North Sea producers urge Forties pipeline operator to postpone shutdown until 2021

London — North Sea oil and gas producers are urging the operator of the country's largest crude pipeline, the Forties Pipeline System, to abandon plans for a major three-week shutdown later this year for refurbishment work, and allow continued production that would enable them to maintain vital sales revenues even at current low prices, multiple industry sources have told S&P Global Platts.

Forties is a major artery for UK crude production, handling at least a third of the country's oil output, and is also relied on for sustaining output from gas fields such as the Elgin-Franklin complex, which produces a mixture of gas and liquids.

The crude blend, derived from numerous fields in the North Sea and loaded in eastern Scotland, is produced at rates as high as 400,000 b/d, and is a component of the Dated Brent benchmark. The pipeline also supplies Scotland's sole refinery, Grangemouth.

Last week, the operator of the pipeline, Switzerland-based Ineos, announced it was postponing the Forties shutdown, which had been scheduled for June 16, until August "at the earliest," citing coronavirus and the need to "avoid bringing together large numbers of people."

The shutdown could remove around 8 million barrels of crude from likely over-supplied markets over the three-week period, given typical production rates.

However, Ineos has said the shutdown, part of a GBP500 million ($578 million) upgrade, is "essential" to ensure the route's long-term reliability and safety. The company took over the pipeline from BP in October 2017 and was quickly faced with a leak in a section of the route in eastern Scotland, leading to lengthy repairs.

Ineos reiterated Tuesday that its plans remain unchanged from last week's announcement of a postponement until August at the earliest.

However, many operators of the numerous fields that feed crude through the pipeline are now said to be pushing for an end to the uncertainty, and for the shutdown to happen next year, when the crisis induced by COVID-19 is more likely to have subsided.

Ineos agreed to the postponement from the original date due to the health risk associated with deploying thousands of extra workers offshore. But the current pressure for the shutdown to be abandoned for this year also reflects the fact operators of fields that rely on the route had scheduled their own maintenance to coincide with the original Forties shutdown.

They now face uncertainty over rescheduling, and in any case may now be prioritizing sustaining production, and thus revenue, despite the drop in oil prices and fears the industry worldwide is running out of options for storing unneeded crude. Brent front-month futures have plummeted by around 50% in the last month and stood around $27/b on Tuesday.

Elgin-Franklin impact

Total is one of the companies that had scheduled its own maintenance, at the Elgin-Franklin complex, a major source of gas for the UK, to coincide with the original Forties shutdown date. Total declined to comment on the issue, or whether it was rescheduling its maintenance.

However, the issue has been discussed in conference calls between North Sea operators, and there is "quite a big lobby" for postponement, one source said, adding that Ineos' announcement last week did not give the industry sufficient clarity.

Putting off the Forties shutdown until next year would result in a lot of North Sea maintenance not happening this summer and thus reduce the industry's cost base, and "even though the hydrocarbons might be at marginal prices at the moment, in terms of cash flow, that will probably help a lot of people," the source said.

Another industry source also advocating a postponement until 2021 highlighted the health-related challenges involved and issues sourcing equipment against the backdrop of COVID-19. Obtaining parts from Italy is thought to have become a particular issue for some North Sea producers.

"Given the current uncertainty over the supply chain...a further deferral into 2021 would be welcome by many if not by all operators in the area, but it remains to be seen whether it is possible for Ineos to secure this deferral," the source said.