Interview: Ineos investing for North Sea Forties operations to '2040-plus': CEO

London-based Ineos is continuing its overhaul of the UK's largest crude supply route, the Forties pipeline, aiming to support North Sea operators in investing in production into the 2040s while upgrading the linked Grangemouth petrochemical facility, the company's UK head Andrew Gardner said in an interview.

Ineos, which is majority-owned by businessman Jim Ratcliffe, is around half way through a refurbishment of the Forties Pipeline System (FPS) following its $250 million acquisition from BP in 2017. FPS transports oil from around 85 fields and Forties Blend is the largest contributor to the Platts Dated Brent North Sea crude benchmark, used worldwide, with loadings close to 300,000 b/d in recent months.

Gardner, who is CEO of FPS and chairman of Ineos' UK olefins and polymers business, outlined a change in approach since the takeover from BP under which a beefed-up commercial team now handles relations with shippers -- redefined as "customers" -- while the company, having no upstream Forties output of its own, works to ensure the quality of what goes into the pipeline and control impurities such as methanol.

He said the quality and value of Forties had risen partly due to the contributing fields, but likely also Ineos' efforts. "We've spent an awful lot of time policing what people put into the blend," Gardner said.

Ineos, he said, aims to foster upstream investment and has generally been successful in overcoming any disputes with the route's numerous users. "We talk a lot more with our customers because we have to work a lot harder to attract and support North Sea customers to invest," Gardner said.

"You're joined at the hip. You're in life-of-field contracts [so] that you really need a good relationship or it could be a long, painful relationship."

In terms of volumes Gardner acknowledged the recent steep decline in North Sea output -- Forties throughput plunged 21% in 2021 compared with falls of around 5% annually before the pandemic.

However, activity such as drilling is recovering, and volumes are being boosted by recent field startups like those at Arran and Finlaggan, Gardner said. While environmental pressures could impact investment, he said he expected a decline rate ahead of around 7% a year for Forties. "We're seeing a lot more infill drilling and getting back to that sort of cleaning up and restoring the throughput," he said.

The refurbishment of the FPS, which dates from 1975, entailed a major shutdown in 2021, delayed from 2020, and is likely to cost some GBP700 million ($844 million) overall -- above an original estimate of GBP500 million, while taking longer than originally planned, Gardner said.

Ineos aims to give investors confidence in the route by making the renovations needed to ensure its availability to "2040-plus," he said.

The 2021 shutdown centered on upgrading 'trip' mechanisms to ensure the safety of the onshore pipeline section -- which is designed for lower pressures than the offshore section -- and replacing facilities for handling mechanical 'pigs' used in pipeline cleaning.

This year's focus is on upgrades to LPG export facilities, to be followed in 2023 by replacement of flare systems, with two "very large" ground flares to be built at the Kinneil processing plant in a further effort to curb flaring, something Ineos has already improved "dramatically," Gardner said.

The overhaul "is basically replacing big parts that wouldn't live out to the 2040s or 2050s. All of it is OK till the 2030s, but you need to extend and what you're trying to do is you're trying to market your system," he said.

Downstream challenges

Gardner noted a decline in the amount of Forties used at the Grangemouth refinery, which is jointly owned with PetroChina, to "very small" levels as the crude has become lighter and less suitable for a facility designed for Middle Eastern crude -- alongside growing international demand for Forties.

He went on to highlight the "windfall" for UK refiners from changes in trade since the Ukraine war and efforts to curb Russian oil, including diesel, alongside the post-pandemic reopening. For the last week refining cracks averaged $50/b and cracks for ultra-low sulfur diesel $59/b for the Amsterdam-Rotterdam-Antwerp region, Platts Analytics said June 13.

However, UK refining is likely to remain at the mercy of global competition, energy input costs and carbon pricing, Gardner said.

For refining "I'm talking about going from breaking even just barely, to making a profit," he said, echoing calls for a European carbon border tax to protect against countries with less stringent standards.

However, chemicals producers benefit from a more regional market due to higher transport costs, and the Grangemouth chemicals business has weathered North Sea ethane output declines by importing ethane from the US on Ineos' own ships, Gardner said. Supported by this "virtual pipeline" from the US, the Grangemouth ethane cracker is now working "flat out," having been 30% mothballed from 2008-16, he said.

In general, "Europe for all products needs to wrap itself in some form of carbon boundary [otherwise] we will decarbonize by shutting down our industry," Gardner said. "If you've got [one part of the world] that's got really strong legislation that's trying to decarbonize, and other places don't... industry will migrate, society will migrate to buying stuff off the one with the lowest costs."

Scottish CCS

On the energy transition, Gardner said Grangemouth's emissions had already fallen by more than a third to some 3 million mt/year since Ineos took over the site in 2005, and voiced confidence in the next stage, a planned 1 million-1.5 million mt/year reduction hinging on Scotland's Acorn carbon capture and storage project.

While Acorn has yet to get government approval, he said he expected this by the end of 2022 or early-2023, noting the project's exceptional storage capacity, projected at 20 million mt/year of CO2 by the mid-2030s.

"Acorn's about 60% of the UK's carbon capture and storage capacity so I'm not worried that Acorn won't happen in that sense... it's just so big compared with the other ones," he said. "It would be good to get that absolute certainty because it gives you a seat at the table to negotiate with government on the fiscal regime of how us and government are going to share the cost."