"“We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.” "

Chinese premier Wen Jiabao 12th March 2009

""We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system."

Timothy Geithner US Secretary of the Treasury, previously President of the Federal Reserve Bank of New York.1/3/2009

Wednesday, August 20, 2008

Statoil shutdown some UK North Sea gas supplies - gas and electricity, spot and future prices rise > 15%

The announcement from Statoil, Norway's State oilco today was very down beat ;

During a routine inspection, a small leak was discovered in the gas pipeline between the Kvitebjørn platform and the Kollsnes gas treatment facility outside Bergen.
However the leak has appeared at the same place (about km from the Kvitebjørn platform ) where the pipeline was dragged out of position by a ship's anchor last autumn. Plans were being prepared for a permanent repair next spring. The Kvitebjørn project is a gas condensate field located east in the Tampen area in the northern part of the North Sea the field is said to have at the end of 2007 reserves of 75 BnSm3 and recoverable reserves of 63 BnSm3. Production in 2007 was reduced due to scheduled repairs Statoil can expect to lose some 7-8 Bn Sm3 of production during the shutdown. (UK annual consumption 90BnSm3) Financial Times

Whilst Statoil can re-supply customers from other sources (StatoilHydro had been buying up large volumes of gas on the U.K. market today to make up for the outage.) it has had an immediate effect on gas prices and UK spot and futures for winter supplies shot up nearly 15 % to 103.00 pence per therm today, reaching the peak price in June which have since declined with the decline in the oil price. CNN claim electricity prices rose 15% to £100 a megawatt hour.

As gas forms a major part of the electricity baseload this will impact on electricity prices.

To handle the immediate problems turnaround operations are presently being carried out at Kvitebjørn and Kollsnes and pipeline pressure has been reduced - slowing leakage . The pipeline will be further depressurized and emptied via flaring at Kollsnes.

The Visund platform also normally utilises the Kvitebjørn pipeline for gas export, but has reinjected gas during the turnaround at Kvitebjørn and Kollsnes. Oil production from Visund is being maintained, but at a somewhat lower level than usual.

Norwegian Petroleum Directorate (NPD), figures show that Kvitebjoern was due to produce 6.1 billion cubic metres (bcm) of gas during 2008 and 23,000 barrels of oil per day (bpd). The associated Visund field which will be hit produced 3.5 Bn Sm3 in Jan / June 2008 so a 9 month shutout of both fields could easily be 7-8 BnSm3.

NPD figures also show that North Sea continental shelf production of gas Jan/June 08was 51 Bn Sm3 up 7.2 Bn Sm3 (16 %) from 43.9 Bn Sm3 Jan/June last year.

This relatively trivial problem shows the multiplier effects unique to the UK ;

1. Increasing dependence on imports of gas (40% this year up from 27% last year)
2. Very limited storage facilities of gas, 2 -3 weeks at most
3. Impact of gas on electricity prices
4. Difficulty of replacing lost supplies
5. Increased costs to industry
6. Unpopular retail price increases especially for the heat sensistive elderly and Scots

Memories of Thursday, February 28, 2008 Bacton Gas Explosion - immediate gas price rise in UK of 18% . It is also worth noting this news item from earlier this month.. "Companies using Britain's Rough facility to store gas on an interruptible basis must take it out from Aug. 9 th so customers holding firm storage rights can get more in said Centrica. Britain's largest gas storage site (80% of UK capacity and can supply 10 % of average daily winter demand) , which lies under the North Sea off the east coast of England, was 93 % full on Monday 4th August and only shippers who have paid for guaranteed storage rights will be able to inject more into it after Aug. 9 and until further notice, Centrica said.

When there was a fire on a platform in February 2006 Rough storage was shutdown which pushed prices up for some time and caused considerable problems for high volume users in UK industry.

PS : The direct effect of gas prices can be seen multiplied by global warming. The barley barons of East Anglia are harvesting very wet grains which have to be dried with gas having doubled in cost since last year - current cost is £5 a tonne. Wheat is now (Chicago) US$8.74 a bushel (35.74 to a tonne) = £174. Futures are being quoted in the high US$9.80 's for the whole of next year.

A good article about the Norwegian pipeline is here.

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