The Greater Manchester Pension Fund had 10.2% of its assets exposed to companies that generate revenues from oil, gas and coal © PA
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The UK North Sea’s main pipeline system is likely to be shut for weeks to undergo emergency repairs, the operator said on Monday, sending oil and gas prices soaring as the country braces for a prolonged cold snap.
The Forties Pipeline System (FPS), which billionaire Jim Ratcliffe’s Ineos bought from BP just six weeks ago, delivers almost 40 per cent of UK North Sea oil and gas production. Its shutdown will have an immediate knock-on effect on operators in the region who rely on its capacity.
North Sea Brent, the international crude oil benchmark, jumped to a two-year high of $64.93 a barrel.
Wholesale natural gas prices for same-day delivery in the UK surged almost 30 per cent to the highest since 2013, with traders scrambling to secure imports as much of the country faces snow and sub-zero temperatures.
The jump in wholesale oil and gas prices, which may filter through to consumers over winter, is likely to reignite questions about the UK’s ageing energy infrastructure with the country increasingly dependent on fuel imports to meet its needs.
Falling storage capacity for natural gas has left UK supplies increasingly susceptible to short-term outages, with Centrica shutting the Rough storage site, the country’s largest facility, making imports from Norway increasingly important.
“A shutdown of the Forties Pipeline System (FPS), even temporary, will have wide reaching implications the UK oil and gas industry,” said Wood Mackenzie analyst Fiona Legate. “Companies with fields utilising the FPS export route will suffer from reduced cash flows during the shutdown period.”
Richard Longden, a spokesman for privately held Ineos, said the company’s decision to shut FPS followed the worsening of a hairline crack in an onshore section of the 450,000 barrel a day line in Aberdeenshire, which had first seen the company reduce pressure on the line last Wednesday.
While a “precise timeframe” for repairs was still being worked out, the shutdown was likely to last for “several weeks rather than days,” Mr Longden said, emphasising that safety was the company’s first priority.
Last winter, 6 per cent of gas supplies came from storage, with 42 per cent coming from Norway and 38 per cent from the North Sea, according to National Grid, which operates the UK’s electricity and gas networks.
A further 10 per cent was sourced via pipelines from continental Europe and 4 per cent was met by liquefied natural gas, which is shipped to the UK from locations such as Qatar.
Chrysaor, one of the biggest independent operators in the North Sea after buying a large number of Royal Dutch Shell’s fields in the region, confirmed its output that would normally pass through the line was currently shut-in, affecting three of its platforms — Everest, Lomond and Armada.
Other companies, including those operating fields that directly underpin the Brent crude oil benchmark, may also face shut-ins, traders and analysts said, potentially having an outsized impact on global oil prices.
Brent’s premium over US crude benchmark West Texas Intermediate increased to almost $7 a barrel, the largest since October.
Ineos’s Grangemouth refinery, which supplies the majority of gasoline and diesel in Scotland and parts of the north east of England, is, however, likely to keep operating despite normally relying on FPS for around half of its crude supplies, Mr Longden said.
The plant, which was previously operated by BP, has oil in storage tanks and can bring in alternative supplies of crude by tanker, Mr Longden said.
Ineos founder and chairman Mr Ratcliffe, who moved the company headquarters to Switzerland in 2010 to save on tax before returning in 2016, has been a vocal proponent of fracking in the UK to help reverse its growing dependence on gas imports.
His company completed the purchase of the Forties Pipeline System from BP at the end of October having first bought the Grangemouth plant in 2005.
Ineos became one of the 10 biggest producers in the North Sea this year after spending more than $1bn to acquire the oil and gas business of Danish renewable energy group, Ørsted, previously known as Dong Energy.