Strike could close key Grangemouth oil refinery for a month
Angela Jameson , The Times, 24 Apr 2008View original article
Plans to haul fuel by road from locations in England and Wales to Scotland will be put in place today ahead of a two-day strike at Grangemouth, Scotland's biggest oil refinery.
A strike by 1,200 workers at the refinery looks certain to go ahead on Sunday and Monday after negotiations between union officials and company executives collapsed last night.
Grangemouth has been in the process of shutting down since the weekend ,and the company said that it now had no option but to shut down the refinery completely for safety reasons.
It will take up to a month to bring the refinery back up to full capacity, according to its owners.
Contingency plans are being prepared by BP, which operates a fuel distribution terminal at Grangemouth, and the Government to try to minimise disruption to fuel supplies in Scotland and the North of England.
The Scottish government warned drivers today not to panic-buy petrol and said that there were sufficient emergency reserves in refineries and reservoirs around the country to last well into May.
John Swinney, the Scottish Finance Minister, is expected to outline the contingency measures in the Scottish Parliament today.
“We have ample supplies of petrol and diesel within the system well into the month of May — providing purchasing behaviour by members of the public remains the same, “ Mr Swinney said.
“We also have the ability to import fuel, if we need to support the stocks we already have in Scotland.“
Officials from Unite, the trade union, have been meeting with management from Ineos, which owns Grangemouth, at Acas, the conciliation service, for the past two days.
However, talks broke down last night and the union announced that it had failed to find a breakthrough in a dispute over pensions.
Ineos claimed this morning that it had taken pension proposals off the table and was prepared to spend three months discussing a resolution with the union and the help of pensions experts.
Tom Crotty, chief executive of Ineos Olefins, said: "We have done everything we can to help resolve this dispute. The plain fact is that the union seeems hell bent on pursuing a strike that will cause chaos and disruption for the people of Scotland and across the UK."
The AA, Britain’s largest motoring organisation, said that motorists should not panic unnecessarily.
Paul Watters, the AA’s head of public affairs, said: “I think motorists in Scotland are going to be wondering what on earth is going to happen, but there still is no reason for people to panic.“
As well as the distribution terminal, BP operates the Forties pipeline that delivers crude oil from the North Sea to the Grangemouth refinery.
The pipeline, which is running at between 650,000 and 700,000 barrels a day, supplies 30 per cent of UK’s crude oil demand.
There was growing concern among British gas traders that a Forties shutdown could have a knock-on effect on gas supplies from the North Sea.
The St Fergus gas terminal, which supplies about a third of the Britain's gas, feeds some hydrocarbon liquids extracted from the natural gas into the Forties pipeline system.
ConocoPhillips said that gas production at its Britannia field would have to stop if the Forties system, into which Britannia feeds crude, were shut down.
Some Scottish transport companies have already been forced to buy bulk fuel supplies from Hull rather than Grangemouth, while individual hauliers apparently had been refused permission to fill up at a succession of stations in the M6/M74 corridor.
JHA Comment
Grangemouth is the only oil refinery in Scotland and the sixth largest in the UK. It has an output capacity of 10 million tonnes per year. It currently supplies 95% of the fuel used on Scotland's central belt and 10% of the fuel used in the UK. Included in this supply area are major cities such as Glasgow and Edinburgh.
The strike dispute along with the partial close-down of ConocoPhillips’ Humber refinery in Northern England and the disruption in Nigeria have already fueled fears of constrained oil supply shooting oil prices to a record above $118 per barrel.
It is clear that a disruption could have major effects across Scotland and to a lesser extent, the north of England. However, the UK holds 70 days of fuel in reserve and the UK government urged people not to panic-buy fuel as retailers should be able to source supplies from elsewhere. Both parties have been urged to stay at the negotiating table until issues are resolved and to avoid further exchanges through the media as comments over the last few days have already led to some increased buying levels.
Although supplies can be sourced from elsewhere and substantial fuel is held in reserve, additional demand on other refineries would likely lead to a relative tightening in supply. The UK may well be able to meet all the additional demand through various methods but a change in the supply/demand balance is likely to at least affect price in the short term. At some petrol stations higher prices have already been seen.
In addition, recent comments from government have been largely aimed at motorists buying at local petrol stations; it is less clear the ramifications that may be felt across the industrial sector and we would encourage consumers to contact their supplier if concerned. Stocks at Grangemouth are expected to run dry by the end of this week with those buying from Grangemouth already being placed on allocation. This means the DTI will govern deliveries and that priority status will be given to the emergency services.
In speaking to individual suppliers, it is apparent that a number of those supplying Scottish sites do not use Grangemouth and in fact ship their supplies from England. These suppliers do not expect to be affected by the strike.
Following the failed talks the gradual shut down will continue and a total shutdown of the plant will be unavoidable. This means that a week of disruption is most likely the very least that can be expected, longer if issues remain unresolved by the end of this week.
With the shutdown of the refinery, delivery from the Forties Pipeline System (FPS) will have to be curtailed meaning lower oil delivery from the North Sea as well as lower gas delivery as natural gas liquids (NGL) from the Total St. Fergus and ExxonMobil SAGE gas processing plants join the FPS landline at Cruden Bay. Fear of lower deliveries has already pushed Brent crude closer to $120/bbl.
In terms of gas, prompt prices have remained stubbornly above 60ppt this week in response to the uncertainty of delivery for what could be as long as a month. This has seemingly supported the May and June prices as well which both gained by over 1ppt yesterday, although other concerns such as summer injections to storage are major contributing factors.
With higher gas prices the electricity prompt could quickly follow suit with prompt prices in both markets able to affect sentiment in the forward markets. While the real affect of the shutdown at Grangemouth may be short lived, the knock-on affects could be further reaching as risk premiums built into the forward markets for gas and electricity can often take longer to retrace.