UK’s energy flaws exposed by shutdown of oil and gas pipeline

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An emergency shutdown of the UK North Sea’s most important network of oil and gas pipelines has raised concerns that Britain is too vulnerable to extreme price swings that will hit consumers’ energy bills. Ineos, the UK chemicals company that owns the Forties network that transports oil and gas from 85 North Sea fields to the UK mainland, said on Tuesday it had completed a total shutdown of the system to assess how to repair a hairline crack in an onshore section of the pipeline, located just south of Aberdeen. The problem was first detected last week by a robot — machines are regularly used to monitor the 42-year-old system that shifts almost 40 per cent of UK North Sea oil and gas production.
Ineos, which only completed its purchase of the Forties network from energy company BP in October, responded to the issue by reducing the rate of oil and gas flowing through the network. Ineos sought to stem a “very small” amount of oil that had seeped out of the pipeline while it designed a clamp system to try and seal the crack. But over the weekend the crack worsened and Ineos decided to shutdown the system while it works on another method to fix the problem, said Ineos spokesman Richard Longden. The company has not given an exact timetable for how long the shutdown will last while a team undertakes a detailed assessment, although it has said it is likely to be a matter of “weeks”. A slew of oil and gas companies dependent on the Forties network to move their production to shore — including Apache of the US, the operator of the Forties field after which the system was named — said they had little choice but to halt output temporarily. Oil and gas prices spiked on Monday as Ineos first disclosed the shutdown of the network. Prices surged further on Tuesday following an explosion at one of Europe’s key gas import hubs in Austria. Brent crude was trading at a two year high, while wholesale natural gas prices for same day delivery in the UK were up 25 per cent compared with the start of December. The UK government insisted on Monday there was no “security of supply issue” and Britain would still have access to gas. The Forties pipeline system © Danny Lawson/PA But critics of UK energy policy suggested the past few days highlighted the country’s vulnerability to extreme price swings stemming from emergencies such as pipeline closures or periods of unexpectedly cold weather. Mike Foster, chief executive of the Energy and Utilities Alliance, a trade body for energy suppliers, said: “The events of the last few days have shown what the impact of price instability is when things don’t operate according to plan. Ultimately that will end up with the consumer having to pay more.” Last winter, the UK secured 38 per cent of its gas supplies from the North Sea, 42 per cent from Norway, and 10 per cent from pipelines linked to continental Europe. A further 4 per cent came from shipments of liquefied natural gas dispatched by producer countries such as Qatar, with the remainder provided by storage facilities. Organisations including the Energy & Utilities Alliance had warned in August that Britain would be exposed to greater volatility in gas prices this winter. Their predictions came after Centrica, owner of British Gas, announced it would close Rough, the UK’s biggest natural gas storage facility, located off the Yorkshire coast. Such facilities have traditionally helped to smooth out price spikes over the winter and Rough — which is still releasing gas but is no longer taking fresh supplies — accounts for more than 70 per cent of the UK’s storage capacity. However, it is now 32 years old and Centrica deemed that a refurbishment would “not be economic”. The economics of storage facilities have deteriorated in recent years as the difference between gas prices in warmer months and the winter has lessened. This means it is no longer so profitable for storage operators to hoard supplies during the spring or summer, and then sell them during the winter when demand is higher. Mr Foster said the government should decide whether storage facilities were assets of strategic importance that merited financial support by the state. SSE, the FTSE 100 company that operates two smaller gas storage sites in the UK, warned there was a “question mark” over other facilities. “While the UK does have diverse sources of gas supply, including LNG, it could require GB consumers to pay a high price to secure them,” said SSE.

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