Refinery strike threat to oil and gas fields

Published on Thursday 24 April 2008 22:26

THE UK's gas, electricity and oil production could be hit by the strike at Scotland's only oil refinery, impacting on energy prices, experts warned last night.

The mass walk-out at Grangemouth is likely to force the closure of dozens of North Sea oilfields, which provide about a third of Britain's natural gas, at a cost of 50 million a day.

BP, the operator of the Forties pipeline that carries about a third of the UK's oil production to shore from some 50 fields, yesterday revealed plans were already being made to close down production on a number of platforms.

Most of the pipeline's oil goes to a plant near the refinery – and it relies on the refinery for its power. So, if it loses its power, it will also have to close.

The government admitted that the two-day strike, which starts on Sunday, could have a knock-on effect on energy prices.

However, ministers in England and Scotland insisted there was enough fuel and urged motorists not to panic-buy as that could cause unnecessary problems at the pumps.

The pensions deadlock between Ineos, the refinery owner, and the Unite union showed no sign of being broken, despite desperate demands from industry and politicians.

Tony Woodley, the union's joint general secretary, will today address a mass meeting of workers at Grangemouth.

Their action will force the closure of the refinery, other than its safety facilities, and the shutdown has already begun.

It takes in up to 750,000 barrels of oil a day, from about 50 fields, some of which is refined for products such as petrol but the majority of which is shipped to BP's nearby Kinneil plant for stabilising and exporting.

Kinneil is powered by the utilities provided by Grangemouth, and if it cannot access them, the oilfields – which also produce gas – will have to be shut down.

David Hunter, an energy analyst with the consultant McKinnon & Clarke, said: "This will lead not only to a shortage of oil, but also gas – by-product of producing oil at many fields – and electricity, as 40 per cent of electricity is produced by burning gas.

"This couldn't have come at a worse time for consumers, with energy prices at all-time records. Wholesale prices are 89 per cent higher than a year ago for power, with gas up a staggering 127 per cent. There have been further increases today, with winter gas hitting new highs of 83p/therm. If the strike goes ahead, things could get worse and that is going to hammer hard-pressed homes and businesses."

A spokesman for BP said shutting down Kinneil was "a possibility" and it was making preparations to do it safely, while keeping users of the pipeline informed. He said the firm had asked for assurances from Ineos that it would continue to supply utilities to Kinneil – but if it was unable to, the plant would close.

Gordon Russell, a convener for Unite, said: "If our power station is down, then they will lose facilities at Kinneil."

Malcolm Webb, the chief executive of the trade body Oil & Gas UK, said there was "no justification whatsoever" for the dispute adversely impacting on North Sea oil production. He said the UK economy would lose out on about 50 million for every day of disruption.

The Department for Business, Enterprise and Regulatory Reform said it did not expect the strike to have "a significant impact on oil supply via the Forties pipeline to the UK".

A spokeswoman said: "The global oil market is well supplied to deal with this short-term supply disruption. The UK sources gas from a variety of routes and we do not anticipate disruption to the nation's supplies."

However, she added: "There would nevertheless be significant operational and economic impacts on many of the companies involved in gas and oil production in the North Sea, and there could be an impact on prices."

It had been thought Lothian Buses, which serves Edinburgh, would have to cancel all services on Monday, after it did not receive the fuel it expected to be delivered yesterday. However, John Swinney, the finance secretary, said later that the bus company had received assurances it would get diesel from BP today.

The airport operator BAA has advised airlines to refuel at their point of origin where possible in order to safeguard fuel reserves as a precautionary measure.

At First Minister's Questions yesterday, Alex Salmond urged motorists to rely on public transport and not make unnecessary journeys in order to conserve supplies. He insisted the country could cope with the effects of the walk-out if drivers did not panic-buy – as many have been doing since the strike was announced at the end of last week.

"Clearly, it is a time when we need everyone's co-operation in not having repeat buying, in behaving sensibly and responsibly, to cut out non-essential trips, to use public transport," he said.

"But the central message is that stocks of the available range of fuel will stretch into May and there is the capacity to import more if required."

John Hutton, the UK Business Secretary, called on Unite and Ineos to get back round the table after last-ditch talks collapsed on Wednesday night.

Ministers in 'don't panic' message to motorists as refinery staff set to walk out

Q & A: STRIKE IMPACT

Why is Grangemouth refinery going to shut down?

On Sunday, 1,200 workers will go on strike for two days in a dispute over pensions. Ineos, which owns the oil refinery, has said it will be forced to shut down for safety reasons.

What's the problem with the pensions?

Ineos wants to close the final pension scheme to new employees and make some changes to existing workers' entitlements. Unite, the union, is furious.

But a two-day strike surely won't have much of an effect on operations?

The shutdown started last Saturday and is a gradual process, throughout which the plant will not be at full capacity. Ineos has said there will be issues for a month.

Is the whole plant going to close?

No. Unite, which has balloted for strike action, has said it will allow the firm to keep the plant "warm" to stop safety breaches and allow it to start up again.

Even so, is a strike at one oil refinery going to affect me?

Grangemouth generates the fuel for all of Scotland and northern England. If it is not operational, petrol stations across the region will have to access other sources – such as relying on the UK's 67.5 days of oil reserves or importing fuel from overseas.

So should I rush out and fill up my tank then?

No. Panic buying is the worst course of action, and is more likely to cripple fuel supplies than the strike alone.

