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Editorial comment

A winter’s tale
Mid December 2017 saw what was termed by many in the oil and gas industry as ‘a perfect storm’. Firstly, Ineos closed the Forties pipeline, which transports almost 40% of UK North Sea oil and gas production, following the detection of a crack and suspected leak.


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The Forties shutdown lasted about four weeks and precipitated a loss of 400 000 bpd, costing an estimated £20 million/d according to some reports. A total of 85 fields in the North Sea were forced to curtail production and, as the North Sea Brent benchmark is underpinned by supply from these fields, the Brent crude price rose to US$65.56/bbl following the outage (at the time of writing, Brent crude is surging even higher, to US$67.62, reflecting the effects of co-ordinated OPEC cuts and concerns over political unrest in Iran). The Forties pipeline is now up and running at full capacity after some assessment and repair work, but its closure did constitute quite a serious supply disruption.

Days after the Forties shutdown, a fatal explosion at Austria’s Baumgarten gas hub led Italy to declare force majeure over energy supply concerns. The explosion and subsequent fire at the natural gas facility near the border with Slovakia left one person dead and 18 injured. The Baumgarten plant is a key distribution hub for gas with about 10% of Europe’s gas needs passing through the station, including deliveries from Russia, Europe’s biggest gas supplier. The operator of the plant, Gas Connect, could not guarantee deliveries to destinations outside of Austria following the blast and, as such, Italy declared a state of emergency over energy supply.

Finally, Europe was experiencing a cold snap during December, with snow falling, temperatures dipping and demand rising. This compounded the effects of both incidents and made clear that Europe’s countries are vulnerable to price jumps in the wake of unforeseen events.

Storage facilities traditionally help ease potential price spikes, providing a buffer in times of need. In the UK, however, storage capacity is shrinking, with the impending closure of Centrica’s Rough facility – the UK’s largest gas storage terminal – off the coast of Yorkshire.

In the last few days of December, Russian press reported that the first ever shipment of Russian LNG had landed in the UK. Delivered in late December to storage facilities at the Isle of Grain terminal by a Russian icebreaker ship coming from the Yamal development in the Arctic, the gas would soon be keeping British homes warm, said Russian news. This did not turn out to be the case, as the LNG was reloaded onto a tanker heading to Asia, where it will find a better price.

Looking at the statistics, in 2017 the UK received 38% of its gas from the North Sea, 42% from Norway and 10% from pipelines crossing continental Europe. A further 4% came from LNG (mainly from Qatar) and the remaining 6% was made up of gas taken from storage sites. The UK’s reliance on imported gas increased by a quarter from the previous year: where North Sea gas once provided domestic security and a strong export revenue stream, the UK now increasingly relies on imports.

Gas pipeline imports to Europe from Norway are at an all time high: in 2017 they were up on the previous year by 7%, reaching 116 billion m3, which comprises about a quarter of European demand. However, the demise of the North Sea affects Norway too: its longstanding fields are moving closer to depletion and opportunities on the continental shelf seem to be in short supply, with the fields’ best days behind them.

Norway hopes to exploit untapped reserves currently residing in the Barents Sea, beyond the Arctic Circle, of which it owns an estimated 9 billion bbls of undiscovered oil (half of the country’s undiscovered oil and gas). But a recent bidding round for new blocks in the field generated only 11 applications, with many of the big players refraining from participation. Operations to reach oil and gas are likely to become more difficult, smaller scale and less productive in terms of profit margins; but scares like those in December demonstrate the necessity of maintaining efforts to stabilise and secure future supply and storage capacity.


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