a single responsible owner. The pipeline terminal at Kinneil depends on power from the refinery to operate, hence with closure of the refinery the pipeline and all associated infrastructure must now close. Questions should be asked about the wisdom of allowing the dependency of around one half of UK North Sea production to fall into the hands of a private equity investor.

With price of Westexas Intermediate crossing $120 / barrel and UK day ahead gas prices pushing 69p / therm the cost of this action will be felt by all gas and petrol consumers in the UK and further afield. The UK government has either been wholly ignorant of or indifferent towards the consequences of this dispute.

At winters end gas storage is run down. From current stock levels, short range storage may produce 18 MCM per day for 2.5 days, medium range storage may provide about 27 MCM / day for around 6 days and long range storage around 42 MCM / day for about 21 days. Fortunately, mild spring weather will ease the demand for natural gas. I would estimate the value of potential lost production to be approximately £40 million per day for oil and £50 million per day for gas (at spot prices). Platts report that the Forties Pipeline could be disrupted for 6 days as a result of the strike. The potential losses to oil companies and to the government's lost tax revenues seem wholly disproportionate to the grievance of the Grangemouth workers. It is the Westminster government that has responsibility for UK energy matters and taxation.

EDIT

http://europe.theoildrum.com/node/3893#more

[Donkeykick]

1. Yep!

That's these oil companies for you. They have our best interest in mind. :eyes: