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Grangemouth/Forties Update: Forties pipeline remains shut down (Thread 2)
Posted by Euan Mearns on April 27, 2008 - 11:01am in The Oil Drum: Europe
Topic: Policy/Politics
Tags: forties pipeline, gas supply, gasoline, gasoline prices, grangemouth, oil, oil prices, refineries, scotland, strike action [list all tags]
Make sure to check out our Grangemouth/Forties poll--use this thread as the comment thread for it.
Latest:
• Grangemouth oil refinery is shutdown.
• The Forties Pipeline is shutdown
• Over 60 North Sea oil and gas fields are shutdown.
• About 700,000 bpd oil production lost costing £40 million / day @ $110 per barrel
• About 70 million cubic meters natural gas production lost per day costing £42 million / day @ 60 p / therm
• BP, Shell, Exxon-Mobil, BG Group, Conoco-Philips, Chevron-Texaco, Total, Marathon, Tallisman, Nexen, Venture, Dana and many more companies affected
• Global energy prices rise
• Rural Scottish economy hit hardest by fuel shortages
• Risk level is raised throughout the system
• Worker's grievance is unresolved
• Population calm, politicians panic, fuel rationing looms?
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.
A note on gas supply and demand. Annual gas demand is cyclic reaching a maximum in the winter months Dec-Feb. Since we are now past the peak demand period this will make it easier to source gas by cycling up the remaining UK production and by asking the Norwegians to raise their gas production. However, persistent high spot prices this spring seem to betray un-seasonal tightness of gas supply in the The European Gas Market. 1 = falling demand and 2&3 = falling indigenous gas supplies. Where might this end? See below.
A glimpse of the future:
This is an un-audited draft model showing how UK gas supplies may evolve. In future we need not worry so much about UK strikes since we will no longer be producing significant quantities of gas. We will need to worry about missile strikes in the countries from where we are destined to import LNG. For a number of years Norway will be a vital supplier of natural gas to the UK. But their gas production may start to decline from 2009.
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.
The original TOD thread is here, and thanks to all posters for their contributions and links.
Grangemouth lies at the end of the Forties oil pipeline system that gathers oil (and liquids) from oil and gas fields throughout a large area of the Central North Sea. Whilst Grangemouth processes around 200,000 bpd the pipeline system handles around 700,000 bpd and according to this CNN report, a BP spokesman has said they may have to shut down the whole pipeline system. With the global oil market and European gas market already stretched, the impact of this dispute may reverberate around the world.
Why Grangemouth is important
Grangemouth is much more that an oil refinery. Originally operated by BP, Grangemouth became an integral part of the Forties oil production, transportation, refining and export system. BP has since sold the Forties oil field to Apache corporation and the refinery to Ineos but it still operates the pipeline and a number of the oil and gas fields that feed into it.
Grangemouth oil refinery lies close to the Kinneil terminal and is an integral part of this massive oil and gas production and transportation system.
Ineos have reported that if the refinery is closed it may take over a week to restart. So a two day dispute over pensions may have a disproportionate impact.
If as reported by CNN, the whole Forties pipeline system were to close then this will shut down about half of the UK oil and a significant amount of gas production. World oil supplies are already stretched and this will push prices even higher - but the UK will be able to buy oil on the international market. I have heard that BP is trying to determine whether the Hound Point terminal has the storage capacity to handle the flow and offload from there without taking the system down. The thinking is, if only the Grangemouth refinery shuts down, and Hound Point and its oil storage facility operate normally, oil and gas production losses could be minimised.
The situation with natural gas is much different. Prices have been rising steadily this year betraying tightness in the European and Global gas markets. At the end of the winter UK and European gas storage is run down and the UK may struggle to maintain gas supplies.
This is what one of TOD's many friends had to say:
I don't know about the refinery side, but having worked at St Fergus for a year or so, I can vouch for the fact that the ability to process gas is linked to the ability to export the liquid ends via Mossmorran and Grangemouth. There are three St Fergus gas processing sites and each has different links to the downstream liquids market.
It gets complex depending on exactly what facilities are offline, and there are other things that can be done like shutdown fields producing wet gas and condensate and limit gas coming in to dry gas from FLAGS/Fulmar line and then 'optimise' the gas processing to 'spike' as much of the heavier ends as possible into the gas network. That can limit the volume of liquids they need to push down the pipelines towards Grangemouth but can only go so far if there is a complete shutdown.
UK "spot gas prices" have been rising steadily for a year as UK domestic supplies continue to run down and a cold winter in N America and E Asia has caused increased competition for LNG deliveries.
