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BP’s Forties Oil Pipeline to Shut on Refinery Closure

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The BP company logo hangs outside a gas station in London, on March 4, 2008. Photographer: Chris Ratcliffe/Bloomberg News

Bloomberg: BP’s Forties Oil Pipeline to Shut on Refinery Closure (Update4)

By Alexander Kwiatkowski

April 25 (Bloomberg) — BP Plc said it will start shutting the Forties Pipeline System tomorrow, cutting about 40 percent of the U.K.’s oil production, because of the closure of Ineos Group Holdings Plc’s Grangemouth refinery in Scotland.

“Preparations have begun for the shutdown of the Forties Pipeline System this weekend,” BP spokeswoman Joanne McDonald said in a telephone interview today. “There won’t be any throughput through Forties from Saturday night.”

Crude oil and refined products prices have surged on the prospect of the pipeline closing, cutting U.K. oil supplies by as much as 40 percent. The Forties Pipeline System pumps about 600,000 barrels a day from more than 50 fields in the North Sea which will be forced to close as well.

The shut down “ has a profound impact on both crude and product balances,” Thomas Stenvoll, an energy strategist at UBS AG in London, said in an e-mailed comment. “It will reduce light-sweet crude from the North Sea market as refiners are returning from turnarounds.”

The Forties pipeline relies on steam and power provided by Ineos’ refinery which is shutting down for safety reasons before a strike from April 27-28. Without the utilities from the refinery, the pipeline cannot operate, McDonald said.

BP will need to start closing the pipeline within 24 hours of the utilities being cut off, according to McDonald. With the refinery’s full closure possible by tomorrow evening, BP could start shutting Forties today, she said. Should Ineos maintain supply to utilities, the pipeline wouldn’t have to close.

Refinery Closure

Ineos is still in talks with trade union officials over whether power supplies to the pipeline system can be maintained. The “majority of production” at the 200,000 barrel-a-day refinery is already shut, spokesman Richard Longden said today. Talks with unions earlier this week failed to avoid the two-day strike over pensions.

Oil from the Forties Pipeline System is pumped to crude stabilization and gas processing facilities at BP’s Kinneil terminal situated next to the Grangemouth refinery. From there, some oil is shipped to the refinery to be processed into fuel and the rest goes to the Hound Point terminal for export or to storage facilities at Dalmeny.

The trade union, Unite, said the power plant which supplies energy to Kinneil will continue to operate “at a safety only” level, meaning it won’t produce enough power for the terminal.

“We expect those utilities will cease to be available from some time on Saturday,” BP’s Macdonald said. It may take as much as 48 hours to restore production once the supply of utilities resumes, according to a statement on BP’s Web site.

Forties Pipeline

The Forties Pipeline System has the capacity to transport more than 1 million barrels a day of oil, according to information on BP’s Web site. Forties crude shipments for the past six months were scheduled to average about 614,000 barrels a day, according to loading programs. Exports will average 600,000 barrels a day in April.

BP’s ETAP, Andrew, Bruce, Rhum, Everest and Lomond fields, which supply crude to the pipeline, will stop production if the pipeline closes, McDonald said. A spokeswoman for Nexen Inc., the operator of the Buzzard field, was not available to comment on whether the field will shut. With production of around 200,000 barrels a day, Buzzard is the biggest field supplying the pipeline.

Conoco’s Britannia

ConocoPhillips said its Britannia field, which pumps oil into the pipeline and gas to the St. Fergus Mobil sub-terminal, will be forced to close. Britannia is the U.K.’s largest gas field and produced about 12.7 million cubic meters a day of gas and 12,000 barrels a day of oil last year, according to the Web site of the U.K.’s Department for Business, Enterprise and Regulatory Reform.

It may take at least a week to resume production from the fields once the pipeline opens again, according to Malcolm Webb, chief executive officer of industry body Oil & Gas UK.

The U.K. produced an average of 1.45 million barrels a day of oil in 2007 according to the U.K. government.

The price of Forties crude rose to the highest in more than a week relative to the Dated Brent benchmark today on concern the strike would cut production.

Forties cost 63 cents a barrel less than Dated Brent, compared with a discount of 70 cents a barrel yesterday, according to data compiled by Bloomberg. That’s the smallest discount since April 16.

European gasoline traded above $1,000 a ton for a second day today after reaching a record $1,007 a ton yesterday.

Brent crude for June settlement rose $1.54, or 1.4 percent, to $115.88 a barrel on London’s ICE Futures Europe exchange today. The contract touched a record $116.87 yesterday.

To contact the reporters on this story: Alexander Kwiatkowski in London at [email protected];

Last Updated: April 25, 2008 10:18 EDT

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