March 2018, Vol. 245, No. 3

Features

Forties Pipeline System Shutdown

On Dec. 11, a hairline crack 5 to 6 inches long was detected during a routine inspection of the Forties Pipeline System (FPS) near Netherley, just south of Aberdeen, Scotland.

As a result, the pipeline’s new owner, Ineos, announced a shut-down, anticipating weeks for repairs. The suspension of this pipeline, with an average daily throughput of 445,000 bpd from 80-plus fields in the North Sea, caused future prices for Brent crude deliverable in February and March to rise above $65 a barrel, before falling back.

Brent crude is the benchmark for pricing much of the world’s seaborne crude and is partly priced on the flow of crude from the FPS. The pipeline also carries one-tenth of Britain’s natural gas supply, causing wholesale gas prices to surge 40% until LNG was released from stock. On Dec. 29, the system was re-opened.

BP, which discovered the Forties field in 1970, was lead operator and commissioned the pipeline. In 1975, BP opened the 235-mile pipeline to transport oil from the U.K.’s oldest and biggest oil field.

The Forties pipeline links fields that include those operated by Apache, BP, Shell and Total, plus the giant 170,000 bpd Buzzard field, operated by the China National Offshore Oil Corporation (CNOOC). It is now a core component of an integrated oil and gas transportation system delivering oil and gas from the Central North Sea fields to several terminals – the oil export terminal at Hound Point, the Dalmeny gas terminal, as well as Ineos’ Kinneil oil and gas processing plant and its Grangemouth refinery.

Tom Crotty suggested U.K. refineries usually reliant on Forties production could access alternative supplies of oil via sea deliveries.

At the end of October 2017, BP sold the Forties pipeline to Ineos for $250 million, sparking criticism in the Scottish newspaper The Daily Record. The sale of an oil pipeline to a chemical-maker was viewed as tantamount to “giving a monkey a machete,” The Daily Telegraph opined on  Dec. 11.

Repairs

A repair and oil spill response team was called in to a location at Red Moss on Dec. 6, near the village of Netherley, just south of Aberdeen. Pipeline engineers dug a massive hole to access the pipeline at the site of the crack. Ineos Director Tom Crotty said, “There has been no environmental contamination.”

To contain any potential leak, the team reduced the pressure in the pipe and established a 300-meter safety zone. It was initially thought a prefabricated collar could be installed around the pipeline at the crack site. However, the crack widened and Ineos made the decision to shut the pipeline to avoid a serious oil leak.

This meant replacing a section of the pipeline. As a result, Ineos announced a controlled shutdown of the pipeline on Dec. 13 for repairs. In addition, Ineos declared the first North Sea force majeure in decades.

Unusually, the Forties pipeline is nearly a meter in diameter and its walls are thick at 2 cm. Therefore, each pipe section is massive and replacements are usually not readily available on  short notice.

Britain’s Health and Safety Executive (HSE) approved the repairs, which were completed on December. 29, allowing the pipeline to return to full operation sooner than originally anticipated reports Bloomberg.

Investigation

Once installed, a pipeline is largely left untouched except for the regular inspections for cracks, leaks and corrosion done by sending intelligent pigging devices through the interior.

Crude oil pipelines are designed to be flexible enough to take the anticipated strains of nature and people over their expected 50-year operational lifespan. Therefore, this incident raises serious questions.

The HSE is currently investigating the possible causes and potential implications for the rest of Britain’s pipeline networks. Speaking for the industry, Ian Phillips, chief executive of Aberdeen’s Oil and Gas Innovation Centre pointed out, “The first problem to solve is figuring out why it cracked. They do not want to fix it then find out they have the same problem a month or two later.”

Possible causes range from excessive rainfall, causing the ground underneath to soften and allowing the pipeline above to sag, to some sort of chemical reaction.

Fallout

The Forties Pipeline System currently delivers almost 40% of the UK’s North Sea oil and a third of the country’s total offshore natural gas output. According to Deidre Michie, CEO of industry lobby group Oil and Gas UK (UKOG), the closure meant 40% of Britain’s North Sea oil production had no access to markets and cause $28.5 million (£20 million) per day in losses.

In the U.S., the  West Texas Intermediate benchmark had a more subdued reaction, rising just 0.7 % to $58.46 a barrel although the price difference between Brent and WTI widened to $7, the biggest gap since May 2015.

The short-lived disruption proved positive for oil companies, however. On Dec. 12,  BP’s share price rose by 0.8 % to $7.51 (£5.27) and Royal Dutch Shell by 0.62% to $39.39 (£27.64).

Security Issues

The British and Russian media reported extensively on the expected gas supply shortfall, at the worst possible time, as winter temperatures were falling. On Dec. 13, it was announced Britain would receive the first export cargo of LNG  from Novotek’s Yamal LNG plant, opened by Soviet President Putin. The 170,000 cubic meters of LNG belonging to Petronas arrived in the ice breaker, Christophe de Margerie, at National Grid’s LNG Isle of Grain port Dec. 28.

Whether Britain receives this cargo or not is almost immaterial since the world is awash with LNG and supplies are available on the spot market.

However, it now looks like some of the Yamal LNG stored at the Isle of Grain port is likely to be part of an LNG delivery destined for Boston’s LNG port at Everett. This is due to the high demand for gas in New England caused  by this season’s record cold temperatures.

Christophe de Margerie arrived at National Grid’s LNG Isle of Grain port Dec. 28. P&GJ