Small oil field closures in North Sea have knock-on effect on global oil price benchmark

17 April 2012

Losses of USD1.5 million per day as the Elgin/Franklin complex remains offline

Two recent minor outages in the North Sea, off the east coast of the United Kingdom, have affected the price of Brent – a global benchmark for the price of oil – according to the International Energy Agency’s latest Oil Market Report (OMR).

A gas leak prompted Total to shut the Elgin/Franklin gas and gas condensate field for several months, while Shell has been forced to temporarily close its nearby Shearwater field. These actions have reduced output from Forties – the largest component of the Brent blend – by around 60 thousand barrels of oil per day (kb/d) in the second quarter of 2012 to 420 kb/d.

The monthly OMR notes that these outages and planned maintenance are likely to force supplies from Brent, Forties, Ekofisk, and Oseberg (BFOE) – the four major oil streams that make up the Brent benchmark – to below 1 million b/d in the second and third quarter of 2012.  

Supplies from the four oil streams that comprise Brent likely to drop below 1 million barrels per day in the second and third quarter of 2012

Two recent minor outages in the North Sea, off the east coast of the United Kingdom, have affected the price of Brent – a global benchmark for the price of oil – according to the International Energy Agency’s latest Oil Market Report (OMR).

A gas leak prompted Total to shut the Elgin/Franklin gas and gas condensate field for several months, while Shell has been forced to temporarily close its nearby Shearwater field. These actions have reduced output from Forties – the largest component of the Brent blend – by around 60 thousand barrels of oil per day (kb/d) in the second quarter of 2012 to 420 kb/d.

The monthly OMR notes that these outages and planned maintenance are likely to force supplies from Brent, Forties, Ekofisk, and Oseberg (BFOE) – the four major oil streams that make up the Brent benchmark – to below 1 million b/d in the second and third quarter of 2012.  

Supplies from the four oil streams that comprise Brent likely to drop below 1 million barrels per day in the second and third quarter of 2012

Two recent minor outages in the North Sea, off the east coast of the United Kingdom, have affected the price of Brent – a global benchmark for the price of oil – according to the International Energy Agency’s latest Oil Market Report (OMR).

A gas leak prompted Total to shut the Elgin/Franklin gas and gas condensate field for several months, while Shell has been forced to temporarily close its nearby Shearwater field. These actions have reduced output from Forties – the largest component of the Brent blend – by around 60 thousand barrels of oil per day (kb/d) in the second quarter of 2012 to 420 kb/d.

The monthly OMR notes that these outages and planned maintenance are likely to force supplies from Brent, Forties, Ekofisk, and Oseberg (BFOE) – the four major oil streams that make up the Brent benchmark – to below 1 million b/d in the second and third quarter of 2012.  

Impact on prices

In addition to reducing the supply of oil from North Sea fields, these minor outages also affected Brent spot prices and futures (tradable financial contracts) according to the OMR, because both the Elgin/Franklin and Shearwater fields are part of the Forties oil stream, which is the least valuable of the four streams that make up the BFOE benchmark because of its viscosity and sulphur content.

As any of the four varieties can be sold as part of a general BFOE contract, the price for BFOE is often set by Forties because it holds less value than the other three.

“The sensitivity of BFOE pricing becomes even more acute when unplanned maintenance occurs at fields [such as Elgin/Franklin] in the Forties stream,” the OMR states.

A sign of times to come

The OMR also notes that over the next five years, it is possible that other mature oil fields will experience similar problems as the one Total encountered when it decommissioned an old well at the Elgin/Franklin site.

Over the next decade, the UK Continental Shelf can expect to see a number of fields and installations cease production and begin decommissioning. A recent report by Douglas-Westwood and Deloitte’s Petroleum Services Group calculated that over the next 30 years, almost 500 platforms, 8,000 wells, 4 million tons of steel and several hundred subsea wells, manifolds and pipelines will need to be decommissioned in the North Sea.

“As Total loses around USD1.5 million per day as the Elgin/Franklin complex remains offline, other companies are sure to look towards Total’s experience as an indicator of problems that might occur when routine maintenance becomes problematic for an entire field complex,” the OMR states. “As decommissioning accelerates in the medium term, analysts should not discount the price impacts that can occur when things go awry.”

The Oil Market Report (OMR) is a monthly IEA publication which provides a view of the state of the international oil market and projections for oil supply and demand 12-18 months ahead. To subscribe, click here.

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