Domestic users need not worry since they will always be the last to get cut off. But in the event of a natural gas shortage, those industrial users who pay the reduced interruptible supply tariff may just find their supplies interrupted.
Consequences for fuel supplies in Scotland and North England
Grangemouth is the only oil refinery in Scotland producing gasoline, diesel, fuel oil and jet fuel for the whole of Scotland, Northern Ireland and Northern England. UK has ample stocks of refined fuel and so the real issue for Scotland is the distribution of these stocks. This has been the main focus of the main stream news thus far and panic buying has already led to local gasoline shortages and profiteering at the pump.
Cause of the strike
The strike is about Ineos proposals to adjust the terms of the final salary pension scheme for workers at the refinery. Why then can Ineos not afford to fully fund the existing pension scheme? High feed stock costs for their refining operations, high energy costs, rising interest costs, high inflation throughout the engineering sector, adverse currency movements and zero stock market returns since the year 2000 may all help explain the dilemma that Ineos finds itself in.
FOOTSIE courtesy of Yahoo Finance. In a world that has produced zero to negative stock market capital returns since the year 2000, is it reasonable for any workers to cling to unrealistic pension promises struck decades ago that are founded upon the notion of limitless supply of cheap fossil fuel?
The majority if not all of these factors are rooted in the inability of planet Earth to now provide the growth in low cost fossil fuel energy that powered economic growth and wealth creation throughout the 20th Century. It is no longer a realistic expectation for any workers to be granted a generous pension at age 60 when OECD life expectancy is now over 80. The free fossil fuel energy slaves that created this aspiration in the 20th Century are now getting tired and will soon be exhausted.
It is the failure of government and leadership throughout the UK and the World to recognise and tackle the unfolding energy crisis that has led us to Grangemouth.
With reported debt of around €9 billion, let us hope that Ineos has the financial strength and will to weather this storm.
Of course no one gets the pension that was promised.
Why should the plebes accept this before the carcasses of Lady Thatcher, Lord Blair, The Gordon et al have been fed to the dogs?
Soylent Petfood can be politicians and corporate executives.
Breakdown in Grangemouth dispute talks
Definition of a panic buyer:
The guy in front of me in the queue....
Somethings odd here. Oil and gasoline (RB) futures have both traded down since it was announced that talks had broken down.
Buy the rumor sell the news?
The bearish event that ends the rally?
I'm unsure but would think this would be bullish for oil and gas prices, unless it is priced in. There was a sharp jump in Refinery utilization this week (81 to 85) - and that wasthe week ended 4/18 - might be as high as 90% now - perhaps we are gearing up to export refined product to UK?
In a recent report by Robert Rapier the US imports between 800,000 barrels and 1,200,000 barrels of gasoline per day, so I doubt we can export any product from our refineries. I do believe the US IMPORTS 50,000 or 60,000 barrels of gasoline per day from UK or Norway. Once the strike starts and shortages spread from UK the gas price would climb here as well. With strike the price of $4.00 is very likely by end of May, IMO.
By the EIA data Robert used, the U.S. imports about 69,000 bpd of gasoline from the UK, and 23,000 bpd from Norway (based on annual data).
Since gasoline prices in the U.S. have remained lower than they would be thanks to these imports, I think you're right. If those export levels from UK & Norway are interrupted for very long, it's going to pressure U.S. prices even more.
At this point I'm left to wonder how elastic those gasoline exports are...how much of what is being brought in from elsewhere to cover the loss from Grangemouth is gasoline, and how much is diesel?
On the other hand, if the Grangemouth outage persists, and UK gasoline prices rise sufficiently in response, it should cut back on their exports to the U.S., but it will also restore profitability for the U.S. independent refiners, and they should ramp up their output in response. Supply levels should be restored, but at higher prices.
It is no longer a realistic expectation for any workers to be granted a generous pension at age 60 when OECD life expectancy is now over 80.
Is it realistic to expect the average person's age to reach 80 anymore given what we know is coming soon?
They might as well just promise the pensions. So few will be around to claim them.
Rather like promising the drastic Co2 emissions cuts: it will be accomplished by PO anyway, might as well take credit for having 'legislated' it. [/cynicism]
One reason that final salary pensions have become unpopular in the UK is that the company has by law to have be putting aside enough money (into an independently controlled fund) so that it will be able to meet the projected obligations at the time they become due (underprevailing conditions assumptions on growth of any investments). So if forecasts for longevity are high and market returns currently low, there's a lot of cash that's got to be deposited now. If longevity forecasts go down in the future and market returns improve a bit so the fund is "in surplus" then companies are allowed to contribute less cash until balance is achieved, but that doesn't stop them having to contribute more money now based on current predictions.
