Welcome to the ODAC Newsletter, a weekly roundup from the Oil Depletion Analysis Centre, the UK registered charity dedicated to raising awareness of peak oil.

The ghost of Corporal Jones stalked the land this week, as Britain braced for the two-day strike at Grangemouth refinery in Scotland. ‘Don’t panic! Don’t panic!’ went the cry from everybody from Business Secretary John Hutton to the AA, as petrol stations started to run dry north of the border – evoking memories of the fuel protests that brought the country to a standstill back in 2000.

But there is plenty to worry about. Although the strike is only set for Sunday and Monday, management had already ordered a shutdown on safety grounds, and this has forced the closure of the Forties Pipeline System which lands 700,000 barrels per day. This in turn could halt production at up to 70 North Sea platforms, affecting not just oil but also gas. Meanwhile it could take up to a month to return the refinery to full capacity. This week’s commentary from John Hall Associates explains the background.

It was just one more bull factor that pushed the oil price to yet another record high of $119.90 this week. Others included more attacks in the Niger delta, soaring demand in the Middle East, and perhaps even the growing backlash against biofuels.

But the big news of the week is the announcement that Saudi Arabia has shelved plans to expand production capacity beyond 12.5 mb/d by 2009. Oil Minister Ali al-Naimi justified the decision on the basis that there would not be the demand (arguable), and King Abdullah has recently declared that his country should save some oil for future generations (entirely sensible), but even the moderately skeptical will take this as further evidence that Saudi Arabia is struggling. The announcement has all the more impact coming just one week after the news that Russia has peaked – according to one Lukoil executive – and that advisors to the Nigerian government believe that country’s output will fall by a third by 2015. No wonder that both the IEA and OPEC said the price is heading higher.

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Strike could close key Grangemouth oil refinery for a month

Guest Commentary: John Hall Associates – April 24th, 2008
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.

North Sea oil pipeline set to close ahead of strike
Shell Nigeria’s Bonny Crude Output Cut After Attack
Middle East energy demand soaring, matching China
Saudis put oil capacity rise on hold
Nothing stopping oil prices from rising: IEA
Oil prices to head even higher says Opec chief
Lehman warns that oil boom will deflate

Indian oil minister visits Pakistan for talks on Iran pipeline
India’s Petronet braces for fierce battle over Australian LNG
Regal in talks over Ukraine gas fields sale

Europe Turns to Coal Again, Raising Alarms on Climate
Falling Polish coal output raises energy security fears

S Africa power crisis forces Lonmin to lower forecast
Ofgem inquiry into alleged mis-selling of contracts by npower
China sees 2008 power shortfall at 10 GW

German utility prepares to build two nuclear power stations in UK

Green v green
Scottish government rejects plans for Lewis wind farm
Banks meet over £40bn plan to harness power of Congo river and double Africa’s electricity

Biofuels starving our people, leaders tell UN
EU set to scrap biofuels target amid fears of food crisis

Food crisis — but it’s no surprise
Era of cheap food ends as prices surge
Soil Association accused of harming African farmers

EU, Japan in climate change call

Russia claims £130m taxes from BP venture
Russia looks at all options to invest its oil billions abroad

European airlines face squeeze on profit
Berlusconi hit by first crisis as Alitalia faces bankruptcy
Sky-high fuel hurts US airlines
Fuel fears rattle Arriva shares
Green future in sight for London’s black cabs