But won't we run out of fuel?

Not according to the Scottish Government. Alex Salmond, the First Minister, told Holyrood yesterday "there are substantial and ample stocks of every variety of fuel and petrol". He said:

"That is an important factor for people to bear in mind. These stocks will last well into May. There is the provision to import more stocks if required.

"Therefore, assuming that consumer behaviour is responsible, then there should be limited difficulties in terms of both inconvenience and disruption."

What about the Westminster government?

It is also urging caution. John Hutton, the Business Secretary, told The Commons: "Over the last few days, significant additional supplies of imported fuel have been made available in Scotland. I have been advised by the industry that there is sufficient fuel to re-supply forecourts and other users ahead of the planned industrial action.

"Industry has also advised us that, at present, fuel stocks at Grangemouth, together with planned imports of finished product through Grangemouth to replace lost production, should be sufficient to maintain supplies through the period of the industrial action and the consequent restarting of the plant."

So are motorists listening to them?

Not all of them. There has been a run on the pumps since Sunday, and petrol firms have been accused of "profiteering" by putting their prices up in response. Louise Doherty, of price checker website petrolprices.com, said: "There have definitely been rises across Scotland and examples of where they have risen considerably more than we would expect in the past week. One petrol station raised its prices twice in one day. It is unfair, because motorists do still have to fill up."

She said there had been examples of 11p per litre rises in the cost of diesel, and of 6.6p per litre for unleaded petrol.

Is the Government worried?

They're not pleased. Mr Hutton said: "The oil companies have reported significant increases in fuel uptake this week in response to concerns about shortages of fuel. Whilst this response is understandable, I want to emphasise that industry has made it clear that there is sufficient fuel available via imports and that any localised shortages will be re-supplied quickly."

How much oil do we actually have left?

Under European Union law, the UK is required to hold reserves to last for 67.5 days.

What else will be affected by a shutdown at Grangemouth?

Quite a lot, starting with the North Sea oil industry. Grangemouth is served by the Forties pipeline, which is owned by BP and takes in oil from about 50 fields in the North Sea. The majority of it is stabilised for transporting at Kinneil, which is powered by Grangemouth utilities. If it cannot get electricity and steam, it cannot take the oil and the fields will have to be shut down.

How important are these oil fields?

Very. They account for about a third of all activity in the North Sea. They include the giant Forties Field, now owned by Apache Oil, and five main BP oil and gas platforms, Andrew, Bruce, Rhum, Everest and Lomond.

Will any other commodities be hit?

Natural gas. Gas and oil are extracted together from oil fields. In the Forties, the oil goes to Grangemouth, while the gas goes to other terminals, such as St Fergus, near Peterhead. If the fields are shut down, obviously there will be no gas – and the fields produce about a third of the UK's gas supply.

But what about my gas central heating and my hob?

You'll still be able to use everything – gas should not be running out any time soon. There are plentiful reserves, mainly the Centrica-owned Rough Field storage facility. The National Grid has said any loss from the Forties should be made up through "normal market mechanisms". The government does not anticipate any disruption to consumers.

But surely there will be an economic impact?

Oh yes. The government has said it expects "significant operational and economic impacts on many of the companies involved in the North Sea". There could also be an impact on prices of gas and electricity to consumers, who are already reeling from recent price hikes by energy firms.

Isn't anyone trying to stop all this?

Yes. Mr Salmond, John Swinney, the finance secretary, and the UK government have spent the past few days trying to get management and unions to take part in talks to resolve their disagreements. The Scottish Government also arranged for independent pensions expert Stewart Ritchie, president of the Faculty of Actuaries, to carry out a study to clarify the issues in dispute in relation to the Ineos pension fund.

Low profile millionaire quietly built fortune

IF THERE is no such thing as bad publicity, the Grangemouth strike must have done wonders for Ineos, its owners, whose name previously meant little to the average motorist filling up on the fuel it refined.

And if the multi-million pound chemical empire was unknown in relation to its power, its chairman, Jim Ratcliffe, boasted an even lower profile.

Mr Ratcliffe has been described as being "to chemicals what Philip Green is to retail or Lakshmi Mittal is to steel" – but also as the UK's "most private billionaire". the Sunday Times Rich List ranks him 10th, with an estimated fortune of 3.3 billion.

A chemical engineer, his career segued neatly into private equity when he moved from Esso to Courtaulds and then to venture capital firm Advent in 1989.

Three years later, he teamed up with another chemist-turned-entrepreneur, John Hollowood, to lead a buyout of Inspec Group from BP for 40m. When the co-founders parted company in 1998, its value had grown 15-fold.

Mr Ratcliffe then led a management buyout of part of Inspec's chemicals divisions to create Ineos Group and set about acquiring businesses.

The quiet family man, based in Southampton, later admitted he was "surprised" at the speed of the group's rise – funded mainly through debt. The jewel in its crown was the $9bn takeover of BP's Grangemouth plant in 2006.

Although keen to keep a low profile – often even branded secretive – he is known as a ruthless dealmaker who specialises in buying up assets from old oil giants.

On his website, he states: "We believe Ineos is a refreshing place to work and we are prepared to embrace new approaches to business.Safety is our first priority. We believe strongly in employee share ownership, we are highly focused on growth and EBITDA (earnings before interest, taxes, depreciation and amortisation) and see the 'customer as king'."