So it's kinda the opposite of your thought: although pension funds won't need to be so high if PO leads to a large decrease in longevity, that happens in the mid-term future but as long as the experts are predicting increased longevity companies have to divert more money into a locked fund now.
Ever heard of "reachback" and "afterburn". These are the ways the future and the past, respectively affect the present.
I see this constipation in the Scottish pipelines as "reachback". Perhaps the Scottish actually are an anal retentive society, and this is an exaggeration of what we might expect as the end of the oil age progresses, but certainly it is instructive to those of us who enjoy looking into the future.
Fighting over the remains can easily be observed if you watch the nature programs on the National Geographic Channel as the various species contend over the carcass of a recent kill. Hell, even today news reports circulate on the internet about runs on the rice supply at Walmart and Sam's clubs in response to the perception that world rice supplies are in short supply.
Be aware. Prepare for the worst, and even then consider your preparations as inadequate.
What on earth are you babbling about?
...I agree or disagree...
Still very little mainstream media coverage in the UK, certainly nothing on the front pages of the newspapers or the BBC. Makes you wonder if they're under instructions to avoid raising a panic...
I'm wondering if it's not seen as the first real opportunity to direct the public into different patterns of behaviour and expectation.
Alex Salmond, the Scottish First Minister, is pledging that Scotland has enough fuel to "last well into May" and that there is capacity to "import more" if required (http://news.bbc.co.uk/1/hi/scotland/7364842.stm). This sounds to me like straightforward management i.e. Don't Panic! But perhaps more tellingly, he is advising the public to conserve fuel by restricting travel to necessary journeys only and to take public transport wherever possible.
This is obviously appropriate advice. However, for me, there's something missing. Why, considering the seriousness of the situation, are the UK (who are particularly quiet) and Scottish executives being so seemingly accepting of the stance taken by the parties involved. Why is there no public expression of urgency from them?
harry
Yes, I'm surprised there has been no (visible) pressure from the government on the company or the union.
Gordon is pre-occupied with abolishing the 10p tax band he introduced and trying to reinstate it before he abolishes it.
Its not a crisis yet. No pumps have run dry in London.
yet...
it only takes a small number of people to start panic-buying, then others see the queues and think they'd better fill up. Before you know it you have the occasional garage running out, and then people start driving around in search of fuel.
...yeh, during the oil shortage in the early 70s I had a guy panic and back into me trying to get to a pump that just opened up. (In the end I found a friendly parking lot owner who had his own supply "out back," and he'd allow me to secretly pump 10 gallons each week. We have our ways...)
My folks live in Grantown-on-Spey, a small Highland town (pop. about 3000) not far from Inverness. It has only one petrol station. Apparently a couple of days ago, when queues were long, a punch up broke out when some chancers attempted to queue jump. Petrol is £1.14/litre there, stories in the news of garages charging up to £1.40/litre in the Highlands. Dry run for post-Peak.
Er ... I think you will find that the UK domestically IS post peak!
Oil peak ~1999 (finished ~2020), Gas peak ~2002 (finished ~2020), coal peak ~1913 (current production ~6% of peak), current nuclear, peak <2005 (mostly closed by 2020).
Clearly, even after the strike the situation between the company and the Union won't have changed much - so where do we go from there?
I am sure it was never the intention for just one person to own such a large chunk of a PLC, no doubt many bankers have become millionaires off the back of Jim Ratcliffe becoming a multi-billionaire.
This is a wet run for post peak, and in the medium term if the world's economy does require growth of oil supply to grow the economy (as we on TOD expect) then there will be a loss of all those things that require growth - eg: savings and pensions will not work for starters, Unions get used to it! The rest of us need to come up with a plan 'B' real quick!
Hi Doug
If I was still living in Aberdeen I think I'd be getting a little concerned by now. But it's still the gas situation that threatens the UK as a whole more..
cheers
Phil.
I heard unofficially that the whole pipeline is to close - its dependent upon power from Grangemouth.
This has barely made it onto the main news in the UK. I'm away to work out how much gas production might be lost. I very much doubt that the system can bear it - power cuts may loom?
The UNITE union has confirmed that the strike will go ahead (according to Reuters)thereby shutting the Grangemouth CHP station and shutting down the 700 kbpd Forties pipeline. No reaction to this news in the Brent oil market although the Reuters headline came out eight moneutes ago.
I think Forties associated NG production is something in the region iof 70 MCM/day, whihc is about 25% of current demand. To add to the concernt here have been unscheduled outages or trips at Teesside, Barrow, Bacton and Easington/Dimlington import terminals in the last week. The system does not look very robust.
NG for the weekend is trading at 71 p/therm and 74 p/therm for next week.
UK gas consumption runs at about 100 BCM per annum, translating to 274 MCM per day. So your calculation is spot on. With storage running on empty I don't see how the system could survive such a shock. So I'd guess we'll see interruptible contracts interrupted and perhaps some power stations having to close.
What is the max deliverability of long and medium range storage when full in MCM per day?
Pretty high for the first five days (in region of 85 MCM/day total in theory), but dropping quickly after that.
18 MCM/day deliverability from LNG and short range storage (5 days)
27 MCM/day
from medium range storage (about 20 days average when full)
42 MCM/day from Rough long range storage (67 days when full)
The short term facilities are full, the medium range about 35% full and Rough is 27% full.
Ther is also 50 MCM/day import capcity through the Zeebrugge/Bacton interconnector
The waether is for once looking kind for a few days, so I think we could cover the outage from storage for 5 -10 days. The interconnector is already running at 40MCM/day, so not much extra headroom there. I think we will not see major interruptions from this strike, but it will pull our storage down to critically low levels.
All we need now is for Russian natural gas exports to peak and we are heading for a cold, dark winter.
If the supply does fall off, you can watch it happen live here:
http://www.nationalgrid.com/uk/Gas/Data/efd/ezgraph.htm
(only works properly in IE, sadly).
The Scottish administration says it has contingency plans for this strike. Actually, it has nothing of any substance beyond tinkering powerlessly at the edges of a serious and damaging collapse of a central pillar of the Scottish economy. If the Scottish National Party wants independence for Scotland (other than just a slogan), how about restoration of a nationalised oil and gas company? We lost Britoil years ago (yes, a state oil company), time for Scotoil (a new state company) to take care of ensuring Scottish citizens are not held to ransom by private equity buccaneers from England. Let Ineos play pirates in some other market like video games. Energy, like water, health, education and the environment is an affair of state, not just a poor state of affairs.
BBC Scotland just reported on the lunchtime news that Edinburgh city buses will stop running on Sunday night as their fuel supply has been "re-prioritised".
Buses run out of fuel by Monday
Wow that REALLY is going to INCREASE demand, as all those bus passengers get into their cars and drive into total gridlock on monday morning. That is the sort of contingency planning this country really needs....
Agreed. Surely emergency services, public transport and freight should take priority over private cars? I would have thought that's a no-brainer?
Scottish Finance Minister John Swinney just said in a BBC News interview that fuel would be supplied for Edinburgh buses and he blamed the initial reports on a "mis-communication" between BP and Lothian Buses.
Naah:
From Aunties Scottish Website at 16:45 -
At lunchtime on Thursday, Edinburgh-based Lothian Buses announced that it did not expect to be able to run any services after Sunday evening because BP was prioritising deliveries to petrol stations instead.
But a short time later, the Scottish Government issued a statement saying there had been a "misunderstanding" and the bus company would receive diesel from BP.
Lothian Buses then gave reassurances that its fleet would be fuelled and services would run as normal.
Sounds like an initially idiotic decision has been changed. But probably by elements outside of BP.
A few relevant news stories from the BBC Scotland website:
The petrol picture in Scotland
No problem with fuel for public
Salmond in pledge on fuel stocks
In addition to the question of gas in BP Forties Pipeline system, there's the question of what happens to gas processed through the three gas terminals at St Fergus. Here's a quick snapshot of where the products from the gas go:
C1 (methane gas) goes into the national gas grid at St Fergus. Everything else (NGLs) goes in a pipeline south to Mossmorran.
C3, C4 and higher (propane, butane + ) get separated at Mossmorran and loaded into tanker at Braefoot Bay.
C2 (ethane) goes to the Exxon operated Fife Ethylene Plant (pretty much next door to Mossmorran) and the BP operated Grangemouth refinery.
My guess is that the amount of ethane going to Grangemouth is quite a bit smaller than that going to the Fife ethylene plant. Assuming that Fife is operating below design capacity, it might be able to pick up some spare ethane? Otherwise they can flare ethane although that's not a pretty outcome for anything more than a short plant upset.
The BP gas terminal (part of the Forties Pipeline System) is located a little further south of St Fergus at Cruden Bay. It looks like the impact will be much greater on BP than the other operators.
And in case anyone was wondering, the oil production from almost all the other UK North Sea platforms not exporting to BP Forties Pipeline System goes to the Sullom Voe oil terminal on Shetland (far northern end of Scotland), which is also operated by BP. From there it is shipped to refineries anywhere in the world.
cheers
Phil.
http://www.shell.com/home/content/uk-en/news_and_library/press_releases/...
http://uk.reuters.com/article/oilRpt/idUKN2434348720080424